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January 31, 2019

Rates Continue to Slide Ahead of Jobs Number Release

 

Rates fall as market digests weak jobless claims data and “Powell Put.” Treasury yields and swap rates continued yesterday’s momentum- falling 5-8 basis points across the curve. The 10 year treasury yield trading as low as 2.619%. 10 year swap rates are now at 2.657%, more than 7 basis points below 3 month Libor. Fed funds futures are now pricing in merely a 3.7% chance of a hike by the end of the year, and nearly a 25% chance of a rate cut. Much of the move can be attributed to a surprisingly accommodative Fed and speculation that there is a “Powell Put” in at the Fed. Indeed, the Fed has now opened itself up to criticism that it acquiesced to market pressure after a full 180 reversal from the tightening bias expressed at the December FOMC meeting.
 

 

Non-farm payrolls figure to be released tomorrow. Consensus estimates call for non-farm payrolls to grow by 165,000---a sharp deceleration from December’s blockbuster 312,000 gain. The unemployment rate is expected to remain steady at 3.9%. Given the dramatic decline in Treasury yields during the past few days, rates could rebound if the payroll report comes out stronger than anticipated.
 

 

Stocks enjoy record January gain. The S&P 500 ended the best month its had in three years on a positive note- closing up .86% after General Electric and Facebook both reported strong quarterly results. For the time being, equities have shrugged off concerns around the US-China trade dispute and slowing global growth, buoyed by generally better-than-expected earnings reports.

 

 

China and US Trade Talks Progress. President Trump spoke today from the Oval Office as Chinese officials stood by, both sides saying they hoped for a quick resolution to the trade dispute. Chinese negotiators are proposing a late February meeting between President Xi Jinping and President Trump.
 

 

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