The Market Today
Better Chinese and Eurozone PMI Reports Lift Yields
by Craig Dismuke, Dudley Carter
ISM Manufacturing Index Expected to Improve but Remain Negative: This week’s calendar brings important data including this morning’s ISM Manufacturing index (9:00 a.m. CT), Wednesday’s ISM Non-Manufacturing index, and Friday’s labor reports for the month of November. The ISM index has remained below 50 for three consecutive months now. Economists expected the November reading to tick higher but remain below 50 for a fourth month. Also on today’s schedule is the October construction spending data. Private commercial spending has been notably weak this year. That has been offset by a resurgence in residential construction and still-strong public spending.
Markets Move Around on Positive Data, Metals Tariffs Resumption: Global stocks rose in concert Monday after improved PMI data was released from a couple of key global economies, but fell back after President Trump tweeted he was reinstating metals tariffs on Brazil and Argentina. And while bond yields fell off their highs following the trade tweet, the major sovereign curves remain higher. Data over the weekend signaled manufacturing activity in China expanded more than expected in November. China’s government PMI hit an eight-month high while the Caixin index covering smaller and medium-sized companies inched up to its best level since 2016. Preliminary November PMI readings for the Eurozone were also revised higher. While the Eurozone’s 46.9 continued to reflect a 10th consecutive contraction for the bloc’s manufacturing sector, it has picked up since September’s low and Markit’s chief economist said could indicate “the worst is over for euro-area producers.”
European Politics Add to Upward Pressure on Yields: Asian equity markets closed higher and while European markets also initially rose, most indexes across the region have retreated following President Trump’s tweet about resuming tariffs on Brazil and Argentina because of each country’s “massive devaluation of their currencies.” The Treasury curve, which had moved up amid a global updraft, also pulled back on the tariff announcement but remained notably higher and steeper on the day. At 7:15 a.m. CT, the 2-year yield was up 1.4 bps at 1.63% while the 10-year yield had added 5.9 bps to 1.83%, a more than 2-week high. In addition to the positive economic implications of the updated PMIs, leadership changes over the weekend in Germany’s SPD party, Chancellor Merkel’s coalition partner, was seen as a threat to the current coalition and historically conservative fiscal policy. Germany’s 10-year yield was up 6.7 bps, in the middle of daily increases across Europe.
ICYMI – November 29, 2019 Weekly Market Recap: Yields were little changed last week and stocks pulled back from record levels Friday in a trading week shortened by the Thanksgiving holiday. Stocks were lifted early by some positive trade developments, President Trump said Tuesday “we’re in the final throes” of a trade deal, but gave up those weekly gains in low-volume trading on Friday. Treasury yields, however, were kept in check by uneven U.S. economic data: the housing reports were mixed; regional manufacturing surveys softened; 3Q GDP was revised higher; consumer confidence cooled unexpectedly; consumer spending was soft and inflation remained subdued; and, business spending data was surprisingly encouraging. Click here to view the full recap.