The Market Today

2018 Year-in-Review and 2019 Economic Outlook: Vining Sparks’ 2018 Year-in-Review video will be released later this morning.  Additionally, we will host our 2019 Economic Outlook on Thursday, January 10^th, in which we will highlight the growing risks to the U.S. economy.  To register, please click here.

 

TODAY’S CALENDAR

Funding Bill in Focus as Government Shutdown Enters 12^th Day: The only economic report on the calendar today is the final revision to the Markit U.S. Manufacturing index for December, a report of secondary importance to the ISM data in the U.S.  Much of the recent economic data has been delayed due to the ongoing government shutdown.  The shutdown will be 13 days old when Congress reconvenes tomorrow. House Democrats are reportedly planning to offer a funding package which does not include funding for border security.  Senate Leader McConnell has indicated that the Senate will not take up any legislation that does not have the public support of the President, who has insisted that any funding package include border security funding. McConnell will have 53 Republicans, up two from the previous Congress, to advance a spending bill.  Sixty votes are needed.

 

Democrats Propose Simplifying Debt Ceiling Legislation: One interesting note about the incoming Congress, House Democrats announced that they plan to reinstate the Gephardt Rule making it somewhat simpler to raise the debt ceiling.  According to their Rules for the 116^th Congress, “when the House adopts a budget resolution, a separate joint resolution suspending the Federal debt limit through September 30 of the budget year is deemed to have passed the House by the same vote and is engrossed separately and sent to the Senate.”

 

TRADING ACTIVITY

New Year’s Eve – Stocks Wrapped Up Worst December Since Great Depression, Worst Year Since 2008; Treasury Yields Ended Lowest Levels in Months: Treasurys rallied Monday to end a volatile 2018 with yields at their lowest levels since the first half of the year. The 2-year yield fell 2.8 Monday bps to 2.49%, its lowest mark since early June, but ended 61 bps higher than the end of 2017. Further out, the 5-year yield closed down 4.4 bps at 2.51%, the lowest since February 5, and up 31 bps from its 2017 close. The 10-year yield dropped 3.4 bps to 2.68%, the lowest since January 26, and rose 28 bps in 2018. Monday’s push lower in yield occurred after the Dallas Fed Manufacturing index plunged and despite stocks beginning a mid-morning, v-shaped recovery that sent the major indices out of a disappointing 2018 on an upbeat note. The Dallas Fed Manufacturing Index fell 22 points, the most in a month since 2013 (second most since the Great Recession), to cap a poor December for regional Fed surveys. Five prominent Fed manufacturing surveys fell together for the first time since 2016 as trade uncertainty has persisted. The S&P 500 rose 0.9% Monday but posted his worst December (-9.1%) since the Great Depression (1931) and wrapped up its biggest annual decline (-6.2%) since the Great Recession (-38.5% in 2008.) Oil prices were mostly unchanged Monday but U.S. WTI ended the year 25% lower than it started and off 41% from its early-October peak. The ICE Dollar index fell for a third consecutive session but closed up 4.4% for the year.

 

Overnight – Global Growth Concerns Carry Over Into 2019: Global equity markets have traded lower overnight as a round of economic data reminded investors that last year’s problems don’t disappear with the turn of a calendar page. The Caixin manufacturing PMI signaled the continued slowdown at Chinese manufacturers in December wasn’t contained to the larger state-run entities. The Caixin survey, which gauges activity at small-to-medium-sized private companies, unexpectedly fell below 50 in December, an indication of contracting manufacturing activity, to its lowest level since May 2017. On Monday, a separate survey tracking larger state-run manufacturers signaled contraction at its weakest level since February 2016. Three smaller Asian economies also posted a contractionary readings overnight. Revisions to similar PMI surveys in Europe confirmed initial estimates that manufacturing in the Eurozone slowed in December to its weakest pace since February 2016. The continued negative ripple effects of the U.S.-China trade dispute adds to worries of a steeper-than-expected slowing of global growth. Chinese equities tumbled more than 1.3% to spark Wednesday’s broader weakness. The rest of Asia slipped and Europe opened to the downside. The Stoxx 600 has lost 0.5% in the first half of trading and sent U.S. futures on another leg lower. Futures on the S&P 500 were off roughly 1.6% after earlier sliding as much as 2.1%. Longer Treasurys have rallied in response to the flight from risk with the 10-year yield down 3.2 bps to 2.65%, the lowest since late-January. Even larger moves have occurred across Europe where bonds traded for the first time this week after holidays. Germany’s 10-year yield was down 8.7 bps to 0.15%, its lowest level since November 2016.