After setting the best first-quarter percentage gain since 1998, the market has its eyes set on a more in-depth look at the Federal Reserve with the release of the minutes from its March meeting, in addition to a release of car and truck sales. Here's a breakdown on what these reports could mean for the overall Dow Jones Industrial Average (INDEX: ^DJI), and an overview of markets worldwide.
Where the Fed is headed
The last press release from the Fed's March 13 meeting delighted markets with its "highly accommodative stance for monetary policy." But the press release also caused treasury yields to jump, as the Fed acknowledged "that the economy has been expanding moderately," causing investors to believe the Fed may tighten policy sooner than projected:
10 Year Treasury Rate data by YCharts
The Fed's previous meeting was the first to release predictions of when committee members believed interest rates would need tightening, and where members saw interest rates in the coming years. Critics of releasing the predictions said the forecast would be viewed as commitments and bind the Fed to a certain policy route. But even though a majority of committee members saw low rates continuing into 2014, the Fed might raise rates earlier than forecasted with an improving economy. The minutes released today will help judge whether the Fed plans to stick to the rates for as long as it had predicted.
If long-term interest rates do rise, while short-term rates remain low, banks like Bank of America (NYSE: BAC) could benefit through lower interest expense but higher interest income -- and could help push the stock higher on top of a first quarter that saw it rise more than 70%.
Demand for more driving
While gas prices creep higher, analysts expect auto sales to continue improving, with consumers looking for better mileage and finally purchasing new cars after the long lull of the recession. Analysts expect sales at both GM (NYSE: GM) and Toyota to be 15% higher in March than the previous year, whereas Chrysler could see more than 30% sales growth.
Further in the week
Look for data on jobless claims that will be released on Thursday and employment numbers that will be released on Friday. The market expects a slight decrease in initial jobless claims and an increase in continuing claims, while the unemployment rate is expected to remain at 8.3%.
These relatively static numbers reinforce the slow nature of the current recovery, just like yesterday's report on construction spending, which noted a 1.1% decline in February. That decline helped hammer Home Depot (NYSE: HD) away from its 52-week high of $50.42 per share, losing 0.64% yesterday to close at retail-oriented price of $49.99.
Unemployment and economies elsewhere
In the EU yesterday, reports showed that unemployment rose to 10.2% from 10.1%, with Spain leading the jobless rates at 23.6% and Germany posting 5.7%. In addition, Eurozone Manufacturing PMI for March registered at 47.7, down from February's number of 49. Anything below 50 suggests a contraction in manufacturing. Even with this news, Chinese PMI numbers helped European markets, like Germany's DAX 30 (INDEX: ^GDAXI) index, which gained 1.58%.
However, the Chinese government and HSBC reported two different figures for China's PMI. The government's measure reported a PMI of 53.1, whereas HSBC reported 48.3. The difference stems from HSBC's surveying firms that are smaller and private, as well as factoring in more seasonality. With the Chinese New Year, March typically sees about a 3-point increase over February in the government's PMI number, but this year it improved by only 2.1 points. This smaller bounce represents the slower economy that China expects in the first quarter, with GDP growth estimated at 8%, down from 8.9% in the previous quarter.
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