Last week's economic data, Fed minutes and New York Fed President William Dudley's comments only added to the questions surrounding the strength of the economy and the timing of any increase in interest rates. The two most talked about U.S. economic statistics for the week were the ISM Non-Manufacturing Composite for March, which met economist expectations by coming in at 56.5 (any reading above 50 shows growth), and Thursday's jobless claims number of 281,000 for the week ending April 4.
The initial claims number supported the view that the March employment number was heavily affected by bad weather and that the overall employment trend continues to be strong.
The Fed minutes showed a Fed that is split over the timing of the first increase in interest rates in almost nine years. Several committee members thought a June increase is warranted, while others felt that it would not be appropriate to begin raising rates until later in the year.
Further, comments by Dudley that the pace of rate hikes will depend heavily on the reaction of financial markets to the increase in interest rates, only adds uncertainty to the upcoming Fed meetings and the overall market environment.
This week, we will see more economic data and numerous first quarter earnings reports. Both of these factors could be key in determining the timing of a Fed move and the strength of the economy. Pay particular attention to retail sales, the components of the inflation data (CPI and PPI) and the University of Michigan Consumer Sentiment Survey. The week also brings the release of the Fed's Beige Book, which may provide additional data on how the economy is doing in the various Fed districts.
Within the past week, most markets remained solid in the near- and intermediate-term technical ranges that I have written about the last few weeks. Watch for any breakout of the S&P 500 on key technical levels of 2109 and 2040. A quick two to three percent market move is possible on any breakout of this range. For the 10-year treasury yield, watch for a breakout in the 2.00 to 1.86 percent trading range. If this range is violated, look for a retest of the 1.64 percent January low or the 2.24 percent March high in yields. Keep an eye on the strengthening dollar versus the euro. Last week's four percent move has not received much market attention, and we are closing in on the March lows for the euro at 1.05.
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