The Market Today

TODAY’S CALENDAR

Day 35 – Two More Reports Delayed; Washington Still Hashing It Out: Today’s two economic reports, durable goods orders and new home sales, have both been postponed by the government shutdown.  House Democrats are holding a press conference this morning to respond to the recent shutdown developments.  The tide may be shifting after dueling funding plans were voted on in the Senate yesterday.  President Trump’s preferred proposal received fewer votes than the Democratic alternative, and several Republicans broke rank with the party-line votes. The President appeared incrementally more ready to make a deal last night, floating the idea of a short-term re-opening with a down-payment on a border wall.  However, Democratic officials immediately responded that any border funding is a non-starter.  Investors will be listening today for any evidence that House Democrats might be willing to give any ground on a wall.  Either way, the positions will be staked heading into a weekend during which the President may be more inclined to strike a deal.

 

TRADING ACTIVITY

Stocks Swung on Trade Concerns, Government Shutdown Developments, Mixed Earnings: Treasury yields had moved lower overnight and were held there throughout Thursday’s session by cautious comments from ECB President Draghi and remarks from U.S. Commerce Secretary Ross on how wide the divide is between the U.S. and China on a trade framework. The overnight decline in Treasury yields tracked similar moves in European yields (German 10-year yield -4.4 bps) after the Eurozone’s PMI fell to its lowest level since July 2013. ECB President Draghi said the risks to outlook, previously considered “broadly balanced”, had “moved to the downside”, in part because of concerns about global trade. About the time Draghi was downgrading the outlook, U.S. Commerce Secretary Ross said the U.S. and China were “miles and miles” away from a trade deal, offering a reality check to those who think a fix for years of disagreements will be easy to reach by the March 1 deadline. A chance, actually two, of ending the government shutdown failed after senators voted down separate plans, one penned by each party. Even with all of the uncertainty dragging the index down as much as 0.4%, the S&P 500 rose 0.1% on strength in tech, energy, and industrials (i.e. airlines and railroad). An alternate take on trade from Treasury Secretary Mnuchin, that “a lot of progress” was being made, also lifted spirits. The yield curve responded to the day’s news cycle by moving modestly lower as the 2-year yield dipped 1.9 bps while the 10-year yield settled down 2.5 bps.

 

Overnight – Tech Keeps Global Equities Supported: Tech companies are leading global equities higher again Friday, keeping modest upward pressure on sovereign bond yields. Several indices across Asia gained 1% or more while the sector’s strength has helped lift the Stoxx Europe 600 by 0.7%. European markets were being led by a sharp 1.4% rally by German’s DAX despite another downbeat data point from the region’s largest economy. A top survey of German business confidence fell for a fifth month and the larger-than-expected decline landed the index at its lowest level in nearly three years (February 2016). The forward-looking expectations index sank to its lowest level in more than six years. The surprisingly weak confidence survey was released alongside the ECB’s quarterly survey of professional forecasters that reflected weaker expectations for both inflation (1.5%, 1.6%) and growth (1.5%, 1.5%) in the Eurozone in 2019 and 2020. The two data releases helped yields in the region mostly erase an overnight rise. U.S. futures were stronger by 0.8% and Treasury yields had moved up between 1.7 bp and 2.2 bps.