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June 14, 2019

Financial Markets Take a Breather as FOMC Meeting Looms

 

US consumers aren’t ready to accept the recession yet. Retail sales data released today displayed a steady 0.5% rise last month, while updating April’s figure from the abysmal 0.2% decline to a 0.3% gain. The stronger than expected consumer spending data provided a much-needed confidence boost to a US economic outlook which has been battered over the past week by disappointing payroll and inflation reports. It also reduces the Fed officials’ urgency to cut rates at next week’s policy meeting. Probabilities of a cut by the FOMC next week currently reside near 21%...

June 13, 2019

Equities Rise Despite Middle East Tensions, Rates Fall Once More

 

Treasury rally extends, pulling 10 year Treasury yield below 2.10%. Despite the rally in risk assets, Treasurys continued to climb, pulling down yields and swap rates by 5-7 basis points across the curve. A Wall Street Journal survey released today found 75% of economists believe that the Fed’s next move will be a rate cut and roughly half of those surveyed think that the first rate cut will come at the July meeting. The survey results are directionally consistent with the probabilities implied from Fed Funds futures, although the market is well ahead of both the...

June 12, 2019

Weak Inflation Sends Rates Tumbling Lower Once More

 

Crude oil falls to nearly $50/barrel on both supply and demand concerns. US crude, and in turn energy stocks both got hit by a surprise buildup in inventories, adding to fears that a worldwide economic slowdown could shrink demand for oil. While most market experts agree that the sell-off appears to be overdone, there appears to be no slowing down US crude production. Energy stocks have fallen nearly 21% in the past year alongside the decline in crude, with names like Exxon Mobil falling 10%+. Ultimately, US crude ended the day at $51.14/barrel.

 

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June 11, 2019

Risk Assets End Winning Streak as Tariffs Threatened Once More

 

US equities end longest winning streak in two months as the outlook for trade talks diminishes yet again. In a tweet today, President Trump threatened to institute additional tariffs if Chinese President Xi Jinping does not agree to talks at this month’s G20 summit. For markets, the threat confirms that tariffs will be used as a preferred negotiation tool by the Trump administration for any number of disagreement the US has with other countries. The S&P 500 ultimately fell marginally lower by 0.04% - led lower by industrials and utilities. The VIX or “Fear...

June 10, 2019

Risk Assets Rebound as US and Mexico Reach Immigration Deal

 

US and Mexico reach immigration deal, avoiding new tariffs. U.S. equity markets extended their winning streak to five days on the news as the S&P 500 and Dow Jones Average closed up 0.47% and 0.30% respectively. The details of the deal were not entirely clear, but it may embolden the administration to use tariffs in future negotiations- posing a risk factor for equity markets going forward.

 

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June 7, 2019

Rates Continue to Fall After Disappointing Jobs Report

 

Jobs report disappoints, payroll figure coming in much lower than forecast while wage growth slows for third straight month. The jobs report got even worse when it came to prior month revisions, as a previously strong April number was chopped from 263,000 down to 224,000. The slowdown in hiring came across multiple industries, suggesting a broad-based slowdown in job growth and little impact from seasonality. Average hourly earnings rose at a 3.1% annual rate, slowing for the third consecutive month, which is the longest streak since 2009. Stronger inflation is a...

June 5, 2019

Weak ADP Data Pulls Rates Lower But Equities Rise Once More

 

Weaker-than-expected jobs data sparks early flight to safety, but Treasury rally abates towards end of session. The ADP National Employment Report (the preview to Friday’s more comprehensive jobs figures) showed US employers hiring at their slowest pace since 2010 (27k realized, 185k expected), igniting a risk-off rally that saw short-term yields decline by more than 10bps. The gap lower proved to be short-lived, with yields/swap rates finishing the trading session 1-2bps lower from their opening levels. Today’s report is yet another example of how the ongoing...

June 4, 2019

Bond Rally Finally Takes a Breather as Risk Assets Bounce Back

 

Chicago Fed President Charles Evans says that markets have gotten ahead of Fed on expecting cuts. Evans’ comments come a day after St Louis Fed President Jim Bullard said he sees a case for a rate cut. Like Bullard, Evans acknowledged the persistently low inflation, but cited the strong economy as a reason why the Fed was still far away from any sort of easing of monetary policy. Evans added that he sees the recent price action in 10 year Treasurys as a flight to quality rather than an outright wager on a reduction in short rates. Jerome Powell, also speaking at...

June 3, 2019

Fed's Bullard Acknowledges Potential for Rate Cuts

 

Fed’s Bullard says that a rate cut may be “warranted soon”. The St. Louis Fed President, who has described himself as “the most dovish person” at the Fed, has been publicly lobbying for more accommodative monetary policy since the end of 2018. Despite his history of dovishness, the public acknowledgement of a potential rate cut in 2019 was sufficient to pull yields and swap rates 6-11 basis points lower across the curve. The 10 year Treasury yield closed at 2.07%- nearly 70 basis points lower from the highs in January.

 

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May 31, 2019

New Tariff Threats Send Market Into Tailspin

 

Improving inflation figures drowned out by the latest batch of negative trade news. Stronger than expected PCE data went entirely ignored by a market solely focused on worsening trade developments. Notably, President Trump’s tweets that he would impose tariffs on Mexico in order to force better border security was met by panic in markets already unstable from the ongoing trade showdown with China. Treasurys immediately rallied and prices continued to rise throughout the day- pushing yields down 9-13 bps across the curve. Remarkably, Fed Funds futures now imply a...

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