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Market Moment

  • January 18, 2019 2:00 p.m. A Possible Easing of Trade Tensions is Today's Market Mover -by- Lester Murray

    The prospect of at least a partial resolution to America's trade squabble with China has buoyed investor sentiment and provided a shot-in-the-arm to equity investors looking for good news. Reports from the Administration hinting at cutting or maybe lifting some of the tariffs placed on Chinese imports has created the prospect of a possible end to the ongoing trade war.  

    John Williams, New York Fed President, joined the growing list of FOMC members suggesting that a pause in rate hikes is appropriate and will allow the Committee to reassess conditions.  His remarks to the New Jersey Bankers Association stressed the importance of making sure that any Fed actions are data-driven.

    Bond yields have edged up slightly, but today's sell-off is pretty mild.  At the moment, the Ten-Year is yielding around 2.78% with the Two-Year right at 2.60%.

    A bit lost in the shuffle was news from the University of Michigan that its Index of Consumer Sentiment fell to its lowest level in more than two years.

    Markets will be closed Monday in observance of Martin Luther King, Jr. Day.

  • January 17, 2019 2:00 p.m. Mid-Day Turnaround -by- Lester Murray

    A quiet and uneventful morning became a little less so after Dow Jones reported that the Trump administration is considering lifting the tariffs it has imposed on a long list of Chinese imports. Details on the source of the report and what else is in it are a little sketchy at the moment.  Regardless of its veracity, the report's effect has been sudden and significant.  Investors in the DJIA have turned a mild sell-off into a significant rally while other investors are hitting bids in the Treasury market.  The Ten-Year has given up about 1/4 point in price and that has pushed the yield up a few basis points to 2.75%.

    Earlier in the day, the Philadelphia Fed Business Outlook Survey Index jumped unexpectedly to 17 from 9.1.  Analysts weren't expecting any change. This helps to counter the plunge experienced by the Empire Manufacturing Index earlier in the week.  The Brits are still trying to figure out the whole Brexit thing but don't seem to be making much progress.  After fending off another confidence vote attack earlier in the week, Theresa May still has seven lives left.  This could take a while.

  • January 16, 2019 9:30 a.m. Morning Market Moves - by- Lester Murray

    Bonds have slipped off high-center with a modest sell-off that has pushed Treasury yields up by a handful of basis points across the curve. The Ten-Year yield has edged up by about that amount to 2.74%.  Equities are off to a good start mainly due to some unexpectedly positive earnings reports from some of the big banks. But, most news this morning centers around Brexit after Theresa May's plan for the big European divorce was narrowly defeated in yesterday's Parliamentary vote 432-202. Mrs. May did not cover the spread. No one seems too sure about what happens next. It almost makes our partial shutdown look like no big deal.

    But, if you were anxiously awaiting today's publication of Retail Sales, that's not going to happen. The Bureau of Economic Analysis is part of the partial shutdown and they're the ones who keep track of such things. One positive for the bond market that seems to be ignored for the  moment is this morning's report on trade inflation.  The Bureau of Labor Statistics is still open for business and it reported this morning that its Import Price Index fell by 1% in December with Export Prices slipping by 0.7%. A bit of good news from the National Association of Homebuilders came in the form of the Housing Market Index.  It edged up slightly to 58 from 56.

  • January 15, 2019 9:10 a.m. A Swing and a Miss for Manufacturing & Inflation-by-Lester Murray

    The New York Fed, not part of the partial government shutdown, announced this morning that its Empire Manufacturing Index is acting like there's something out there that is shut down. This measure of manufacturing activity in the state of New York tends to have a high correlation to manufacturing activity elsewhere throughout the country.  Its upwardly revised December value of 11.5 was expected to slip a little bit to around 10.  Instead, the bottom fell out and it plunged to 3.9.  This is actually the continuation of a trend being seen the last few weeks and mirrors similar results from other regional indicators of manufacturing's vitality.  

    The Bureau of Labor Statistics, also unaffected by the shutdown, reported that wholesale inflation as measured by its Producer Price Index (PPI) also failed to reach anticipated levels.  The core index (without food & energy) fell by .01%, missing the expectation of a 0.2% rise.  That puts the year-over-year index value at 2.7% when it was supposed to be 2.9%.  This report comes on the heels of last week's report on consumer inflation which similarly undershot market surveys.

    So far, equities have strongly regrouped after starting the day haltingly.   Treasuries are more less unchanged on the day:  Ten Year @ 2.70% with the Two-Year @ 2.52.  Today's Brexit vote is not expected to go the way of Mrs. May, but a variety of outcomes are possible.  In the meantime, crude oil is up over $1/barrel with $52 in sight. Maybe.

