The Market Today
Positive Headlines from Trade Discussions
by Craig Dismuke, Dudley Carter
Today’s economic calendar is light with only the December construction spending report scheduled for 9:00 a.m. CT. However, the remainder of the week will bring important reports including the ISM Non-Manufacturing index, ADP Employment report, New Home Sales and Housing Starts, and the February labor data. Expectations are that Friday’s jobs data will show average hourly earnings hitting their fastest pace of growth of the cycle at 3.3% YoY. All eyes are likely to remain on any headlines from the U.S. – China trade discussions.
Overnight – U.S.-China Trade News Excites Risk Markets: A weekend report that a trade deal between the U.S. and China had moved into its final stages has excited risk markets on Monday. Global stocks are stronger after the WSJ reported that “China and the U.S. are in the final stage of completing a trade deal, with Beijing offering to lower tariffs and other restrictions on American farm, chemical, auto and other products and Washington considering removing most, if not all, sanctions levied against Chinese products since last year.” A 10% tariff on $200B of Chinese goods was scheduled to increase to 25% on March 1 but was suspended indefinitely by the White House last week due to progress in negotiations. After rallying 6.5% last week on those developments, China’s CSI 300 rose another 1.2% on Monday to its highest level since June. European stocks have ticked up, with the Stoxx 600 gaining another 0.5% to its highest level since early October. U.S. futures had firmed by between 0.3% (S&P 500) and 0.6% (Nasdaq). The bond market has been less impressed by continued talk about a trade deal. The 10-year Treasury yield, which added 11.9 bps over the last three sessions to a six-week-high 2.76%, initially gapped higher but has slowly retreated. The benchmark Treasury note was down 1.5 bps to 2.74% around 7:30 a.m. CT.
ICYMI – March 1, 2019 Weekly Market Recap: The Treasury curve closed higher and steeper last week after the USTR suspended indefinitely a tariffs increase scheduled for March 1 and the U.S. economy was shown to have expanded at a firmer pace than was expected. There was mixed messaging from U.S. officials on the status of trade negotiations with China but all agreed progress had been made. The U.S. economy grew 2.6% in 4Q18, better than the 2.2% expected, and benefited from a surprisingly strong 6.2% growth in business investment. Personal consumption, or consumer spending, cooled a bit more than expected to a still-solid 2.8%. Except for the larger-than-expected rebound for consumer confidence, most other U.S. data disappointed. Fed Chair Powell’s semiannual testimony before Congress reinforced the belief that Fed policy is on hold for now and included interestingly dovish commentary on slack in the form of labor participation. Even after the post-GDP push higher on Thursday, Treasury yields posted their tightest monthly range in February since 1979. Click here to view the full recap.
ICYMI – February 2019 Monthly Review: The 10-year Treasury yield reflected February’s macro story, as mixed economic data justified the Fed’s patience amid a number of crosscurrents that have clouded the near-term outlook. The Fed Minutes listed out the uncertainties officials are watching and announced that almost everyone supports ceasing the roll-off of its securities portfolio in 2019. A second government shutdown was averted and a tariffs increase planned for March 1 was suspended indefinitely in response to progress in trade negotiations. The global economy continued to look shaky and a disastrous December for U.S. consumer spending somewhat offset a better-than-expected GDP report, keeping investors anxiously awaiting more clarity from the incoming data in the weeks ahead. Paralyzed by the uncertainty and mixed messaging, the 10-year yield traded within an 11.6 bps range, the tightest since March 1979. The Treasury curve finished higher and steeper, with the spread between the 2- and 10-year yields ending at 19.9 bps, the steepest of 2019. Stocks crept higher, with the Dow gaining 3.7% and capping a nine-week run of positive gains, its best stretch since May 1995. Click here to view the full review.