Dow Jones, Nasdaq Forecast: Equities May Extend Gains On Falling Treasury Yields

DOW JONES, NASDAQ 100, LONG-TERM TREASURIES, TLT, FISCAL STIMULUS – TALKING POINTS:

  • Equity markets traded mixed during the APAC session as investors mulled the progress of the economic rebound from the coronavirus pandemic.
  • Falling long-term Treasury yields may open the door for US benchmark equity indices to continue marching higher.

ASIA-PACIFIC RECAP

Equity markets traded broadly mixed during the Asia-Pacific trade, as investors mull the progress of the global economic rebound against a backdrop of rising coronavirus cases. Australia’s ASX 200 crept higher alongside Japan’s Nikkei 225, while Hong Kong’s Hang Seng Index and China’s CSI 300 slid lower as the PBoC warned lenders to maintain 2020 loan levels.

In FX markets, the risk-sensitive AUDNZDCAD, and NOK fell against their major counterparts, while the haven-associated USDCHF, and JPY gained ground. Gold and silver prices dipped as yields on US 10-year Treasuries crept marginally higher, while crude oil prices held relatively steady. Looking ahead, a flurry of PMI figures out of Europe and the UK headline the economic docket alongside the FOMC meeting minutes.

Dow Jones, Nasdaq Forecast: Equities May Extend Gains on Falling Treasury Yields

FISCAL STIMULUS HURDLES MAY WEIGH ON TREASURY YIELDS

The prospect of substantial fiscal stimulus from the Biden administration, in combination with a rapid distribution of coronavirus vaccines, drove market expectations for inflation higher and in turn led to significant losses for longer-term Treasuries.

However, recent economic data prints and potential hurdles preventing President Biden from passing his proposed $2.25 trillion stimulus package suggest that inflationary pressure may not be as intense as previously thought. Indeed, although the US added just shy of a million jobs in March, average hourly earnings decreased by 0.1% (est. 0.1%).

5-year forward inflation expectations have also drifted 8 basis points lower since the start of the month, after peaking at 2.2% on March 31. With Republicans vehemently opposing the corporate taxation hikes, Democrats will likely be forced to utilize the process of reconciliation to approve legislation along party lines.

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Erikas Ivan 1 week ago Member's comment

Thank you for this article. I'm increasingly concerned about bond yields and tax hikes, as well as IPOs and SPACs.