  • January 14, 2019 3:30 p.m. Monday's Market Blah's May Not be all Bad - by- Lester Murray

    It's not very exciting, but a day when not much happens may be just what investors need.  As we approach today's close, the drop in the Dow will be limited to double-digits and, except for the really long end of the Treasury curve, bonds are pretty much flat on the day.  Janet Yellen was back in the news today as she addressed a trade event in New York City sponsored by the National Retail Federation.  In her comments, the former Fed-Chair mused that the current cadre at the Fed may have made their last rate hike of this cycle.  To be clear, she wasn't making a prediction, but with global conditions become weaker and inflation becoming even more muted, it's possible that her successor has made his last rate hike.  At the very least, she sees the Fed taking a "breather" while the Committee takes some time to further evaluate economic conditions.  Perhaps playing to her audience, Mrs. Yellen responded to a question about inflation with the following: "It may well be that the Amazons of the world are changing their prices in a way that makes our economy less inflation-prone."   

    Also making news, of sorts, was current Fed Vice-Chairman Richard Clarida.  In an interview on Fox Business Network, Mr. Clarida stuck with the Fed's new company line about being patient with future rate hikes while reading the tea leaves in the data.  Clarida also downplayed, finally, the significance of December's "dot-plot". "We don't vote on those dots," he said.  There will be more Fed speakers out amongst the masses this week and many will be listening for their concurrence, or dissonance, with Mr. Clarida's remarks.   

  • January 11, 2019 9:15 a.m. Inflation Holding Steady-Bonds Like It - by Lester Murray

    The Bureau of Labor Statistics (BLS) got the day started with a fresh report on inflation.  Investors learned this morning that, in December, the Consumer Price Index fell by one-tenth to a year-over-year 1.9% rate.  Without food and energy, the core CPI rose 0.2% as its year-over-year rate held steady at 2.2%.  Bond prices are up significantly as credit markets interpret the report as one that would not force the Fed to adjust its newfound "patience" when it comes to future rate hikes.  This morning's rally has put the Ten-Year @ 2.68% (about a half-point higher in price) with the Two-Year@ 2.52% reflecting a price move about 1/8 point.  Equities are in sell-off mode with the DJIA down about 150 points at the moment. The list of potential reasons for that is long and varied; feel free to pick your own.

  • January 10, 2019 9:30 a.m. Trade-Talks, Shutdown, & The Chairman -by- Lester Murray

    None of the above are getting blamed for an early-morning equity sell-off; that distinction belongs to some of the nation's largest retailers after several disappointing sales and revenue reports were made public this morning. Bonds are pretty much unaffected by anything, so far, with the Ten-Year unchanged @ 2.71% with the Two-Year unchanged @ 2.54%. Unchanged is a seldom used adjective these days when discussing financial markets.

    But, that doesn't mean change won't be coming. Trade-talk perceptions seem to change with whoever is doing the perceiving. Glad tidings helped propel buoyant moods yesterday, but some yet-to-be-resolved issues remain. Their ultimate resolution remains in doubt. Likewise with the partial government shutdown (PGS). As the shutdown day-count rises, so do the grumblings. And now that furloughed employees are not getting paid, pressure mounts.

    Mr. Powell is also exposed to some pressure of a different sort, but he seems prepared to fade the heat. He'll be speaking to the Economic Club of Washington, D.C. at a luncheon today and his comments will be scrutinized, as always. After yesterday's release of dovish FOMC minutes, investors will be playing close attention for any signs that Mr. Powell's outlook is different than the one described by the Committee's minutes.

  • January 9, 2019 2:30 p.m. FOMC Releases Unsurprising Minutes - by Lester Murray

    This afternoon's publication of the FOMC's Meeting Minutes from December revealed little that wasn't already suspected by most observers. Readers may recall that December's vote to raise the Fed Funds target was unanimous, but that doesn't mean all members are thinking in lockstep. Much discussion took place over the need for more hikes in light of softening inflation and inflationary expectations with some members expressing concern about market volatility and yield curve inversion. As has been expressed publicly by Chairman Powell, the Committee's future rate decisions and policy adjustments will be determined by economic performance data and are not on a pre-set schedule.  Nothing we haven't all heard before.  Earlier today, James Bullard, St. Louis Fed President, warned in a newspaper interview that moving ahead with more rate hikes in our current economic state will increase recession risk along with yield curve inversion.  There was also discussion in the minutes relating to the current policy rate's nearness to "neutral". Despite Powell's comment in October that "we're a long way from neutral", the current consensus seems to be that we're very close to that mythical rate with the more dovish members expressing the belief that we're already there. Most readers of those minutes would probably be left with the impression that the Committee, as a body, is not averse to taking a pause in its quest for normalcy. Market reaction has been muted with Treasury yields little changed from where they've been most of the day.  Equities, as usual, are all over the place, but the Dow is still hanging on to a green arrow. 

  • January 9, 2019 8:45 a.m. Trade Talks Focus on the Positive, Everyone Focuses on Fed Minutes - by Lester Murray

    Following the conclusion of three days of intensive trade negotiations, spokesmen for both China and the U.S. have hinted with optimism at the prospect of a positive outcome. As of yet, no official pronouncements have come from either side, but many expect a coordinated message to soon be released. While waiting for that official pronouncement of progress, equity markets across the globe are pre-reacting positively; the DJIA is up almost 200 points in early trading. Credit market behavior is a bit more muted with Treasury prices little changed from yesterday. Ten-Year @ 2.72%, Two-Year @ 2.58%.

