Stocks are wavering as Fed rate hike bets grow, Empire Strikes Back, EUR/USD tumbles below 1.10

• Treasury yields higher across curve, with the 2-year rising 8.5 bps to 4.184%
• Empire surges and supports case for more Fed rate hikes
• EUR/USD tumbles below 1.10

Stocks are wavering as the risks of more tightening grow after New York factory activity recovers and as the too good to be true start to earnings season continues. Treasury yields are surging as Wall Street is quickly realizing banking turmoil risks are easing as emergency banks loans continue to decline.  Small and large loan growth is happening and emergency lending is decreasing. The mid-and small banks are about to report and while we are about to see some serious deposit outflows, the focus is not about bank solvency, but on banking profitability. 

Earnings season is having its best start since 2012 as around 90% of S&P 500 companies are delivering earnings beats. Pessimism was so high that earnings have been revised so low that everyone is beating.  

Empire

The Empire State manufacturing survey posted its first positive reading in five months, rising by 35.4 points to 10.8.  Activity perked up but the outlook is clearly mixed.  Labor market indicators remain weak and firms are not very optimistic.  This report does not support a strong resumption of the disinflation process as orders surged and prices received rose. 

EURUSD

The EUR/USD decline as the dollar posted its best two-day gain since early March as Fed rate hike bets grew for the June policy meeting.  Wall Street is no longer focusing on rate cuts for the back half of the year but now if the Fed will need to do a lot more tightening beyond the May policy meeting.

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