The Market Today
Mood in Beijing Is Pessimistic
by Craig Dismuke, Dudley Carter
Relatively Quiet Week Starts with Homebuilder Confidence: This week’s economic calendar is relatively quiet with several reports on housing, the Markit PMIs, consumer confidence, and the FOMC Minutes. Today kicks off the slow week with the homebuilder confidence report at 9:00 a.m. CT and remarks from Cleveland Bank President Mester at 11:00 a.m. Housing has made a small comeback this year. Residential investment was positive in the 3Q GDP for the first time in seven quarters. Homebuilder confidence has jumped along with the better rate of activity.
More Trade Talks Show Sides Still Searching for a Deal: Global markets started the week with a firmer tone Monday that gave early support to most major equity indices and offered a modest overnight lift to U.S. Treasury yields. Asian markets kicked Monday off with solid gains for most of its major economies following a Chinese media outlet reporting that U.S. negotiators had phoned Vice Premier Liu He over the weekend. China’s commerce ministry later issued a statement that said the teams had “constructive discussions on…core concerns” and will “continue to maintain close communication.” Comments from White House adviser last Thursday that negotiators were “down to the short strokes” on a phase one agreement stabilized markets after a week of worrying about progress.
PBOC Cuts Another Key Lending Rate: Shares on China’s CSI gained 0.8% Monday following reports of the trade talks, with additional support provided by stimulus signals from the country’s central bank. The People’s Bank of China cut the rate on seven-day repo borrowings by a modest 0.05%, the first rate reduction on the particular borrowing facility since 2015. The action follows a cut of the medium-term lending facility rate a couple of weeks ago. U.S. futures had ticked higher at 7 a.m. CT, signaling new records on the opening bell, and Treasury yields had recovered after last week’s drop. However, within the last hour, on a headline from CNBC that a source in the Chinese government indicated the “Mood in Beijing about trade deal is pessimistic”. After rising around 1.7 bps and 2.1 bps, the 2-year and 10-year yields reversed lower and were down around 1 bps at 7:40 a.m.
ICYMI – November 15, 2019 Weekly Market Recap: After shooting higher two weeks ago on numerous signs of progress toward a trade deal, Treasury yields moved lower last week as the optimism around the likelihood of a phase one agreement faded somewhat. President Trump said two Fridays ago, after markets closed, that he had not agreed yet to roll back tariffs. The concerns that created were exacerbated when he told the Economic Club of New York on Tuesday that a deal “could happen soon,” but tariffs could go up “substantially” if it doesn’t. The next day, there were reports that talks had “hit a snag” over China purchasing U.S. farm goods. Despite White House advisers attempting to salvage hopes for a deal on Friday, the 2-year yield dropped 6.4 bps last week to 1.61% while the 10-year yield fell 11.1 bps to 1.83%. Adding to the downward pressure on yields, several economic reports from foreign economies were weaker than expected, CPI inflation was soft, and retail sales signaled a soft start to 4Q for the U.S. consumer. Nonetheless, stocks set several new records with the biggest weekly gain occurring Friday after those White House comments on trade. All three major indices ended the week at all-time highs. Click here to view the full recap.