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Market Moment

  • July 11, 2019 New Inflation Report Won't Deflate the Doves by Lester Murray

    The Bureau of Labor Statistics just released its report for June's Consumer Price Index and it brought a surprise to the upside.  At its core, the 0.3% rise last month was slightly higher than expected (0.2%) and brought the year-over-year pace to 2.1%; also one-tenth higher than pre-release surveys suggested. The all-inclusive "headline" rate rose by one-tenth last month, but the year-over-year index remained unchanged at 1.6%. This won't be lost on the Committee, but it tends to focus on the Personal Consumption Expenditures (PCE) Index for most of its inflation news. That news won't be out until the end of the month.

    Is this slightly-better-than-expected report enough to derail this month's rate cut that Mr. Powell's report to Congress signaled?  No. But for those that thought the Committee might make a 50 basis point cut, that low probability result has probably become lower.

    Treasury prices are slightly lower with the Ten-Year's yield moving up a few bp's to 2.07% while 90 day bills are not much changed at 2.16%. That still defines an inversion, but not by much.  A report on the Producer Price Index will come out tomorrow.


  • July 10, 2019 The Early Dove Gets the Worm by Lester Murray

    The days start early on Capitol Hill and already this morning, Fed Chairman Jerome Powell has been telling House members that inflation remains muted and that uncertainty remains a global challenge to growth. In his prepared remarks, he laid down a solid case for lower rates without actually describing that as his intention. He didn't really need to, though. Such was the strength of his rationale for a reduction in the Fed's policy rate when next the Committee meets at month's end. Market implied probabilities for a 25 basis point cut have returned to 100% while the chances of as many as three quarter-point cuts are just over 50% by year's end. Treasuries like the news and slightly higher bond prices have pushed the Ten-Year's yield down a couple of bp's to around 2.04%. Mr. Powell will testify before the Senate tomorrow, and it is hoped by most market participants that he sticks to the script.

  • July 9, 2019 Looking for Direction? by Lester Murray

    Despite a couple of tidbits of uninspiring data released this morning, Treasuries are selling off slightly as investors seem unsure about how to behave in front of Chairman Powell's semi-annual testimony to Congress on Wednesday and Thursday.

    The National Federation of Independent Businesses reported that its Small Business Optimism Index took a hit from 105 to 103.3. That particular hit was expected. But, the JOLTS report from the BLS was supposed to reveal that job openings increased in May. Instead, that number fell rather significantly to 7,323k from 7,449k. Increasing numbers of open positions are considered a healthy characteristic of a vibrant economy whereas declines are, well, not. 

    Concerns that Mr. Powell may not coo like a dove when he appears before his legislative inquisitors might have bond investors feeling a little twitchy about which way things may break. Equity investors who desire lower rates for slightly different reasons are also experiencing a few jitters. Nothing huge, but the Ten-Year is a basis point or two higher at 2.06% while 90-day bills are more or less unchanged at 2.22%.

  • July 5, 2019 Is Today's Star-Spangled Jobs Report What Markets Want? by Lester Murray

    What's not to like about a Jobs Report that comes in better than expected? Well, those market participants that are counting on a July rate cut from the Fed may not want the Committee to have a reason to delay that cut. Bonds are selling off as a result and the Ten-Year's yield has moved up about 5 basis points to 2.03%. Market implied probabilities are still 100% for a rate cut, but the day is early. Equity markets appear to like the unexpectedly high increase of 224k in Non-Farm Payrolls with the accompanying revisions not really material. The Unemployment Rate ticked up to 3.7% from 3.6%, but the better news is that the Labor Force Participation Rate went up, too. Sixty-two point nine per-cent was the new number for June; that's up one-tenth.
  • July 2, 2019 Whatever It Is, Bonds Like It! by Lester Murray

    It's getting close to lunchtime and that's as good a reason as any for the Ten-Year to trade south of 2%. A significant price rally that has steadily been progressing throughout the morning has produced lower yields all along the curve. Some point to the dimming glitter of G20 outcomes as a possible reason behind the rally while others sense that concern over weak data might be the reason. The big news is Friday's Jobs Report, but markets have already seen weakness in yesterday's ISM Mfg. report and are anticipating weakness in the ISM's "Services" report due out tomorrow.

    For those playing the long-duration game, it's going your way.  The long-bond is up about one point today putting the yield right at 2.50%.  In other news, oil may be lighter than water, but the price of WTI has sunk about $2 lower than it was yesterday: $57.10.

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