FinSer 

 Financial Focus

October 17, 2019 

 

GOOD MORNING!    Treasury prices were edging up, yields lower, early Wednesday on doubts about the China-US trade deal, the UK-EU divorce deal, and the GM-UAW deal.  They extended price gains when retail sales disappointed with a surprising decline as consumers may have begun to pull back on their spending, given all the negative headlines which seems to be making confidence fragile.  Additional support for Treasuries came from a Treasury report showing foreign holdings of Treasuries grew rapidly in August and the Beige Book with the overall summary of saying the economy expanded at a slight-to-modest pace, which many saw as a slight downgrade from the modest-to-moderate pace cited for the last several years.  In the former, foreign markets and investors are having a significant impact on US market rates (see attached).  It also is a factor in keeping inflation muted by the foreign funds inflows have strengthened the dollar (buy $ to buy bonds) which makes import prices cheaper and pressures the pricing powers of US producers of goods and services for domestic consumption.  In the latter, business contacts mostly expect the economic expansion to continue but many have lowered their outlooks for growth due to persistent trade tensions and slower global growth.  Short-term rates implied from the fed funds futures market suggest the odds of a third insurance rate cut at the October 29 – 30 FOMC meeting had risen to above 80% at the end of the day. Stocks did little as B of A’s earnings beat and reports of a tentative GM – UAW deal provided a somewhat of an offsetting counter balance to retail sales and the Beige Book.  Stocks may not have wanted to tie too much to 1 month’s data, especially one that may still be feeling the effects of Hurricane Dorian, Tropical Storm Imelda, fires/evacuations in California and the GM strike, on a data report that historically presents surprises and is subject to heavy revisions. 

     Headlines, reports and rumors continue to keep switching investors’ sentiment toggle switch back and forth.  In addition to a tentative agreement on the GM labor strike, news of another potential Brexit agreement is lifting investors’ spirits in early trading this morning.  Like the US – China trade talks, it may just be a re-run of a show we have already seen, but the markets have popcorn and a short attention span.  Treasury yields and stocks have edged higher as some optimism has re-appeared.  It may be fleeting, however, on headline watching and in the face of earnings reports and economic data releases.  Expectations, based on a survey of economists and analysts by Bloomberg, expect soft data on a variety of releases, including the latest weekly jobless claims, September’s housing starts, and industrial production and capacity utilization, due to the uncertainty affecting business decisions/commitments and GM’s strike.  Initial jobless claims will also be scrutinized as the strength of the labor market (still tight according to the Beige Book) supports the consumer in preventing an economic slowdown turning in to something worse.  Sorry about the little font, but get paid by the word.             

GENERAL
TODAY             
PREVIOUS        
FED FUNDS
1.75% to 2.00% 1.75% to 2.00%
1 MONTH LIBOR
1.88913% 1.89075%
S & P 500
2989.69 2995.68
GOLD
1492.10 1485.60
YEN
108.74 108.75
EURO
1.1123 1.1030
WEST TEXAS CRUDE
53.36 52.81
T-BILLS
YIELD                
YIELD                 
3 MONTH
1.64 1.64
6 MONTH
1.62 1.64
1 YEAR
1.57 1.60
T-NOTES / BONDS
YIELD                 
YIELD                  
2 YEAR
1.60 1.59
3 YEAR
1.58
1.57
5 YEAR
1.58 1.56
10 YEAR
1.76 1.73
30 YEAR
2.24 2.21

Data Source: Bloomberg Financial Markets
10172019