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November 19, 2015

Lift Off Unless New Data Proves Not Needed, Instead of No Lift Off Until Proven Necessary

Believers in an FOMC quarter point move in December continue to gain confidence, after recent Fed Governor speak and the release of the October FOMC meeting minutes.  The Fed minutes indicated that most voting members believed in October that either 1) there was already enough evidence that a December rate hike was warranted or 2) there would be sufficient evidence by December.  There was also concern expressed by several participants who feared that not making their first move in over 7 years at their next meeting would risk 1) showing a lack of confidence in the economy, 2) leaving more...

November 18, 2015

Markets Appear to Be Getting Comfortable Preparing for First FOMC Rate Liftoff in December

U.S. stocks are rallying again today, indicating the market’s ability to absorb the international terror threats post-Paris, along with the continued expectation of a Fed tightening in December.  The highlighted economic data today included Housing Starts and Industrial output, both of which came in weaker than expected.  That said, core manufacturing did show positive signs vs. the previous month, despite the drag on overall output from the energy sector.

A number of Fed governors were on the tape today as well, indicating their continued support for a December rate hike.  As shown...

November 17, 2015

US Inflation Data Consistent with Growing Case for December Fed Action

Stocks and the dollar grinded higher while Treasuries and swaps sold off marginally off the back of better-than-expected corporate results and US economic data.  Strong results from Home Depot and Wal-Mart boosted confidence in the US consumer, and data showed US consumer prices increased in October after two consecutive months of declines, a sign that inflation may be turning a corner.  Oil remained a drag on the headline number, which rose 0.2%, in line with analyst estimates, but core CPI, which excludes the volatile food and energy components, is now up 1.9% over the past year.  Some...

November 16, 2015

Risk Assets Grind Higher as Markets See Limited Impact from Paris Attacks

Stocks rallied with the dollar while Treasuries and swaps traded close to unchanged as markets digested the fallout from Friday’s horrific terrorist attacks in Paris.  After getting over the initial shock, a sense of normalcy restored to the markets as investors refocused on global growth prospects and the Fed.  Data was light globally with the exception of Japanese GDP which came in weaker than expected (-0.8% vs. -0.2%e annualized QoQ).  Japan’s economy is now in a technical recession following the second consecutive quarter of contraction.  Most of the weakness in the headline number...

November 13, 2015

Global Growth Concerns Weigh on Risk Assets

Stocks declined while Treasuries and swaps rallied off the back of renewed global growth concerns.  Eurozone GDP unexpectedly slowed to 0.3% in the third quarter, down from 0.4% in Q2.  Analysts were expecting a 0.4% rise, but the headline number was dragged down by weakness in Italy and Germany.  While the Eurozone has been out of recession for a while now, it's troubling that growth remains below expectations given how loose monetary policy has been in the region for years.  Money markets in Europeare essentially already pricing in additional easing from the ECB when it meets in December...

November 12, 2015

Markets React to Assortment of Fed Comments as Rate Hike Speculation Continues

Stocks declined with commodities while Treasuries and swaps rallied as markets digested a heavy dose of central bank speakers.  The initial bid for Treasuries came overnight off the back of dovish comments from the ECB’s Mario Draghi.  Draghi told the European Parliament that “signs of a sustained turnaround in core inflation have somewhat weakened”, hinting that the ECB could be poised to unveil additional stimulus at its next meeting in early December.  Potential options for the ECB include expanding QE beyond September 2016, increasing the number of monthly bond purchases, and expanding...

November 10, 2015

Deflationary Pressures in China Weigh on Risk Assets

Stocks fell while Treasuries and swaps rallied marginally as weak Chinese inflation data renewed concerns for the world’s second largest economy.  Today’s report showed consumer prices rose just 1.3% YoY, missing expectations for a 1.5% increase, and marking the slowest annual expansion since May.  Additionally, producer prices declined for the 43rd month in a row.  The 5.9% fall was unchanged from September, but slightly missed expectations.  The data points to clear deflationary pressures, which should encourage the People’s Bank of China to look at further stimulus measures.  The PBoC...

November 9, 2015

Fed Hike Speculation Sparks Selloff in Both Equities and Bonds

Stocks, Treasuries and swaps were all under pressure to start the week off the back of continued fallout from Friday’s stellar nonfarm payrolls report.  The dollar resumed its recent rally and trading in Fed Funds continued to imply higher odds of a rate hike at the Fed’s December meeting.  Meanwhile, headlines overnight included weak Chinese trade data and an OECD report forecasting a global slowdown.  China’s exports declined 6.9%, the fourth consecutive monthly drop, while imports fell 18.8%, leaving a record high trade surplus.  The figures missed estimates by a large margin and will...

November 6, 2015

October NFP Surprises to the Upside Bolstering the Case for a December Rate Hike

The dollar surged while stocks, oil, Treasuries and swap rates all sold off after today’s robust October employment report fueled December rate hike expectations.  Today’s NFP was impressive across the board; employment jumped the most since December 2014, wage growth accelerated more than expected, and the unemployment rate fell to 5.0%.  The 271,000 headline number provides a clear indication that weak August and September employment gains were just a blip, and the increase in hourly earnings improved the inflation outlook, pushing the annual rate up to 2.5%, its fastest pace since July...

November 5, 2015

Fed Speculation Continues to Dominate Trading Ahead of NFP

Stocks sold off with Treasuries while swap spreads continued to tighten as markets set up for tomorrow’s all-important nonfarm payrolls report.  Yesterday’s testimony from Fed Chair Yellen coupled with stronger-than-expected US data boosted expectations for a rate hike in December.  Today’s economic reports were consistent with the theme.  Data showed US jobless claims rose to 276,000 (versus 262,000 estimate), but remained significantly below the 300,000 threshold, which is representative of a healthy job market.  A separate report showed manufacturing productivity unexpectedly increased...

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