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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...

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...

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