The 5-year US bond yield is at 2.44%, its highest level for 7 years
Financial markets were closed Monday 15th in the US due to Martin Luther King day.
The week will not be remembered as particularly eventful. The trends remain the same:
- US bond yields are a touch higher (+6bps). Nothing on Euro bond yields though;
- Market is trading 2.44% for 5-year US bond yield, the highest level for 7 years. Markets price more than three rate hikes in the US for 2018; and 2 hikes are priced with a 60% probability on June 2018. There is little room for negative surprises. What could be surprising?
- Q1 GDP could be weaker than expected, which happens regularly in the US (often due to climate). This is why bond yields tend to rise in Q4 / Q1 and decrease later on;
- Oil could experience a pull back. Brent rose above $70 for the first time since 2015 due to reasons that are sometimes temporary. This could reverse, especially with investors positioned very long on oil.
- Equity markets are up, circa +1% last week.
On the macro side, not many data releases to comment:
- Most of the figures are from China: Q4 GDP above expectations at 6.8%, retail sales slightly below but still around 10% year over year and industrial production slightly above expectations. In short not much, the economy is doing fine;
- US industrial production is way above expectations but previous month was revised downward. All in all, it is slightly positive;
- Bad real estate figures in the US, with a disappointment in the construction activity
- Last, rate hike in Canada, as anticipated by investors.
Final point, earnings season kicked off in the US, and so far everything is good!
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