The calendar for the week ahead is decidedly light, and with a Federal Open Market Committee meeting on May 2, in advance of the nonfarm payrolls report on May 4, the Fed is in its blackout period, so no drama there.
In light of the modest/moderate Beige Book and just having had a March hike, it should be no surprise that there are no serious expectations for any rate move. This is to say there are very few anticipated inputs over the coming week and a half that will move the market from either the economic or Fed corners.
Assuming that there are no other surprises, the path of lesser resistance seems sideways. I would like to see 10s take a stab at 3 percent to test the resolve, but in advance of the Fed meeting and the NFP report, I think 3 percent would hold, especially given the evidence of short positions in the Commitments of Traders report and, at least, neutral sentiment. Also, the technicals are a bit overdone—stochastics are oversold, moving average convergence divergence at the zero line, and yields arguably risking a double or triple top. I’M NOT BULLISH. I just think the market has neither the positioning nor information to do more than test 3 percent. Note that there is a narrow channel (below in green) whose break does project to 3 percent in a measured move.
There are a lot of earnings coming out—about 180 from the S&P 500 in the weeks of April—which suggests where the bond market will focus its attention. The European Central Bank announces too, but no change seen there, and I won’t second guess Draghi’s press conference. By the way, stocks look technically overbought with a rising wedge pattern that’s consistent with a reversal. I’m targeting the 200-day moving average for the S&P 500 at 2,604.
David Ader is Chief Macro Strategist for Informa Financial Intelligence.
