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May 16, 2019

Strong Housing Numbers and Earnings Help Risk Assets Continue Rally

 

Housing starts surprise to the upside, sending rates higher. Housing starts regained momentum last month as construction on new homes rose 6% in the month of April to an annualized rate of 1.24 million. The news was taken positively by rates market as treasury yields and swap rates rose 2-4 basis points across the curve. The 10 year yield remains below 2.40%- a level It hasn’t been at since 2017.  

 

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May 14, 2019

Risk Assets Rebound as Trade Pessimism Subsides

 

Equities bounce back after trade concerns abate slightly. Risk assets continue to move on headlines, and US equities rebounded after President Trump said he’s speaking with China to come to an agreement on trade. Stocks that are heavily exposed to China and exports like Caterpillar and Apple rebounded after their worst days in as much as four months, advancing 1.74% and 1.58% respectively. The S&P 500 climbed 0.80%, led higher by technology stocks which rose 1.60% on the day. The VIX or “Fear Index” fell 2.5 points but remains elevated at 18.06--showing...

May 13, 2019

US-China Tariff Escalation Sinks Risk Assets

 

Beijing levies new tariffs on $60 billion worth of US goods. Whatever optimism markets had after trade negotiation updates on Friday was quickly erased after Trump’s recent tariff tweets and China’s Ministry of Finance announced new retaliatory tariffs on US goods. Chinese officials characterized the new tariffs as a “response to US unilateralism and trade protectionism.” A resolution to the escalating trade conflict does not seem likely in the near term, President Trump telling reporters “I love the position we’re in” and “I think it’s working out really well.”...

May 10, 2019

Cautious Trade Optimism Helps Rates and Equities Rebound

 

CPI print comes in lower than expected, suggesting inflation remains subdued. The headline Consumer Price Index figure came in below expectations at 2.0% while core-CPI came in as expected at 2.1%. The Federal Reserve will be hesitant to raise rates without a significant uptick in inflation, even as unemployment is at record lows and GDP hovers near potential. Rates markets remained focused on the US-China trade talks as the somewhat positive news on that front helped push yields higher 1.5-2bps across the curve.

 

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May 9, 2019

Continued Trade Uncertainty and Geopolitical Tensions Lead Equities and Rates Lower

 

North Korea launches most serious weapons tests since 2017. The launch casts further uncertainty over denuclearization talks with the US after President Trump and North Korea leader Kim Jong Un failed to reach an agreement at a summit in Hanoi earlier this year. North Korea’s return to frequent tests mark a significant deterioration in regional stability, and comes US-Iran tensions escalate as well. In the region, South Korean equities fell over 3% on the day, and credit spreads on South Korean sovereign debt rose to their highest level since January.

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May 8, 2019

Rates Rise as Trade Outcome Remains Uncertain

 

US equities rebound after Trump tweet spurs hope for trade resolution with China. Equities had initially sold off to start the day but quickly reversed course after President Trump tweeted that Chinese Vice-Premier Liu He would be coming to the US to “make a deal.” While markets took solace from the tweet, JP Morgan CEO Jamie Dimon said during an interview that he doesn’t think a trade deal gets done by Friday, but that the long term odds of the US and China reaching a trade agreement were around 80%. The S&P 500 closed down 0.16% while the Dow Jones...

May 7, 2019

Risk Assets Fall, Volatility Rises as Trade Tensions Continue to Escalate

 

US equities have worst day since January, VIX rises to 19 as sell off continues. The US administration’s tough talk on trade was a major catalyst, with US senior officials accusing their Chinese counterparts of backtracking on their promises during trade talks. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steve Mnuchin confirmed that the administration would raise tariffs on China on Friday, and even got support from Senate Minority leader Chuck Schumer who urged President Trump to “hang tough on China.” US equities did not take the comments...

May 6, 2019

Trump Threatens Additional China Tariffs, Sending Risk Assets Lower

 

Tariff talk throws markets back into disarray. President Trump threatened to raise tariffs on Chinese imports over the weekend, tweeting that the current 10% tariffs on $200 billion of Chinese goods will rise to 25% on Friday. Risk assets immediately reacted, futures falling and US equities immediately opening 1.5% lower. The significant escalation in trade tensions came as a complete surprise to investors, and the VIX or “Fear Index” rose nearly 6 points before closing at 15.44. The S&P 500 and the Dow Jones Industrial Average bounced back from their lows--...

May 3, 2019

Unemployment Falls to Lowest Level in 50 Years But Still No Sign of Wage Inflation

 

“JOBS, JOBS, JOBS!” The US economy added 263,000 jobs in April, well ahead of expectations. The strong number was also reflected in the unemployment rate which dropped to  3.6%, the lowest level in 50 years. President Trump celebrated the report by tweeting “JOBS, JOBS, JOBS!” as Vice President Pence joined the chorus of administration officials calling for a rate cut. Despite the strong headline numbers, wage inflation remained low, hourly earning rising at a 3.2% annual rate. Rates jumped up initially but pulled back and eventually went negative on the day- the...

May 2, 2019

Rates Continue to Rise Ahead of Jobs Report

 

Rates continue to rise ahead of tomorrow’s jobs report. Rates climbed for a second day, after Fed Chairman Powell’s upbeat assessment of the outlook for the economy and inflation prompted investors to rethink their assumptions about the likelihood of a Fed rate cut later this year. Treasury yields rose 4-5 basis points across the curve, and swap rates followed suit, rising 3-4 basis points. The spread between 2 year and 10 year Treasury yields, a measure of yield curve steepness, had reached its year to date peak earlier in the week, but now sits 4 points lower at...

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