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August 30, 2019

Consumer Spending Hot, Inflation Growth...Not

 

The US economy continues to be supported by robust consumer spending. Despite the recent flurry of weak manufacturing data that has accompanied the ongoing tariff wars, the American consumer base proved its resilience in the underlying spending figures for July which were released this morning. Household spending rose a seasonally adjusted 0.6% last month, outpacing median forecasts of +0.5%, albeit income growth missed expectations with a tempered 0.1% monthly rise. Also detailed in the report, the core personal consumption expenditures (PCE) price index, which...

August 29, 2019

Equities Rally as Trade Concerns Abate, Rates Grind Higher

 

Optimism around trade deal leads US stocks higher. US equities had their best day in two weeks, the S&P 500 and Dow Jones Industrial Average closing up by 1.27% and 1.25% respectively. Equities took comfort from the renewed optimism from Chinese officials who expressed hope that the US’s new tariffs would be cancelled to avoid escalating the trade war. Chinese officials also added that “the most important thing at the moment is to create necessary conditions for both sides to continue negotiation.” The trade optimism was seen in Europe as well, export-...

August 27, 2019

Yield Curve Inversion Rattles Financial Markets

And the inversion deepens. Today the spread between the yields on 2- and 10-year Treasurys fell further to -5bps, a level of inversion that was last observed in 2007. The fun fact that usually accompanies this phenomenon reads: every recession over the past 50 years has been preceded by an inversion in the 2s10s spread. The timing of any recession is more unpredictable in nature, with the average lag time being about 22 months post-inversion. While strong unemployment and steady payroll additions may not support such a cause for concern, stagnant inflation and ever-growing...

August 26, 2019

Trade Tension Dominate Market Sentiment (Again)

 

“Sorry, it’s the way I negotiate.” Markets whipsawed back and forth as conflicting messages on trade lead to a volatile weekend that typified US-China trade talks thus far. President Trump told reporters yesterday at the G7 summit that he had “second thoughts” about the turn that the trade war had taken. But later that day top economic advisor Larry Kudlow clarified, saying that the President meant to say that he “regrets not raising the tariffs higher.” After those comments, S&P 500 futures took a nose dive, falling as much as 1.2% before President Trump...

August 23, 2019

Déjà Vu: New Tariffs Send Rates and Equities Plummeting Lower

 

Tariffying tweet sends risk assets tumbling lower once more. Equities were originally in the green to start the day, even taking Fed Chair Powell’s somewhat gloomy Jackson Hole speech in stride before plummeting lower after President Trump tweeted harsh criticism of the Fed and promised additional retaliatory tariffs on China. The details of those tariffs quickly emerged, President Trump tweeting that on October 1st the US would raise tariffs on all Chinese goods by 5%. The S&P 500 and Dow Jones Industrial Average fell 2.59% and 2.37% each, led lower by...

August 20, 2019

Equities End Winning Streak, Rates Fall Ahead of Fed Minutes

 

US equities end winning streak as rates fall lower once more. US equities fell for the first time in four days, following European and Asian equities lower. The move comes as investors digest the prospect of fiscal stimulus from Germany and potentially even the United States, and as Italian assets come under pressure after Prime Minster Giuseppe Conte announced his resignation. The S&P 500 ultimately closed lower by 0.79% while Treasurys rose yet again, the 10 year yield falling 5 basis points to 1.55%. Markets will now turn their attention to tomorrow’s Fed...

August 19, 2019

Rates and Equities Rise Amid Optimism Around Trade Talks

 

Treasury yields rise 6+ basis points across the curve as busy Fed week kicks off. Treasurys gave back some of last week’s significant gains today, yields and swap rates rising 6 basis points across the curve. The spread between 2 year and 10 year Treasury yields has also widened out since last week’s momentary inversion- now sitting at 6 basis points. This week will be an important one following the volatility of the past two weeks, with the always important FOMC minutes being released on Wednesday and the kicking off of the Jackson Hole Economic Symposium later...

August 15, 2019

30 Year Yield Sets Record Low Amid Heightened Concerns Around Trade

 

30 year Treasury yield falls below 2% for the first time. Treasurys resumed their rally today, yields plummeting across the curve as bonds once more benefited from a flight to quality. 30 year Treasury yields fell to 1.97%, the first time they’ve ever fallen below 2%. The move came despite better than expected retail sales figures and a positive outlook from Walmart- easing concerns about the US consumer. Despite the continued strength in the economy’s fundamentals, Fed Funds futures now imply a 66% likelihood of at least three more Fed rate cuts by the end of the...

August 14, 2019

Yield Curve Briefly Inverts as Data Shows Slowing Growth in Europe, Asia

 

US yield curve inverts briefly, sparking recession fears. Rates fell dramatically across the curve in response to weak economic data in Europe, 10 year bonds outpacing 2 year Treasurys to push the 2’s-10’s spread briefly into negative territory. The spread ended the day in positive territory, but only just at 0.002%. The spread is an often cited harbinger of recession- even President Trump expressed concern, criticizing “clueless Jay Powell and the Federal Reserve” for the “CRAZY INVERTED YIELD CURVE.” The inversion comes despite relatively strong fundamentals in...

August 13, 2019

Yield Curve Nears Inversion, Risk Assets Rally as Tariffs are Delayed

 

Consumer Price Index shows unexpected acceleration in July, signaling inflation may be strengthening as the Fed considers additional rate cuts. Core CPI rose 0.3% month over month, 2.2% on an annualized basis. Headline CPI rose at a 1.8% annualized rate, also beating estimates. Slowing inflation has been the Fed’s primary justification for cutting rates amid all-time lows in unemployment, and should other inflation metrics show acceleration it will be increasingly difficult for the FOMC to cut rates in September. Nonetheless, Fed funds futures still price in a 100...

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