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January 22, 2019

IMF Reduces Global Growth Outlook as Trade Fears Persist

 

IMF less bullish on global growth. In a move that is sure to be widely discussed at this week’s World Economic Forum in Davos, the International Monetary Fund trimmed its outlook for 2019 global economic growth from 3.7% to 3.5%. Much of the reduction was attributed to Europe and Asia, where weak demand and industrial production (Europe) and threats of escalating trade wars (Asia) continue to hamper forecasts. In support of the latter, yesterday China reported that its economy grew last year at the slowest annual pace (+6.6%) in 30 years. The report from the world...

January 18, 2019

Risk Assets Continue to Climb with Positive US - China Trade News

 

Easing of US-China trade tensions sends rates higher. Speculation that the U.S. and China are coming close to a trade truce pushed Treasurys lower and yields higher. Five year swap rates rose nearly five basis points while 10 year treasury yields  rose 3.4 basis points to close at 2.784%. The dollar also strengthened on the back of the report, the DXY index rising 1.32% to extend its positive streak to four days in a row.

 

January 17, 2019

Rumors of Tariff Removal Push Rates and Equities Higher

 

US equities and rates close higher after reports that Trump administration may lift tariffs on Chinese imports. While no official announcement was made, several media outlets claimed that the US is considering lifting tariffs on Chinese goods- giving equities and rates a boost in the middle of the session. Treasury yields and swap rates ultimately ended the day 1-2 basis points higher while the S&P 500 closed up .76% on the day.
 

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January 16, 2019

Risk On Mood Pushes Rates Lower and Equities Higher

 

Rates rise amid risk-on sentiment. Treasury yields and swap rates rose a basis point or so across the curve in a day marked by less volatility than we have experienced of late. FOMC member Esther George made comments today which were received well by the market, becoming the latest Fed official to suggest that a pause in rate hikes is warranted. George went one step further, saying that the Fed’s shrinking balance sheet could be a “fair explanation” for some of the recent market volatility- an idea that other Fed officials have yet to suggest. The Fed’s latest...

January 15, 2019

US Equities Rally Despite Brexit Chaos and Shutdown Uncertainty

 

Early results push banks higher as earnings season kicks off. Citigroup, JPMorgan and First Republic all rose after posting better than expected fourth quarter profits. All three banks attributed the earnings increase to expanding net interest margins amid the rising rate environment, offsetting generally weaker trading revenue. Investors will watch bank results closely for any early indicators of the global slowdown that many economists are forecasting for 2019. The S&P 500 Bank Index was up 0.77% on the day:

 

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January 14, 2019

Disappointing Chinese Economic Data Pulls Stocks Lower

 

Rates little changed as government shutdown enters 24th day. Treasury yields and swap rates moved sideways most of the day, shrugging off comments by former Fed Chair Janet Yellen who said it’s “very possible” that the Fed has made its last rate hike of the cycle. Rate markets also didn’t make any move driven by the continued government shutdown- even as 800,000 federal employees missed a paycheck this past Friday. The ultimate economic impact of the shutdown is still unknown, but real estate firm Zillow estimates that federal employees owe around $438,000,000 in...

January 11, 2019

Government Shutdown Concerns Pull Equites and Rates Lower

 

Government remains shut down as President Trump rejects GOP proposal. An emergency declaration seems less likely after President Trump stated that no decision was imminent. Those comments are a reversal from his previous statements where President Trump indicated he was likely to declare an emergency to resolve the impasse. The government shutdown is now the longest in history, though the economic impact has yet to be seen in the data- particularly after a strong jobs number this week. That said, Fed Chair Jerome Powell has warned that a prolonged shutdown could...

January 10, 2019

Economic Warning Signs Grow as Equities Continue Rally

 

Market sentiment continues to deteriorate as economists and business leaders turn cautious. Economists surveyed by the WSJ are increasingly worried about the risk of a recession. Economists surveyed are seeing a 25% chance of a recession in the next year, the highest level since 2011. Economists pointed to the trade dispute with China, rising interest rates and the equity volatility in December as the biggest risks. A survey by Deloitte also pointed to a shift in sentiment- nearly half of the CFO’s surveyed in December said they expect a recession before 2020....

January 9, 2019

Fed Minutes Reveal Caution Among FOMC Members

 

Rates retrace their recent gains as Fed officials express caution. Minutes from the December FOMC meeting showed that 4 of the 12 regional Fed presidents prefer to exercise caution before moving ahead with hikes in 2019. 3 of those 4 are voting members. Among them, Boston Fed President Eric Rosengren stated that the Fed “can wait for greater clarity before adjusting policy. There should be no particular bias towards raising or lowering rates until the data more clearly indicate the path for domestic and international economic growth." In a similar tone, Chicago...

January 8, 2019

Equities and Rates Rise on Trade Optimism

 

Treasury yields and swap rates continues to bounce back. Rates are set to close higher as risk assets continue to rally, buoyed by optimism over Chinese-U.S. trade talks after both sides signaled progress toward resolving the dispute. Five year swap rates are 3.9 bps higher on the day while ten year Treasury yields are up 2.8 bps at 2.72%. Both the swap curve and yield curve continued to flatten, the spread between 10 year and 2 year Treasury yields falling to 13.53 basis points while the spread between 2 year and 10 year swap rates remains only 3 basis points....

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