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April 18, 2019

Rates Fall in Holiday Shortened Session

 

Rates decline in volatile session. Weak PMIs in Europe and the US sent rates tumbling lower in the holiday-shortened session. Treasury yields fell 2-4 basis points across the curve, the 10 year Treasury yield falling to 2.56%. The MOVE Index- a measure of interest rate volatility- rose to 48.7, maintaining its sustained level above 45. Fed funds futures now imply a 51.8% likelihood of a rate cut by 2020.

 

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April 17, 2019

US Equities Pulled Down By Healthcare Stocks, Rates Move Sideways

 

Fed’s recent comments show renewed focus on disinflation risk. In a sharp contrast to the “Yellen” Fed, Chair Powell and his cohort appear increasingly focused on the risks surrounding disinflation. Inflation has failed to meet the levels seen in previous cycles, and as a result Fed officials like Chicago Fed President Charles Evans seem increasingly willing to hold off on future rate increases, or even institute a rate cut if inflation softens. With the unemployment rate and jobless claims at multi-decade lows, the Fed will let inflation levels dictate future...

April 16, 2019

US Equities Bounce Back, Rates Rise as Fink Says Markets Poised for "Melt-Up"

 

Strong earnings push US equities closer to all-time highs. Financials performed well as strong Q1 results from BlackRock and Bank of America helped the market bounce back from yesterday’s disappointing figures. Johnson & Johnson and United Healthcare Group also reported strong earnings, helping the S&P 500 climb 0.05% while the Dow Jones Industrial Average climbed 0.26%.

 

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April 15, 2019

DPI Update 041519

 

Mixed bank earnings sends US stocks lower. Goldman Sachs reported disappointing earnings- the stock falling 3.8% despite increased efforts by the bank to diversify their earnings away from volatile trading businesses. Citi meanwhile was flat on the day as its revenues fell slightly. Overall, the S&P Bank Index fell by 1.38% on the day. The S&P 500 bounced back from the lows despite weakness among banks closing down only -.06% after falling as much as 0.4% earlier in the day. The VIX or “Fear Index” rose, but only slightly to 12.32.

 

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April 12, 2019

Strong Bank Earnings and Rising Rates Drive Stocks Higher

 

Potential trade conflict with EU escalates as European Commission drafts punitive tariffs. The list of goods only amounts to $12 billion worth of US exports, but it marks the latest escalation in trade tensions between the US and the rest of the world. The European Commission is reportedly concerned that President Trump will grow even more hostile towards Europe after the trade dispute with China is resolved. European equities actually rallied on the day with the Euro Stoxx index closing up 0.36%, but rising trade tensions between the US and Europe will be a market risk to watch...

April 11, 2019

Equities Quiet Ahead of Earnings, Rates Rise on Strong PPI Figure

 

Fed officials reiterate focus on inflation, suggesting central won’t hike rates until inflation rises meaningfully. Headline consumer prices have remained stubbornly below 2% so far this year after spending most of 2018 above 2.5%. Fed Vice Chair Richard Clarida stated that the central bank needs to see “inflation get back to 2 percent and stay there on a sustained basis.” Fed Governer Lael Brainard emphasized that point further, saying that the Fed is “extremely focused.. on ensuring that inflation stays anchored at 2%.” Treasury yields and swap rates rose 4-5...

April 10, 2019

Fed Reaffirms Data Dependency, Leaves Door Open For Hikes or Cuts in 2019

 

CPI shows muted inflation as Fed reaffirms data dependency in minutes. Today’s CPI report showed that core inflation rose less than expected last month, rising only .1% in March and 2% over a year ago. Bond markets rallied as investors continued to discount the likelihood of near-term Fed rate hikes while inflation remains in check. The minutes from the Fed’s March 20th policy meeting, released later in the day, reinforced the dovish sentiment, suggesting that the Fed will likely be on hold for the remainder of 2019 but left the door open for the central bank to...

April 9, 2019

IMF Cuts Growth Outlook, Sending Risk Assets and Rates Lower

 

IMF cuts growth outlook to weakest since recession. The IMF now expects the world economy to grow by 3.3% this year, down from their previous forecast of 3.5%. The downgrade for global growth represents the third time in the last six months the IMF has trimmed their growth forecast. The IMF also noted that the world’s economies have “limited space” with which to combat an economic slowdowns--particularly as policy rates in many of the world’s largest economies remain near 0%.

 

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April 8, 2019

Rates Rise Slightly, Equities Mixed in Quiet Session

 

Stocks mixed ahead of earnings season. Stocks were quiet in a low-volume day ahead of a busy earnings calendar with trading volumes nearly 20% below normal. The S&P 500 closed marginally higher (0.10%) while the Dow Jones Industrial Average slipped 0.32%. Strong earnings will be necessary to sustain the recent risk-on rally that has propelled stocks to near-record highs despite the more cautious mood in the bond market.

 

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April 5, 2019

Strong Jobs Report Leads Equities Higher for 7th Straight Day

 

US added 196,000 jobs in March, beating estimates. February’s figure was also revised higher while the unemployment rate stayed constant at 3.8%.  Despite the strong report, rates markets barely budged. The futures still implies a 70% chance of a rate cut by year end. Meanwhile, President Trump once again took aim at the Fed, saying that the central bank should undertake quantitative easing in addition to cutting rates. Politicization of any central bank rarely ends well, and this will be a risk to watch going forward.

 

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