BNY Mellon Capital Markets, LLC Weekly Market Commentary

Marvin Loh – Managing Director, BNY Mellon Capital Markets, LLC

Perhaps money can grow on trees, if you are a central bank. The Bank of Japan pledged this week to do what it takes to corral its inflation rate into the 2% range. In a very Fed-esque manner, the new Japanese leadership will double its purchase of government bonds and grow its equity market holdings. Overall purchases will exceed 80 trillion ¥, almost three times larger than the Fed’s current QE (infinity) program on a relative (to gross domestic product [GDP]) basis. This continues to signal an all-in attitude from all large central banks, which will keep easy money flowing into the foreseeable future. Government bond yields have subsequently collapsed around the globe, with a set of weak economic numbers providing an additional impetus for Treasury yields. Today’s employment report was simply the cherry on the sundae, missing expectations by more than 50%. The 88,000 jobs created were the lowest since last summer, and the decline in the unemployment rate was accompanied with a more than three-decade low in workforce participation. Treasury yields generally stand at year-to-date lows, with a large bull flattener taking precedence over the past two days. Interestingly, spread product had a generally benign week, with Investment Grade and High Yield generally unchanged, and we suspect that volatility remained at suppressed levels due to central bank policies. Next week marks the start of earning season, which will either affirm or contradict the strong equity performance since the start of the year. Individual equity sector performance indicates investor reluctance in hitting record levels, which will need support to continue. There are limited economic releases next week, and minutes to last month’s FOMC will also be released. Read the full commentary now.