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March 20, 2019

Fed's Extremely Dovish Tone Surprises Markets

 

Fed keeps rates unchanged, updates forecast to include no hikes in 2019 while moderating their expectations for future growth. Treasury yields had already backed up ahead of the announcement, but immediately fell an additional four basis points after the Fed surprised with its dovish comments. The median “Dot Plot” shifted down by 50 basis points, and Fed Chair Jerome Powell also committed to an end to the Fed’s balance sheet unwind by September of this year. Treasury yields ultimately declined 8-10 basis points across the curve, swap rates following suit. The 10...

March 19, 2019

Yields and Equities Climb Ahead of FOMC Rate Decision

 

Treasurys continue to pare last week’s gains, with yields rising modestly ahead of FOMC rate decision and press conference. Most economists expect the Fed to leave interest rates unchanged when they announce tomorrow, but little else about  the results of the FOMC 2 day meeting is certain. Some expect the Fed to reduce their prior forecast of 2 rate hikes in 2019 down to 1 single hike, while still others expect a more dovish shift to no forecasted hikes through the end of 2019. The market is also looking forward to some greater clarity regarding the Fed’s plans to...

March 18, 2019

Equities Hit Four Month High Ahead of FOMC Meeting

 

Treasurys trim last week’s gains, yields rise 1-2 basis points ahead of Fed meeting. The US central bank is widely expected to leave rates unchanged and adjust down the official Fed forecast of 2 rate hikes in 2019 to match recent rhetoric. Currently markets are pricing in nearly a 30% chance of a rate CUT by year end and less than a 1% chance of any hikes in ‘19. The FOMC meeting will begin tomorrow and conclude Wednesday, after which the rate announcement and Fed Chair Jerome Powell’s press conference are to take place.

 

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March 16, 2019

Markets End the Week With Volatile Session as Both Treasurys and Equities Rise

 

Equities rise on high volume, ending the best week for US stocks in more than three months. The S&P 500 closed up 0.50% while the Dow Jones Industrial Average and Nasdaq Composite closed up 0.54% and 0.76% respectively. Volume was well above normal, many pointing to the “quadruple witching” of options and futures expiration and a large index rebalance as the leading culprits for the market action. The rally came despite the continued impasse with Congress as President Trump vetoed a Senate bill that would have blocked the emergency funding he is trying to...

March 15, 2019

Equities End Winning Streak After Trade meeting Postponed

 

US equities end three day winning streak after reports of a delay to Trump-Xi meeting. Markets have currently priced in a positive outcome to the trade dispute between the world’s two largest economies. Any disruption or negative spread would mean a significant risk-off move, and the news of a delay to the meeting was enough to push the S&P 500 and Nasdaq down 0.1% and 0.2%, respectively. The impact of tariffs continues to be seen in China’s economic data where industrial output has fallen to multi-decade lows. In the US, economic data was mixed to slightly...

March 13, 2019

Strong US Economic Data Pushes Equities and Rates Higher

 

Treasurys fall, rates rise as economic data shows soft inflation and strong manufacturing figures. Producer prices rose 0.1% versus a forecasted 0.2%, confirming yesterday’s soft CPI number. Despite a worsening global outlook, durable goods orders and construction spending were both higher than expected- reassuring investors that the US economy remains insulated from the global slowdown. Treasurys sold off accordingly, yields rising 2-3 bps across the curve with swap rates following suit.

 

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March 12, 2019

Weak CPI Figure Pulls Rates Down

 

CPI release shows contained inflation. Both headline and core inflation were muted, core CPI rising at a 2.1% annual rate- below the 2.2% level forecasted. The headline figure rose at a 1.5% annual rate, again below the 1.6% consensus figure. The Fed’s next rate decision comes on March 20th, markets pricing in a 97.7% likelihood of no rate change. Swap rates fell nearly 5 bps and Treasury yields traded down 3-4 basis points across the curve, the 10 year Treasury yield closing at 2.60%.

 

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March 11, 2019

DPI Update 031119

 

US retail sales bounce back to start first quarter. The US economy continues to show signs of resilience amid the global slowdown- US consumer spending rose 0.2% in January from the month prior (economists had projected no growth). Interestingly, the extremely weak December consumer spending number, one that sent markets into a tailspin when it was released last month, was revised even lower to a 1.6% drop.

 

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March 8, 2019

Mixed Jobs Report Shows Sharp Drop in Hiring Growth But Higher Wage Inflation

 

US jobs report further muddies the US economic picture. The headline jobs number of 20,000 was much weaker than the 180,000 new jobs forecast for February. The rest of the report was not as negative,  with December and January’s already strong job figures revised higher, and wage growth accelerated by the fastest monthly pace during this expansion. Rounding out the headline jobs data, the unemployment rate dropped to 3.8% and the labor force participation rate increased slightly to 63.2%- albeit still well below the pre-recession high of 67%.

 

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March 7, 2019

ECB's Dovish Shift Sends Equities and Rates Tumbling Lower

 

European Central Bank surprises markets with stimulus. ECB President Mario Draghi announced that the bank will keep interest rates on hold until 2020 and offered further cheap funding for the region’s banks. The policy move is in response to what Draghi described as a “period of continued weakness and pervasive uncertainty.” The newly announced stimulus for banks comes just three months after the ECB has stopped its open market bond purchases, and suggests Draghi may end his tenure as ECB president without a single rate hike. European equities were down across the...

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