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February 29, 2016

Markets React to PBoC Stimulus to Kick off Payrolls Week

US Stocks and Treasuries both started the week little changed as investors digested China’s latest attempt to boost its slowing economy.  The People’s Bank of China lowered its reserve requirement ratio, or the amount of cash that banks must hold as reserves, by 50 basis points to 17%.  This is the fifth time the PBoC has lowered the RRR since February 2015, and comes after recent signs of tightness in short-term money rates last week.  Despite the stimulus announcement, Chinese stocks plunged, with the benchmark Shanghai Composite approaching its lowest level since November 2014.  ...

February 26, 2016

All Eyes on G-20 and GDP Data

US Stocks fluctuated while Treasuries sold off across the curve as markets reacted to Chinese stimulus optimism and stronger-than-expected US economic data.  The G-20 meeting of central bank governors kicked off in Shanghai today where policymakers gathered to discuss ways to boost global growth.  People’s Bank of China Governor Zhou Xiaochuan assured the audience that the world’s second largest economy remains on solid footing and will not need to devalue its currency to boost exports.  Zhou said the PBoC intends to keep the yuan stable against a basket of currencies after US Treasury...

February 25, 2016

Strong Durable Goods Report Eases Concern Over the US Growth Outlook

US Stocks have rallied while oil pared most of its overnight sell off, after better-than-expected US economic data helped investors look past the worst day for Chinese stocks in a month.  Volatility in oil prices and concern over the state of China’s economy have set the tone for trading sentiment in recent weeks, but it appears some market participants may be refocusing on US fundamentals and the Fed.  A report out today showed orders for US durable goods rose 4.9% in January, more than offsetting a revised 4.6% decline in December.  The headline number was helped by a large jump in...

February 24, 2016

Markets Spooked by Weakness in Crude and Pound

The risk-off trade continues today as stocks and oil declined while investors piled into the relative safety of Treasuries.  Weakness in crude continued to be a major driver after a report showed inventories advanced to an 86-year high and a production agreement between OPEC and non-OPEC producers remained elusive.  Speaking at a conference in Houston, Saudi Oil Minister Ali Al-Naimi ruled out production cuts stating that the kingdom doesn’t trust other countries to join in even if they committed.  He did reaffirm Saudi Arabia’s commitment to the Saudi/Russia-led production freeze...

February 23, 2016

PBoC's Surprise Yuan Devaluation Sparks Sell Off in Risk Assets

US Stocks declined with oil while Treasuries rallied marginally across the curve after the People’s Bank of China unexpectedly lowered the fixing rate on the yuan by the most in six weeks.  The move serves are a reminder that despite the relative calm of financial markets in recent weeks, the world’s second largest economy still faces significant headwinds that impact the global growth outlook.  WTI crude fell nearly 5% as investors digested the implications of the PBoC’s move and on speculation that Iran could hold up a Saudi/Russia-led production agreement.  Iran’s oil minister called...

February 22, 2016

Stocks and Crude Oil Add to Last Week's Gains

US Stocks extended last week’s rally while Treasuries sold off marginally across the curve as higher commodity prices boosted appetite for risk.  WTI crude traded up over 7% after the International Energy Agency said it expects US shale output to fall and data showed a drop in US rig counts.  Crude prices remain at extremely depressed levels, but they have certainly bounced off the lows in recent days as traders weigh the potential benefit of a proposed output freeze led by Russia and Saudi Arabia.  According to Russian Energy Minister Alexander Novak, the oil-producing countries involved...

February 18, 2016

Dovish Fed Minutes Boost Demand for Treasuries

US Stocks fluctuated while Treasuries rallied across the curve as markets digested yesterday’s release of the January FOMC minutes and incoming economic data.  The tone of the minutes were extremely dovish and revealed Fed policymakers were concerned about a number of developments both domestically and internationally.  Some of the committee’s concerns were increased financial market volatility, wider credit spreads, a stronger dollar, falling inflation expectations, and running out of monetary ammunition to fight against an economic downturn, among others.  The minutes observed that “the...

February 17, 2016

Firm Risk-on Tone as Oil Prices Surge

US Stocks rallied for the third straight day while Treasuries and swaps sold off as a bounce in oil prices and better-than-expected economic data boosted investor sentiment.  WTI crude is trading up nearly 7% to $31/barrel, further rebounding from last week’s twelve-year lows.  The move comes after conflicting statements from Iran with regards to the country’s level of support for the Russia/Saudi-led production freeze proposal.  Iranian Oil Minister Bijan Zanganeh met with his counterparts from Venezuela, Iraq, and Qatar in Tehran, appearing to endorse the first agreement between OPEC and...

February 16, 2016

Global Stocks Higher Despite Potential Production Agreement Failing to Boost Oil Prices

US Stocks rallied while the Treasury curve has experienced a small bear steepener off the back of possible good news for oil price stability along with some central bank rumors.  In a meeting which concluded earlier this morning, four of the world’s largest oil producers (Saudi Arabia, Russia, Qatar, and Venezuela) claim to have agreed to freeze oil production at their respective January production levels.  Crude prices initially surged over 5% after the news broke, adding to Friday’s 12% advance, before turning negative on disappointment that the talks didn’t result in an outright cut in...

February 11, 2016

Volatility Surges on Cheaper Oil and Bank Capitalization Fears

Global stocks plunged while Treasuries and swaps rallied across the curve off the back of continued global growth concerns.  The massive flight-to-quality trade was largely driven by falling oil prices (WTI crude below $27) and weakening credit markets, which are causing investors to question the effectiveness of central bank policies.  Poor European bank earnings and weak forward guidance dragged down financial stocks on both sides of the pond, which have now surpassed energy companies as the biggest source of pain for equity markets in recent days.  At one point the 10-year Treasury hit...

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