Yesterday’s trade wasn’t packed with much excitement. The Dow, Nasdaq, and S&P 500 all finished flat on light trading volume. It was the picture of a market waiting for something and content to sit tight until it saw it.<\/p>\n\n\n\n
That “something” might have been the solar eclipse, but more likely it was the March Consumer Price Index, which will be released on Wednesday. Well, it’s only Tuesday, so might it be more of the same today?<\/p>\n\n\n\n
Currently, the S&P 500 futures are up 13 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 68 points and are trading 0.4% above fair value, and the Dow Jones Industrial Average futures are up 42 points and are trading 0.1% above fair value.<\/p>\n\n\n\n
Those indications, should they hold, will translate into a modestly higher open for the major indices. A dip in market rates has helped provide the bump, but in general there isn’t much news that is driving things.<\/p>\n\n\n\n
If anything, there is the anticipation of the news that is driving things, so one could make a case that market participants are hopeful the CPI data will calm the sticky inflation angst and leave the Fed on course to cut rates in June.<\/p>\n\n\n\n
The latter is a mostly toss-up proposition at this point. According to the CME FedWatch Tool, there is a 54.6% probability of a 25-basis points rate cut at the June FOMC meeting versus 73.3% a month ago. That downshift has been partly responsible for the rise in Treasury yields seen this month.<\/p>\n\n\n\n
The 2-yr note yield, which is more sensitive to changes in the fed funds rate, is at 4.75% now versus 4.62% at the start of the month. The 10-yr note yield is at 4.38% now, down four basis points from yesterday, but up 18 basis points since the start of the month.<\/p>\n\n\n\n
There is a $58 billion 3-yr note auction today (results at 1:00 p.m. ET) that will lead $119 billion of new supply in the Treasury market this week.<\/p>\n\n\n\n
Stocks have weathered rising Treasury yields quite well so far, interpreting them more as a reflection of a stronger economy that is good for earnings growth than a reflection of defeatist inflation fears. <\/p>\n\n\n\n
That is why inflation news carries extra importance. It has the ability to swing market sentiment, as does the earnings guidance that will be flowing out of the first quarter earnings reporting period.<\/p>\n\n\n\n