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February 20, 2019

FOMC Minutes Stress Patience

 

FOMC Minutes Summary
The minutes from the Fed’s January 29-30 meeting were released today, providing financial markets with further clarity around the dovish shift in the Committee’s stance. Details of the text included:

  • Acknowledgement of risks to US growth from slowing Chinese & European economies, global trade tensions, and fading benefits of fiscal stimulus

  • General consensus to cease the shrinking of the Fed’s balance sheet by the end of 2019, specific timing remains uncertain

  • Stressing of patience/...

February 19, 2019

Trade Negotiations Temper Financial Markets

 

Rates Slide to Start Week
Treasury markets returned from the holiday-extended weekend with a steady rally, as yields/swap rates declined 2-5bps across the curve in a bull-steepening pattern. The yield on the 10-year note finished the session near 2.63% (-3bps), approaching its lowest level since the first week of 2019. In another apparent flight to safety market move, gold futures rose 1.66% to a 10-month high of $1,344/ounce.

 

February 15, 2019

Equities and Rates Rally Despite Mixed Economic Data

 

Treasury prices lower / rates rise amid a mixed bag of economic data releases. Industrial production was reported to have fallen 0.6% in January, well below the 0.1% increase forecast by economists. That data point was somewhat offset by a Consumer Sentiment figure that surprised to the upside, despite the negative media narrative around world economic growth and domestic political inertia. Rates were rangebound for most of the day, ultimately climbing ~2 basis points at the front end of the curve, with the 10 year Treasury yield up 1 bp to close at 2.663%.

...
February 14, 2019

Risk Assets Get No Love After Surprise Drop in Retail Sales

 

December retail sales dropped by most in 10 years, puzzling economists and sending rates lower. The 10 year Treasury yield fell as much as 6 basis points while investors and other market participants projected a more dovish Fed. By the end of the day rates had reversed some of their decline, with the 10 year treasury yield ending the day down 5 bps at 2.65%. Government retail data is known to be volatile, and some economists expressed their skepticism as to the validity of the unexpected retail sales data - pointing to the strength in labor markets and the...

February 13, 2019

Rates and Equities Higher as Trade and Shutdown Risks Continue to Moderate

 

January CPI data shows inflation remains steady at a 2.2% annual rate, pushing Treasury yields and swap rates higher. Inflation came in right at surveyed levels, providing further support for the Fed to maintain rates at current levels. The short end of the curve displayed the largest reaction to the data, as the 3 year Treasury yield rose 3 basis points to close at 2.519%- its highest level since the first week of February. Despite the recent volatility in rates markets, the curve remains remarkably flat- the spread between 2 year and 10 year Treasury yields...

February 14, 2019

Optimism Surrounding Shutdown Deal and Trade Pushes Risk Assets Higher Once More

 

Risk assets rally as Congress reaches an “agreement in principle” on border security funding. The Dow Jones Industrial Average and S&P 500 both rallied 1.49% and 1.29% respectively as the S&P broke through its 200-day moving average for the first time since early December. Despite the market’s enthusiastic response, President Trump has not yet indicated that he will approve the proposal, saying that that the agreement is “not doing the trick” as of yet. Also boosting the rally was speculation that President Trump may meet with Chinese President Xi Jinping...

February 11, 2019

Trade Talk Optimism Outweighs Concerns Around Shutdown 2.0

 

Stocks and rates edge higher ahead of China-US trade negotiations. The S&P 500 and Nasdaq Composite closed 0.07% and 0.13% higher respectively. Treasury yields were 2-3 basis points higher on the day, and swap rates rose 1-2 basis points. US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer are expected to begin working-level talks in Beijing on Thursday with their Chinese counterparts. Both sides are looking to reach an agreement ahead of the self-imposed March 1st deadline. If a deal is not reached by that date then US tariffs...

February 8, 2019

Equities Mixed, Rates Lower to End the Week

 

Swap rates and treasury yields fall as much as 3 basis points as global risks continue to loom large. Concerns about the global economy continue to grow as German industrial output declined for the fourth consecutive month and US-China trade talks fail to progress. Investors are increasingly worried that trade negotiators will not reach an agreement before their self-imposed March 1st deadline. Adding to the positive momentum in Treasurys, St. Louis Fed President James Bullard said that the central bank doesn’t need to raise rates any further to achieve its...

February 7, 2019

Trade Back in Focus as Trump-Xi Meeting Seems Unlikely

 

Treasurys rally, rates decline as Europe posts weak economic data and hopes for a quick resolution to US-China trade conflict fades. Yields and swap rates fell after the European Commission cut its economic growth forecasts for the eurozone to only 1.3% (revised down from 1.9%). Rates legged even lower after a midday report that President Donald Trump is unlikely to meet Xi Jinping- delaying any resolution to the ongoing US-China trade conflict. US 10 year treasury yields ultimately dropped 3.8 basis points to 2.657%, and swap rates fell by nearly four basis...

February 6, 2019

Rates Little Changed After State of the Union

 

President Trump’s State of the Union address calls for unity as obstacles to his agenda grow. The President did not repeat his threats to declare an emergency to fund a border wall, and signaled some flexibility on what the structure would look like or where it would be deployed. Whether there will be sufficient cooperation between the President and Congress to break the impasse remains a risk to financial markets that abhor uncertainty.  

 

Yellen supports Fed’s patient approach to rate hikes. Former Fed Chair Janet Yellen said she...

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