NEW YORK (TheStreet) -- This week marks an important turning point for the U.S. economy and financial markets. Earnings remain in full swing, and due to mixed results, investors have been wary to push equities above all-time highs.
On the economics front, data from the Federal Reserve and labor market take the spotlight. There were reports last week that the Fed is leaning toward a more dovish stance than had been expected. That pushed the U.S. dollar lower and assets responded as if the end of quantitative easing would be delayed.
The Fed convenes this week, and if the reports prove true and monetary policy remains accommodative, risky assets will get bid higher.
Nonfarm payrolls will be released on Friday. That will be a good indicator of whether the economy is truly improving. If the number comes in at an extreme on either end of the spectrum, markets will adjust their rates hike horizon.
This pair has recently spiraled lower off yearly highs and begun a trend lower. That is a bearish signal that will either be confirmed or adjusted after this week's events. Expectations for higher rates will surely push the pair further into a downward trend.
The next chart is of iShares Barclays 1-3 Year Treasury Bond (SHY)over iShares Barclays 20+ Year Treasury Bond (TLT). This pair measures the Treasury yield curve. As the pair moves higher, long-term rates move up faster than short-term rates, thus steepening the curve.The chart shows that the yield curve has continued higher since the beginning of May. Markets are pricing in an end to accommodative policy; the only question that lies ahead is how quickly.
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