FinSer 

 Financial Focus

June 26, 2019

GOOD MORNING!    A weaker than expected new home sales report and a very much weaker than anticipated reading on the Consumer Confidence Index pulled Treasury yields lower, with the yield on the 10-year T-note trading below 2% for most of the session.  It also made for strong demand at the 2-year T-note auction, with the new issue coming at a 1.695% yield, the lowest since October 2017 when the fed funds rate was 1.25%.  The bond market was betting that a 50 basis point cut at the July meeting was a foregone conclusion.  Fed officials threw some water on that bet.  St. Louis Fed President James Bullard, who dissented at last week’s FOMC meeting in favor of a rate cut, said he didn’t think a 50 basis point cut would be appropriate at this juncture.  That headline hit just as Fed Chairman Powell was addressing the Council of Foreign Relations.  His comments seemed to have something for everyone.  He said that the Fed needed to look at the underlying economy, not just markets and that it was important not to overreact in the short term.  That caused stocks and bonds to hit an air pocket temporarily.  The typical economist’s ‘on the other hand’, Powell said that the downside risks to the US economy have increased recently, reinforcing the case among policy makers for somewhat lower interest rates.  Additionally, he said, the inflation undershoot may be more persistent than hoped and the inflation trend, along with consumer and business outlooks adversely affected by uncertainties, made an argument for easing policy.  In conclusion, he said a lot will depend on events and information in the near term.  That, and the continuing slump in equities, provided some rebound for Treasuries.  Portfolio and asset managers needing month-end, quarter-end buying of duration may have also jumped in to buy the dip.

     In a bit of a whipsaw, stocks (including US stock index futures), oil and Treasury yields are bouncing while gold has been hit.  Stocks and bonds are reacting to Treasury Secretary Mnuchin’s comments this morning that a US-China trade deal is 90% complete.  There also rumors that soon-to-be-imposed tariffs on China may be postponed, depending on how President Trump’s and President Xi’s meeting on Saturday at the G-20 summit.  Oil’s gains are being supported by a rumor that the American Petroleum Institute reported a larger-than-forecast drop in US crude stockpiles.  Powell was right in saying a lot depends upon events and information in the near term.  There remain numerous moving parts for the markets.  On the data side, May’s durable/capital goods orders will be reported this morning.  While relevant, the markets may be assigning more emphasis on next week’s manufacturing-service sectors PMIs from ISM and the June employment report.  Also scheduled for today are auctions of $18 billion 2-year Floating Rate Note and $41 billion new 5-year T-notes.         

GENERAL
TODAY
PREVIOUS
FED FUNDS
2.25% to 2.50% 2.25% to 2.50%
1 MONTH LIBOR
2.40175%
2.40438%
S & P 500
2917.38 2945.35
GOLD
1409.90 1433.50
YEN
107.74 107.03
EURO
1.1365 1.1381
WEST TEXAS CRUDE
57.83 57.90
T-BILLS
YIELD
YIELD
3 MONTH
2.11 2.10
6 MONTH
2.08 2.08
1 YEAR
1.93 1.91
T-NOTES / BONDS
YIELD
YIELD
2 YEAR
1.74 1.73
3 YEAR
1.71
1.68
5 YEAR
1.76 1.74
10 YEAR
2.02 2.00
30 YEAR
2.54 2.53

Data Source: Bloomberg Financial Markets