Market Reports

Morning Markets Brief 12-19-2019

                                         Summary and Price Action Rundown

Global risk assets were mostly becalmed overnight in quiet pre-holiday trading although upward movements in sovereign yields continue as investors ponder the likelihood of a broad economic rebound in 2020 and global central banks generally maintain their ultra-easy policy settings. S&P 500 futures point to a flat open, which would hold the index around Tuesday’s record peak with year-to-date gains of over 27%. Equities in Asia and the EU were gently mixed overnight. With US-China trade on the backburner for now, global central banks largely on hold, and global economic data showing selective improvement, investors are expecting placid markets into year-end (more below). An upward drift in sovereign yields has been one area of clear directionality in markets this week, with the 10-year Treasury yield breaking above its multi-month range at 1.95%. With EU, Japanese, and other sovereign yields moving up in tandem, the dollar is finding little support from the rising rates, while the pound has stabilized after reversing some of its recent upside this week amid reemergent concerns over Brexit and dismal growth data. Oil prices are holding near six-month highs after bullish US inventory data.

                   Multiple Factors Drive Sovereign Yields to Multi-Month Highs

Expectations of a 2020 global growth recovery, which have been fueled by some recent improvements in economic data, alongside highly accommodative policy settings by major central banks and an increasing emphasis on fiscal stimulus, are pushing longer-dated sovereign yields to their highest levels since mid-year. Analysts are noting a confluence of current factors that support rising longer-duration developed market sovereign yields, including global growth data recently surprising to the upside, major central banks on hold but highly accommodative, and diminished safe haven demand as trade and Brexit risks recede. Yields on 10-year bonds in the US, Germany, the UK, and Japan are all at their highest level since mid-summer or before. Traders also note upward impetus on rates from anticipation of a moderate global economic rebound in 2020, as well as an increasing focus on the potential for fiscal stimulus to play a greater role in supporting worldwide growth next year. Additionally, analysts suggest that diminishing enthusiasm for negative interest rates among global central bankers and other economic officials is putting a floor under sovereign yields. Earlier today Sweden’s central bank, the Riksbank, hiked rates 25 basis points to bring its policy rate out of negative territory and a senior Japanese government official criticized the effectiveness of the Bank of Japan’s negative interest rate policy, while calling for greater coordination between fiscal and monetary policy. The Bank of Japan retained its current ultra-accommodative policy settings at its meeting today, as did the Bank of England. Later this week, upbeat readings of US personal spending and income data for November, as well as core personal consumption expenditure prices (core PCE), the Fed’s preferred measure of inflation, could spur Treasury yields higher.

                      More Dismal UK Data but Bank of England Holds the Line

Disappointing retails sales figures for November are the latest in a series of worryingly poor UK economic readings, but the Bank of England held policy steady today, shoring up the pound for now. The pound is pausing its week-to-date slide this morning, but is still nursing losses of 1.8% versus the dollar since Monday, after the Bank of England (BoE) held rates steady as expected but conveyed a slightly more upbeat assessment of the economic outlook than traders had been anticipating. Contrasting with the BoE’s cautious optimism, headline retail sales for November significantly undershot expectations, printing 1.0% year-on-year versus a forecast of 2.1% and the prior month’s 3.1%. Meanwhile, Tuesday’s readings of UK job vacancies and wage growth were softer than expected while Monday’s releases of preliminary December purchasing managers’ indexes for both the manufacturing and service sectors surprised to the downside and reflected a deepening contraction in activity. This deteriorating economic picture comes alongside the abrupt reemergence of “hard” Brexit risk earlier this week, as Prime Minister Johnson proposed legislation that would set a deadline for the transition period, during which a new EU/UK trade agreement is to be hammered out, at the end of next year regardless of the state of negotiations. Futures markets assign a 50/50 chance of a rate cut by the Bank of England by next summer, but the choice of Governor Carney’s successor, who will take the helm in February next year, could alter those odds.

                                                            Additional Themes

Markets Still Unmoved by US Impeachment – President Trump’s impeachment by the Democrat-led House of Representatives last evening is having no discernable impact on financial markets today, with analysts focused on his continued support in the Senate.

 Italian Political Risk – Italian sovereign bonds are underperforming today as investors focus on rising risks of an early election in spring that ends the tenure of the moderate ruling coalition. Nevertheless, with the 10-year yield at 1.41%, the overall level remains very favorable.



Morning Markets Brief 12-18-2019

Summary and Price Action Rundown

Global risk assets were mixed overnight as investors consolidate stellar 2019 gains before year-end while monitoring incoming signals on global growth, Brexit, and US politics. S&P 500 futures point to a slightly lower open, which would put the index just below yesterday’s record peak with year-to-date gains of over 27%.

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Morning Markets Brief 12-17-2019

Summary and Price Action Rundown

Global risk assets are fluctuating around yesterday’s highs this morning as investors pause to consolidate gains after the recent string of upside catalysts and note lingering uncertainties on US-China trade, the global economy, and Brexit for 2020. S&P 500 futures indicate a flat open, which would keep the index at yesterday’s record peak and retain year-to-date gains of around 27%.

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Morning Markets Brief 12-16-2019

Summary and Price Action Rundown

Global risk assets are advancing this morning as relief over completion of the Phase One US-China trade deal continues to percolate and firming Chinese economic data adds to the upbeat market mood. S&P 500 futures point to a 0.4% higher open, which would set a new record peak for the index and propel year-to-date gains to nearly 27%.

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Five Minute Macro 12-16-2019

#1 US-China Trade Détente / USMCA Resolution

Last Week: #2

  • After weeks of mixed messages from US and Chinese officials over the state of negotiations, both sides affirmed on Friday that a Phase One deal has been reached, although some final terms need to be rectified.
  • The US agreed to partial removal of existing tariffs on Chinese imports and cancellation of scheduled duty increases consumer-facing products. But the White House will retain some tariffs as leverage in the Phase Two talks, though investors suspect that no additional agreement is likely before the November 2020 elections. China agreed to some degree of increased US farm imports. Enforcement procedures are also said to be included, alongside intellectual property, structural reforms, and currency policy terms.
  • Also, Congress is expected to pass the US-Mexico-Canada trade agreement this week.

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Morning Markets Brief 12-13-2019

Summary and Price Action Rundown

Global risk assets posted robust gains overnight as headlines indicate impending resolution of the Phase One US-China trade deal and the decisive Conservative win in yesterday’s UK election cleared the path for an orderly Brexit. S&P 500 futures point to a 0.4% higher open, which would add to yesterday’s 0.9% gain and set a new record peak for the index.

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Afternoon Markets Brief – 12/6/19

Summary and Price Action Rundown

The S&P 500 posted a strong rally today to end a mixed week of trading on a positive note after US nonfarm payrolls for November registered a significant upside surprise. US equities nearly recaptured last Wednesday’s record high after better-than-expected labor market data brightened investors’ growth outlook. Asian and EU stocks also advanced overnight. Continue reading “Afternoon Markets Brief – 12/6/19”

Looking Ahead – 12/6/19

Just OK is Not OK

Today’s highly-anticipated nonfarm payroll report featured a blockbuster number of 266k new jobs, handily topping an estimate of 183k and giving the many traders who were playing for a mildly disappointing reading a case of whiplash. But the reflexive selloff in Treasury markets settled down quickly and futures markets are still projecting that the Fed will be back cutting interest rates in the second half of next year. That bond market price action is consistent with a pretty sober outlook for growth in 2020, which matches the broad consensus among economists that US GDP is going to soften modestly to 1.8% from this year’s 2.3%. Continue reading “Looking Ahead – 12/6/19”