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November 4, 2015

Hawkish Yellen Comments and Strong US Data Boost December Rate Hike Expectations

Stocks fluctuated while Treasuries and swap rates continued to sell off across the curve as markets reacted to hawkish comments from Fed Chair Yellen and a variety of economic reports.  In her testimony before the House Financial Services Committee, Yellen stated that the economy is “performing well” and December is “a live possibility” for a potential rate hike.  Yellen specified that a hike would only occur if the incoming data supports the Fed’s expectation that “the economy will continue to grow at a pace to return inflation” to the Fed’s target “over the medium term”.  In other words...

November 3, 2015

Appetite for Risk Continues Ahead of Yellen Testimony

Stocks grinded higher with the dollar while Treasuries and swap rates sold off across the curve as traders priced in a higher probability of a rate hike at next month’s FOMC meeting.  Central bank speculation continues to be a major theme and market-participants are hoping for some clarity from officials this week.  There is a full lineup of central bank speakers on tap including ECB President Draghi this afternoon followed by Fed Chair Yellen, Vice Chair Fischer, and NY Fed President Dudley tomorrow.  Financial regulation is the scheduled topic when Yellen testifies before the House...

November 2, 2015

Markets React to Mixed Global Manufacturing Data

Stocks rallied while Treasuries and swap rates sold off across the curve as stronger manufacturing data in the US and Europe outweighed disappointing reports out of China.  Treasuries initially rallied overnight while oil prices declined after data showed China’s massive manufacturing sector continued to contract.  China’s official manufacturing PMI came in at 49.8 in October, the third consecutive reading below 50, the threshold for expansion.  Additionally, the Caixin China manufacturing PMI, a separate private report, showed an eighth straight month of contraction in the sector.  ...

October 30, 2015

Quiet Final Day of October Trading as Investors Look Ahead to Next Week's Payrolls

Stocks, Treasury yields and swap rates all fluctuated close to unchanged as foreign exchange markets dominated the final trading day of October.  Overnight, the Bank of Japan surprised economists by holding monetary policy steady, attributing their miss in inflation forecasts to the fall in oil prices.  The yen rallied as a result, even as the BoJ downgraded its growth and inflation projections going forward.  Japan’s economy faces headwinds stemming from China’s slowdown, which fueled speculation that the BoJ would add to its current 80 trillion yen annual pace of expansion of the...

October 29, 2015

Markets React to Yesterday's Hawkish FOMC Announcement and Mixed Economic Data

Stocks, commodities, Treasuries, and swap rates all sold off as markets reacted to yesterday’s more hawkish-than-expected FOMC announcement.  While still expressing concern about domestic growth rates and global flare ups, and without mounting inflation pressure, the Fed appears to have boxed themselves into a greater likelihood of finally making their first move in December, after a 7 year 0% short term rate policy.  Their October 28th policy release (see below linked policy release with side by side language changes) put the December target date directly in scope.  They didn’t commit to...

October 28, 2015

Risk Assets Cautiously Grind Higher Ahead of FOMC

Stocks rallied with commodities while Treasury yields and swap rates sold off marginally ahead of today’s all-important Fed announcement.  Markets have calmed since the global turmoil caused by China’s surprise currency devaluation in August, but expectations remain extremely low (4% market implied probability) for a rate hike this afternoon. That being said, the meeting remains important because the Fed has the opportunity to prepare markets for a December hike, which would likely be a prerequisite if it is still on the table.  There is no scheduled press conference today, but there is...

October 27, 2015

Bid for Safer Assets Continues Ahead of Fed Meeting

Stocks declined with oil while Treasury yields and swap rates rallied as investors continued to shy away from riskier assets ahead of the FOMC.  The Fed isn’t expected to tighten this week (only 6% implied probability), but the statement may provide insight into the committee’s thinking as it relates to China’s economic slowdown and slumping oil prices.  US natural gas traded below $2 for the first time since 2012, and WTI continues to slide below the $50 threshold, heightening global deflation fears.  The Fed is likely to acknowledge these concerns with certain tweaks in the language, but...

October 26, 2015

Appetite for Risk Takes a Pause as Investors Focus on Fed

Stocks declined marginally while Treasury yields and swap rates rallied as we kick off an important week for investors with a cautious tone.  The major event this week is the October Fed meeting, which concludes Wednesday, and is followed by the rate decision and release of the updated policy statement.  Traders are pricing in a very small chance of a rate increase at this week’s meeting, but market-participants will look for a change to the Fed’s economic outlook in the policy statement.  Other central banks remain in focus as well after last week’s dovish speech from ECB head Draghi and...

October 23, 2015

Appetite for Risk Continues Off the Back of Chinese Rate Cut and Tech Earnings

Stocks added to their recent gains while Treasury yields and swap rates traded higher across the curve after China unexpectedly cut its benchmark lending rate and reserve requirements for banks.  The PBoC’s 25 basis point reduction is its sixth cut this year and the latest attempt at invigorating its slowing economy.  Beijing is under pressure to meet its 7% growth target amid the 11th straight month of falling imports and over 3 years of deflationary producer prices.  The announcement came one day after the European Central Bank said it is prepared to expand its monetary stimulus when it...

October 22, 2015

Risk Assets Get Boost from Dovish Draghi and US Fundamentals

Stocks rallied while Treasuries and swap rates fluctuated as markets reacted to dovish comments from ECB President Draghi, strong US data and corporate earnings, and the surprise postponement of next week’s 2-year auction.  The ECB kept its benchmark interest rate at 0.05%, as expected, but Draghi suggested that fresh stimulus is on the table at the December meeting.  Draghi said the ECB is considering a variety of options including further cuts to key interest rates and an expansion of quantitative easing.  The bond purchasing program was originally scheduled to end September 2016, but...

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