The Market Today

THIS WEEK’S CALENDAR

Busy Week Headlined by Wednesday’s FOMC Decision: This week’s calendar will bring a handful of important economic reports including data on existing home sales, new housing construction, business investment, personal income, personal spending, and PCE inflation.  However, the big event of the week is Wednesday’s FOMC meeting.  The Fed is expected to move forward with a final rate hike of 2018 bringing the target range to 2.25-2.50%.  Economists expect a variety of tweaks to policy communication, most all being dovish tweaks to reference a less certain path forward.  However, investors have already weighed in with their expectations, lowering their expectations for how many hikes the Fed will achieve in 2019.  Over a one month period, investors went from pricing in two hikes in 2019 to just a 50% chance of one hike (see Chart of the Day).  If the Fed’s infamous dot plot does not reflect a slower pace than previously projected, investors would be surprised.

 

Regional Manufacturing Not as Hot; Homebuilder Confidence: As for this morning’s data, the New York Fed’s Empire Manufacturing index fell from 23.3 to 10.9, its weakest level since May 2017.  While these regional Fed indices tend to be volatile, this morning’s weak report, combined with other disappointing reports recently, raise some concern about the strength of manufacturing heading into 2019.  At 9:00 a.m. CT, the December homebuilder confidence survey is expected to show confidence hold steady after November’s reading fell to its weakest level since 2016.

 

TRADING ACTIVITY

Overnight – U.S. Assets Remained Antsy After Friday’s Sell-Off and Ahead of Wednesday’s Fed Decision: U.S. futures were down between 0.1% and 0.2% earlier and the Treasury curved drifted lower by less than 1 bp at most maturities after a mixed and uneventful day of global trading. Further signs of cooler economic activity in China and Europe Friday sent investors scurrying for the sidelines ahead of the weekend break. On Monday, markets in Asia were mixed while Europeans equities traded down, pushing the Stoxx 600 lower by 0.6%. European yields ticked higher despite softer equity sales. Against the backdrop of the ongoing trade battle with the U.S., tomorrow’s speech by President Xi at China’s annual Central Economic Work Conference could be a more-important-than-usual event for investors, who are likely already looking ahead to Wednesday’s Fed decision (and to a lesser degree Thursday’s BoJ and BoE meetings.) In a slow start for the global data, November’s CPI inflation for the Eurozone was revised down from 2.0% to 1.9% while core was unchanged at 1.0%. In other markets, oil prices were stronger and the Euro recovered as Italy confirmed it will trim its planned budget deficit for 2019 by roughly 0.4% and resubmit plans to the EU.

 

NOTEWORTHY NEWS

ICYMI – December 14, 2018 Weekly Market Recap: Some positive developments on the U.S.-China trade relationship joined with firmer core consumer inflation and a blowout retail sales report to leave yields modestly higher on the week. The 2-year yield added 2.2 bps while the 10-year yield doubled that with its 4.4 bps increase. However, gains were capped by President Trump threatening a government shutdown and steep Friday losses for U.S. equities. After flipping between gains and losses over the first four days of trading, the S&P 500 sank 1.9% Friday after disappointing economic data out of China and Europe returned investors’ focus to fears of slower global growth. Following a 4.6% drop the week before, the index fell 1.26% last week to 2,599.95, a key support level and the lowest close since April 2. For the quarter, the S&P 500 has lost 10.8% in value and is on pace for its worst quarterly performance since 3Q 2011. In other news, small business confidence fell to an eight-month low, jobless claims were strong after some softer readings in November, and the ECB confirmed they’ll stop growing their balance sheet with net asset purchases after December. Click here to view the full recap.