Market Commentary - Daily Focus

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Weekly Focus

Vital information about the markets, the economy, rates, and more.

SAMCO Capital Markets

Weekly Financial Focus
June 15 - 19, 2015

Last Week! As tiresome as it has become, Greece remained a primary theme running through the markets during the week. Mixed signals (or noise) roiled the markets and, at times, sent the bond, stock and currency markets into hysteric, exaggerated moves. One problem from published reports is that investors don’t really know what sources are in the know and what sources aren’t, thus causing reaction to all, worthy of merit or not. For example, German Chancellor Markel put forth a plan of staggered reforms for staggered payouts. The markets cheered, but the next day cold water was poured onto this plan by the IMF pulling out of negotiations after citing major differences, sending investors seeking safe havens. It often diverted attention from auction supply and economic fundamentals in the US and sent markets into whippy gyrations, depending if the sentiment was ‘risk on’ or ‘risk off.’ On the fundamental side, the economic news for the US economy was encouraging, with signs of a second quarter activity picking up speed. Small business sentiment improved, the job market still shows signs of tightening and hinting at wage gains, and consumer spending looked revived according to the latest retail sales report that incorporated upward revisions to prior months. This kept rates on the short-end of the Treasury market relatively in check, given the support from the data for a Fed rate lift-off this year. But the curve flattened as longer bonds met good demand at the auctions and short covering triggered by Greece-induced flight-to-quality, and a perceived longer lower rate to be eventually pursued by the Fed. Near mid-day Friday, the bull-flattening trade had market rates through 3 years little changed for the week, but longer rates were lower 2 to 5 basis points. Friday’s risk off trade in stocks had wiped out most of the week’s gains for the benchmark equity indices, leving the S%P and Dow fractionally ahead for the week.

This Week! Amid rumors floated into the weekend about deadlines given to Greek authorities to submit a “serious” proposal, the Greek drama is likely to again affect market trading and directions this week. Away from that tiresome aspect, the focus should be on the two-day FOMC meeting. No action on interest rates is expected at this meeting. Little is also expected in visible changes in the language of the policy statement released at 1:00 pm CDT. The Committee is data-dependent and the data is not quite where policymakers want it before making a recommendation for rate lift-off. The focus will be on the Summary of Economic Projections’ (SEP) dot plots, released simultaneously with the statement. Any surprise will come from Fed Chair Janet Yellen’s press conference, scheduled for 30 minutes later. The most anticipated data release will be the next day’s CPI.

Market Rates / Levels

Data Source: Bloomberg Financial Markets

Daily Focus

Vital information about the markets, the economy, rates, and more.

October 25, 2018

GOOD MORNING! After stocks rebounded from their two-day skid, the ADP Employment Change Report blew out consensus expectations, the Employment Cost Index revealed an acceleration in civilian salaries and wages and the Treasury Department announced upsizing Treasury auctions going forward to fund the yawning federal deficit, the bond market took a defensive tone and yields edged higher across the curve while waiting on the FOMC. The Fed did as widely expected, nothing. The policy statement was only incrementally changed, language relating to the hurricanes was dropped and the economic assessment was upgraded, leaving the door wide open to raise rates at the March meeting, barring a surprising sharp decline in economic activity or an external shock such as war or a long-lasting government shutdown. Market reaction had Treasury yields initially continuing to creep higher as the odds of a hike in March moved from 88% to 100%, according to Bloomberg’s model inferred from the fed funds futures market, but move back lower as stocks rolled over and on last minute month-end buying. Stocks initially yawned on the FOMC policy statement but started to fade and give up some of its gains before whipsawing and moving up again and posting modest gains just before the close. The dollar strengthened on higher US yields and the Fed policy statement that some believed had a hawkish tone.

In early trading the dollar is trading mostly sideways in a choppy fashion even as Treasury yields continue push higher. Pressuring the Treasury market is the outlook for a wider federal deficit, increased supply, and uncertain demand if Japan and China don’t add to, or even trim their holdings while the Fed tapers their purchases, letting their holdings run off and finally convincing the market they are serious about normalizing rates. Rates also came under pressure as the turnover in the FOMC Chair and Committee voters are perceived to be slightly more hawkish and former Fed Chair Allen Greenspan said stock and bond markets were both in a bubble. US stock index e-mini futures are looking at a mixed opening with investors perhaps a bit cautious with tech heavyweights Apple and Amazon releasing their earnings after the close today. Before then, however, is a busy economic data calendar.

Data Source: Bloomberg Financial Markets