The Market Today
Treasury Yields Rise with Stocks and Oil as the Dollar Continues its Descent
by Craig Dismuke, Dudley Carter
Today’s Calendar – Silent End to a Volatile Week: There are no economic reports scheduled to be released today.
Overnight Activity – Treasury Yields Rise with Stocks and Oil as Dollar Continues its Descent: Global markets are again following the U.S.’s lead as risk assets look to pare their weekly loss and end a turbulent week on a positive note. After U.S. equities rebounded Thursday, major indices across Asia and Europe have managed to post positive results on Friday. The moves in Europe are more convincing with the Stoxx Europe 600 up 0.4% compared with 0.2% gains in Japan and China. The positive momentum has lifted U.S. equity futures which currently point to modest gains at the open. Crude prices have quietly avoided the weekly turmoil and are up more than 4% from a week ago; up 10% from a six-month low reached two weeks ago. U.S. crude crossed above $50 per barrel for the first time since April 26 as traders expect OPEC to extend production cuts into 2018 at next week’s meeting. One area, however, where sentiment hasn’t improved is in the U.S. Dollar (see Chart of the Day). The currency is currently at its lowest point of the week and is down nearly 2% over the last five sessions. The euro continues to gain against the Dollar and is at its strongest level since early October. Treasury yields have inched higher with the 2-year yield up 1.4 bps to 1.28%, the 5-year yield up 2.1 bps to 1.79%, and the 10-year yield 1.9 bps higher at 2.25%.
Yesterday’s Trading – Stocks Regain Some Ground, Treasury Yields Reverse but Curve Continues to Flatten: U.S. stocks clawed back some of Wednesday’s losses as the Dollar recovered and Treasury yields edged higher. The Dow gained 0.3% as the S&P added 0.4% and the Nasdaq rallied 0.7%. The energy space was the only sector within the S&P to experience a daily loss despite crude prices gaining 0.5% on the day. The Dollar rebounded with the biggest move occurring after the British pound moved sharply lower in what some traders described as a technical flash crash. Treasury yields rose on the day led by a 2.0 bps increase in the 2-year yield. The 5-year yield added 1.6 bps and the 10-year was essentially unchanged, up 0.3 bps. The net effect of the yield moves was the curve flattening to late-October lows (see Chart of the Day). The yield curve flattening was a logical response to solid economic data on jobless claims and the Philly Fed’s latest business survey and continued uncertainty surrounding Washington. Comments from Cleveland Fed President Mester also supported higher yields as she commented that “fundamentals supporting continued expansion are sound,” and the Fed must “remain very vigilant against falling behind.”