    The Treasury is selling $24B Ten-Year notes today and it is hoped that investor demand has a renaissance following a lackluster Three-Year auction yesterday. Minutes from the December 19 FOMC meeting are also scheduled for release today and investors will be scrutinizing that record for a sense of just how unified, or not, the Committee members are in their perceptions of appropriate policy measures.

  • Tuesday January 8, 2019 4:15 p.m. Tuesday's Wrap-Up - by Lester Murray

    In a slight reversal of fortune, Treasuries have been leaking a little oil throughout the day.  Looks like the Ten-Year has given up about a quarter-point in price for an end-of-the day yield around 2.73%.  The Dow would up gaining 256, mainly from the speculation that positive developments will result from the U.S.-China trade talks/tweets.  It's been a light day for data, but the NFIB Small Business Optimism Index came in better than pre-release surveys projected (that's how optimism works.)  The November reading of 104.8 was expected to slide to 103, but only had a slight slip to 104.4  A rare negative measure for the ultra-tight labor market came out in the form of the Labor Department's JOLTS (Job Openings and Labor Turnover Survey).  Greater numbers of job openings are perceived as a positive as employers are actively seeking more employees.  Using November's data, the number of openings fell from 7,131M to 6,888M (surveys were looking for 7,050M.)  The Trade Balance in November will remain a mystery until the partial government shutdown (PGS) ends, and the Bureau of Economic Analysis gets back to work.  The Treasury auctioned about $38B Three-Year notes today at a high-yield of 2.56% with a relatively weak bid-to-cover ratio of 2.44X.  For a little perspective, the last Three-Year auction on Dec. 11 had a high yield of 2.75% and a bid-to-cover of 2.59X.  Consumer Credit was estimated to have grown by $17.5B in November, but it actually grew by $22.15B.  Never underestimate the American consumers' proclivity to borrow money.   FOMC minutes out tomorrow!!!

  • January 8, 2019 Market Comment: Inflation - by Jeffrey Caughron

    Projections of future US inflation (breakeven rates) continue to extend their decline through actual inflation readings. Since mid-November, the 5yr TIPs spread, for example, has fallen well below the most recent levels clocked by core PCE inflation, the Fed’s preferred measure. The differential hasn’t been this wide since mid-2016 when the 10yr T-Note yield was trading below 1.5% (first chart below). It appears that three years of Fed rate hikes are now biting down hard on the expansion and reducing price pressures. The jump in wage inflation we saw last Friday shouldn’t be discounted, but it could be the last gasp of a lagging measure. When breakeven rates are used to calculate “real” bond yields, the impact on valuation is significant. In the last five years, the “real” yield on a 5yr T-Note has jumped over 200bps (second chart below).


  • Monday, January 7, 2019 Atlanta Fed's Bostic Trims Rate Outlook Lester Murray

    Raphael Bostic, President of the Atlanta Fed and an FOMC non-voter this year, told the Rotary Club of Atlanta this afternoon that he envisions one rate hike this year while sticking with the scheduled reduction of the Fed's balance sheet.  Bostic cited the trade relationship with China and the eventual nature of Brexit as being big variables in how the economy will fare.  Bostic joins Loretta Mester of the Cleveland Fed and Robert Kaplan of the Dallas Fed in being among those calling for either a pause in rate hikes altogether, or at least a reduction in the number being contemplated.

  • January 7, 2019 The Sun is Shining on Stocks; Bond Prices Slip - by Lester Murray

    Mid-day finds the DJIA up about 250 points after an early, and brief, foray into negative territory.  Equity prices seem buoyed by the anticipation of something positive coming out of Chinese-American trade talks.  So far, that's more wishful thinking than anything else as it's a little early to be celebrating.  Bonds have slipped into slightly negative territory on the day, giving up the day's earlier, modest gains.  Talk is circulating that bond traders are reassessing just how dovish Chairman Powell's remarks on Friday really were.  That was Friday-they've just now decided to reassess?!  Was Friday's bond rally an over-positive reaction?  More wishful thinking?  WTI is up over a dollar so far today and at a little over $49/barrel, is trying to sneak up on $50.    Ten-Year @ 2.68%; Two-Year @ 2.53%.

  • Monday, January 7, 2019 This Morning's Opening - by Lester Murray

    The morning has begun quietly with bond prices slightly firmer and equities looking for direction (aren't we all.)  Trade talks between American and Chinese delegations are scheduled to restart today.  Investors will be looking for anything positive to cling to toward a negotiated resolution to the disputes  that have landed the nations in a growing dispute.  This variable is a concern to all market participants and the uncertainty over the eventual outcome has been a major contributor to volatility in credit and equity markets.  Brexit debate resumes today in the U.K. and FOMC minutes will be out on Wednesday.

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