The Market Today

TODAY’S CALENDAR

Existing Home Sales Expected to Show Improvement on Lower Rates: April’s existing home sales data is expected to show a 2.7% MoM increase to 5.35 million units at 9:00 a.m. CT.  Home sales, and various indicators, have picked up recently in the wake of lower mortgage rates. 

Fedspeak: Chicago’s Fed Bank President Evans is slated to speak on monetary policy at 9:45 a.m. CT while Boston’s Rosengren is scheduled for 11:00 a.m. Both are voting members of the FOMC this year.  Evans has tilted slightly dovish while Rosengren has been a bit more hawkish. 

Congressional Leaders Meet to Discuss Lifting Spending Caps, Debt Ceiling: Democratic and Republican leaders will meet this morning to discuss a deal to raise the debt ceiling and potentially lift the annual spending caps.  Recall that the spending caps were lifted by $300 billion for 2018 and 2019.  This created a small fiscal cliff for 2020 with defense spending being cut $71 billion and non-defense spending $55 billion from 2019 levels.

TRADING ACTIVITY

Yesterday – Markets Added Tech Concerns to List of Factors Causing Trepidation Around Global Trade: U.S. technology companies moved lower Monday, dragging the Nasdaq down 1.5% and leading relatively broad-based declines that knocked 0.7% off of the S&P 500. Tech companies were caught in the cross hairs of the U.S.-China trade battle last week after the U.S. side took actions aimed at Chinese tech giant Huawei Technologies. The situation spiraled over the weekend with several major U.S. companies saying it was suspending certain services or products it provided to the Chinese company in order to comply with the U.S. government orders. The state-run paper in China said Monday, “It seems as if the U.S. takes it for granted that it has the absolute say over everything in its dealings with the rest of the world, which has to take whatever the U.S. dishes out no matter how arbitrary. …But China will not take it and neither will Huawei.” Eight sectors within the S&P 500 closed below Friday’s levels while financial companies were among the three that improved. Despite equities’ weakness, Treasury yields pushed higher during U.S. trading and ended the session near the highs of the day. After dipping during European trading, the 2-year yield added 2.3 bps to 2.22% while the 10-year yield added 2.5 bps to 2.42%.

Overnight – Market Sentiment Shored Up by Reports of Huawei Exceptions: A positive development in the Huawei situation – less-negative may be a more accurate characterization – has helped European and U.S. equities recover on Tuesday and nudged core sovereign yields higher for a second day. Just after U.S. markets closed Monday, the Commerce Department indicated that its actions against the Chinese tech conglomerate would be softer than an all-out blacklisting of its transacting with U.S. companies. As described by the Wall Street Journal, the U.S. “would grant a handful of temporary exceptions to an export blacklist against Huawei Technologies Co., giving some suppliers and customers of China’s telecom giant a 90-day reprieve from tough trade penalties.” The same article said the exceptions had also caused Google to pause its plan to suspend interactions with Huawei. Chinese stocks rose 1.4%, although the rest of Asia traded in mixed fashion. European markets are broadly stronger and a 1.8% snapback for technology companies had lifted the Stoxx Europe 600 by 0.6%. U.S. futures have firmed up with the Nasdaq’s 0.7% improvement leading the way. The Treasury curve flattened modestly on higher yields as the 2-year yield pushed up 2.1 bps to 2.24% and the 10-year yield edged up a smaller 1.6 bps to 2.43%.

NOTEWORTHY NEWS

Fedspeak Doesn’t Shake it Up Much

The Presidents: Fed President Bostic from Atlanta countered President Kashkari’s criticism last week of how the Fed has implemented policy in recent years. Bostic said the latest rate hike from December wasn’t a mistake and that the “policy course that we’ve done has been exactly on point.” However, he noted little reason to move rates in either direction from here as inflation pressures remain muted, and his business contacts signal stable growth expectations but increased concerns about trade. Fed President Bullard from St. Louis said the U.S. economy is still performing quite well, but highlighted that if core inflation weakness “turns out to be persistent, I’ll get more aggressive in pushing the FOMC to lower rates in reaction and try to re-center inflation expectations at two percent.”

The Chair and Vice Chair: Fed Vice Chair Clarida recycled his remarks from last week that the economy continues to perform “at or close to” the dual mandate. Fed Chair Powell rounded out the day with an evening speech that discussed continued U.S. growth amid muted inflation, but focused more on the risks associated with the buildup in corporate debt. Powell said, “Business debt has clearly reached a level that should give businesses and investors reason to pause and reflect.” He added that “recent issuance has been concentrated in the riskiest segments” and “as a result, some businesses may come under severe financial strain if the economy deteriorates.” While he continues to see overall risks from corporate debt as moderate, and believes a sounder banking system mitigates risks to the core of the U.S. financial system, he acknowledged that “much of the borrowing is financed opaquely, outside the banking system, …Regulators, investors and market participants around the world would benefit greatly from more information on who is bearing the ultimate risk.”