The Daily Prophet: Fed Odds, Positive Surprises and Oil Rebounds

Connecting the dots in global markets.

Maybe the idea that the Federal Reserve will raise interest rates in March is not so crazy. Bond traders are beginning to think it’s plausible. (In an earlier version I mistakenly said this Fed meeting would not be accompanied by a press conference.) 

The Treasury market tumbled Monday as the odds of a rate hike on March 15 rose to 50 percent. Commerce Department data showed that orders for U.S. durable goods rebounded in January, a sign that companies remained upbeat at the start of the year. President Donald Trump said in a speech to governors at the White House that the U.S. is “going to start spending on infrastructure big.” Last week, fading expectations for fiscal stimulus helped drive gains for Treasuries.

Federal Reserve Bank of Dallas President Robert Kaplan reiterated his view that policy makers should raise rates “sooner rather than later” and without paying excessive attention to market expectations. “I would like to be aware of what’s going on in the market, but I don’t want to overread or overreact to it,” Kaplan told reporters following a speaking engagement Monday in Norman, Oklahoma. “Market probabilities can change very rapidly.”

Almost anywhere you look these days, the message is similar: The global economy is gaining strength. Besides the durable goods report in the U.S., an index released Monday showed confidence in the euro zone is at its highest since 2011. China’s economy remained generally steady during the Lunar New Year, according to the earliest private data for February. A Citigroup Inc. index shows positive economic surprises are topping negative ones by the most since 2011.

The good news on the global economic front doesn’t mean investors are letting their guards down, especially in Europe, where a slate of unpredictable elections loom in France, Germany, the Netherlands and Italy. Investors in the region are wary of lending for long periods of time. Take Coca-Cola Co., which raised 2.5 billion euros ($2.65 billion) on Monday by selling notes due in two, five and seven years. It was the first sale in the common currency by the world’s largest soft-drink company that didn’t include securities due in 10 years or more. “There’s lots of uncertainty in the market” over the elections, Hyung-Ja de Zeeuw, senior credit strategist at ABN Amro, told Bloomberg News’ Leo Laikola.

Oil is on the move again. Crude revisited a 19-month high in New York as OPEC members spoke again of improving compliance with their supply-cuts agreement. West Texas Intermediate for April delivery rose 19 cents, or 0.4 percent, to $54.18 a barrel at 12:49 p.m. on the New York Mercantile Exchange. The United Arab Emirates is working to ensure total compliance with the deal led by the Organization of Petroleum Exporting Countries, Al Bayan newspaper reported Saturday, citing the country’s OPEC governor. Money managers have boosted their bets on rising oil prices to a record on speculation the production curbs will ease the global supply glut.

There are few currencies that are as hot as Israel’s shekel, which has gained almost 5 percent this year. The shekel has strengthened to a two-year high as economic growth beat estimates and inflation picked up. It appreciated Monday by the most this year even though the Bank of Israel decided against raising interest rates. Policy makers have sought to stem the currency’s gains and help exporters by buying dollars in the foreign exchange market. That only boosted foreign reserves to a record $101.6 billion in January, and the central bank’s intervention continued in February.

Tuesday is likely to bring more trade fodder for President Donald Trump when he addresses a joint session of Congress. The Commerce Department is likely to say that exports exceeded imports by $66 billion in January, a level reached only once before since 2009, according to the median estimate of economists surveyed by Bloomberg. Trump used the public portion of a meeting with 24 business leaders on Thursday to reiterate some of his campaign themes, blasting what he called “unbelievably bad” trade deals and singling out trade deficits with Mexico and China. 

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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.