The Market Today
Government Funding Deal “in Principle”
by Craig Dismuke, Dudley Carter
Government Funding Deal in Principle: All eyes will be on Washington this morning as congressional leaders try to get a government funding deal across the goal line. As announced last night, the deal would include roughly $1.38B for a border barrier, short of the $5.7B President Trump had requested, but received support from top leaders from both parties who had been involved in striking an accord. The President has yet to say if he would sign a deal with that level of funding and ultimately avoid another shutdown on Saturday.
Late-Year Uncertainty Still Taxing Business Confidence: January’s NFIB Small Business Optimism index fell, again, from 104.4 to 101.2. Small businesses were less optimistic on sales expectations, plans to hire, and compensation plans. Even after falling for five consecutive months, down from a peak of 108.8, business confidence remains stronger than at any point in this expansion prior to the 2016 elections. Nonetheless, the year-end turmoil is showing a clear impact on both business and consumer confidence.
Job Openings to Remain High, Pull Back: At 9:00 a.m. CT, the December JOLTs report is expected to show another decline in job openings, but remain high versus historical norms. As of the November report, the number of unemployed persons (6.02 million) remained higher than the number of job openings (6.88 million) for the ninth consecutive month. However, the household employment report, from which comes the unemployment rate, has shown the number of unemployed has increased to 6.54 million through January.
Fedspeak: Also on the economic calendar today are three Fedspeakers, including Chair Powell. Powell will be speaking with students in Mississippi on rural poverty and is unlikely to break any headlines on monetary policy. Cleveland Bank President Mester is slated to speak in Cincinnati at 5:30 p.m. on monetary policy. Kansas City Bank President George is scheduled for 6:30 p.m. in Kansas City and will also discuss the economy, and presumably monetary policy.
Yesterday – Stocks Were Mixed Monday, Treasury Yields Ended Their Slide, Dollar’s Uptrend Continued: U.S. stocks bucked Monday’s positive global trend that had lifted most Asian indices and boosted the Stoxx Europe 600 up a solid 0.9%. The major indices jumped at the opening bell but gradually gave up early gains to end mixed on the day. The Dow’s first tick, its highest of the day, pushed the index up 0.36% before a quick reversal turned the index negative within the first hour. The Dow ultimately slipped 0.2% and extended last week’s losing streak for a fourth day, the longest negative run of the year. The S&P 500 fared better, edging out a hardly noticeable 0.07% gain. Eight of eleven sectors (62% of all companies) held their own with trade-sensitive sectors out front. The U.S. and China began deputy-level talks Monday in anticipation of a gathering of high-level officials later in the week. Despite equities’ stumble, Treasury yields ticked up on the day. The 10-year yield closed higher for the first time in five days, up 2.0 bps to 2.65%. The 2-year yield also rose 2.0 bps to 2.49%. As trade uncertainty has increased and the European data have been weaker, the Dollar has quietly risen in each of the eight sessions since the Fed’s January pivot to patience. That run, the longest in two years, has pushed the greenback to a near two-month high.
Overnight – Government Spending Deal, Trade Negotiations Lift Markets Tuesday: Another solid session for global equities has kept Treasury yields under pressure overnight. Japan’s Nikkei reopened from a holiday with a 2.6% rally, its largest of 2019, to lead a generally positive day in the region. All eyes remain on trade negotiations between the U.S. and China that kicked off in Beijing Monday with junior officials and are planned to wrap up Friday after a two-day meeting of senior-level negotiators. Both sides have sounded optimistic about expectations for progress and the White House said President Trump still wants to meet President Xi “very soon”. Last week the President said the two would likely not meet before the March 1 deadline passes. Europe’s Stoxx 600 was 0.6% higher with autos, a sector that typically swings with trade sentiment, leading gains. Also lifting sentiment were Monday evening headlines that U.S. lawmakers had agreed in principle to a deal to fund the federal agencies currently operating under a temporary resolution through the end of the fiscal year. Futures contracts for the S&P 500 were up 0.7% while the 10-year Treasury yield rose 2.3 bps to 2.68%. The 2-year yield was 1.4 bps higher at 2.50%.
Fed Governor Bowman Praised Community Banking, Beseeched Bankers to Remain Prudent: In her first public appearance since joining the Fed last November, Fed Governor Bowman focused more on community banking than on macro monetary policy. In Monday’s speech, Bowman told a group of community bankers that the Fed fully understands “community banks are a critical engine of the economy, and they play a key role in providing access to credit in communities of all sizes—big, small, rural, and every size in between.” As a result, the Fed “continues to tailor supervision and refine our approach to risk-focused examinations of community banks.” She rattled off a couple of the new rules recently put in place and several proposals currently outstanding and open for comment, including one on a community bank leverage ratio. She cheered the fact that there were no community bank failures in 2018 but petitioned bankers in the room to remain alert for areas of increased risk. “For example, concentrations of commercial real estate are rising, and are quite high at some banks, …We also continue to focus on concentrations of agricultural credit,” she said. As it relates to monetary policy, Bowman stated “Our economy’s in a good place…our inflation is close to target and I’m comfortable with the current stance of our policy.”