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June 3, 2019

Fed's Bullard Acknowledges Potential for Rate Cuts

 

Fed’s Bullard says that a rate cut may be “warranted soon”. The St. Louis Fed President, who has described himself as “the most dovish person” at the Fed, has been publicly lobbying for more accommodative monetary policy since the end of 2018. Despite his history of dovishness, the public acknowledgement of a potential rate cut in 2019 was sufficient to pull yields and swap rates 6-11 basis points lower across the curve. The 10 year Treasury yield closed at 2.07%- nearly 70 basis points lower from the highs in January.

 

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May 31, 2019

New Tariff Threats Send Market Into Tailspin

 

Improving inflation figures drowned out by the latest batch of negative trade news. Stronger than expected PCE data went entirely ignored by a market solely focused on worsening trade developments. Notably, President Trump’s tweets that he would impose tariffs on Mexico in order to force better border security was met by panic in markets already unstable from the ongoing trade showdown with China. Treasurys immediately rallied and prices continued to rise throughout the day- pushing yields down 9-13 bps across the curve. Remarkably, Fed Funds futures now imply a...

May 30, 2019

Equities Rebound, Rates Continue to Fall on Fed Official Comments

 

Clarida says Fed may consider rate cuts if the economic outlook takes an unexpected turn for the worse. Fed Vice Chair Richard Clarida also said that Fed officials would be “nimble” in adjusting their policy, particularly if the “incoming data were to show a persistent shortfall in inflation” or if the data were to indicate that there was “material downside risk” to the Fed’s outlook. Inflation certainly has fallen short of the Fed’s target, but for the time being US growth remains robust--a fact that was reinforced by this morning’s strong Q1 GDP report which...

May 29, 2019

Trade Concerns Continue to Weigh on Markets

 

Bond rally loses steam as Treasurys give back early gains to close flat on the day. For most of the day investors piled into safe haven assets as concerns around the US-China trade conflict intensified. The move briefly pushed the yield on the ten year treasury to a 20-month low of 2.26%, but the bond rally evaporated in the last few minutes of trading as yields closed nearly flat on the day. Despite the late reversal, the spread between three month T bills and ten year Treasury notes has once again inverted to -13 basis points. A negative spread between 3 month...

May 28, 2019

Rates and Equities Resume Fall as Trade Conflict Remains in Focus

 

Rates fall across the curve, Fed Funds futures now price in 83% likelihood of rate cut by year-end. Treasurys continued to rally, pushing yields and rates down 5-7 basis points across the curve as investors fled to safe haven assets. The move lower in rates, which has been accompanied by above-average trading volume, ratchets up pressure on the Federal Reserve to cut rates later this year, even though Fed officials have resisted that notion publicly.

 

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May 24, 2019

Durable Goods Orders Miss Estimates, Rates Flat in Quiet Session

 

US equities and rates move sideways in quiet session. Treasurys moved slightly lower in a holiday-shortened session. Yields rose marginally in the front end of the curve. Swap rates were also largely unchanged after yesterday’s significant bond rally. US equities are in positive territory, albeit on volumes that are 20% lower than average. The S&P 500 is .17% higher on the day while the Dow Jones Industrial Average is up 0.36%.

 

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May 23, 2019

Equities and Rates Fall for Second Straight Session

 

US equities fall across the board as US and China trade relations continue to deteriorate. Both the US and China have hardened their language and have taken steps to support local industries most likely to be harmed by a long-lasting trade conflict. In particular, President Trump’s decision to make $16 billion in direct payments to tariff-harmed farmers is a sign that the trade skirmish may devolve into a protracted trade war. The S&P 500 and Dow Jones Industrial average fell for the second straight day, led lower by sectors exposed to the trade conflict....

May 22, 2019

FOMC Minutes Show Continued Commitment to "Patience"

 

Commitment to “patience” evident in Fed minutes. The most recent FOMC minutes released today showed the members remain committed to keeping rates unchanged for the immediate future, holding the federal funds rate in the 2.25% to 2.50% range. The minutes also showed some debate about persistently low inflation, but did not include any explicit discussion of a rate cut. Some FOMC members even seemed supportive of further rate increases if the US economy holds its course, though the majority of the committee remained committed to keeping rates intact for the time...

May 21, 2019

Equities Rally as White House Delays Huawei Ban, Rates Little Changed Ahead of FOMC Minutes

 

Powell warns that rising business debt could begin to impact economy negatively. Fed Chair Jerome Powell said that regulators should take the rising levels of business debt seriously, but added that comparing today’s credit market to the subprime mortgage crisis overstates the risks. Powell added that today’s risks are marked primarily by “aggressive underwriting” and growth in particularly risky corners of credit markets like leveraged lending. Albeit a lagging indicator, credit spreads on high-yield issuers have remained low since the peak at the end of 2018, a...

May 20, 2019

Equities Fall Once More, Crude Rallies as OPEC Extends Output Cuts

 

Atlanta Fed President Bostic does not see rate cut this year. Raphael Bostic made the comments during an interview this morning, saying that he has confidence in the economy, and that “things would need to happen” in order for rate cuts to play out. President Bostic also highlighted that inflation has remained subdued and that the low level of inflation is a sign of neutral Fed policy and that the Fed could keep rates steady “for a long time.” Treasury yields and swap rates climbed 2-3 basis points cross the curve on the day, though term rates remain precipitously...

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