The Market Today
Yield Curve Flattens to Lowest of Cycle Overnight
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Quiet Week with Housing Data and Fed News Wednesday through Friday: This week’s economic calendar is fairly light, and back-end loaded. There will be a few reports on the housing market on Wednesday and Thursday, including the July Existing and New Home Sales reports, and the FHFA Home Price index. As discussed in our MarketWatch video this morning, it appears that mortgage rates at 4.50% may have been a small tipping point for housing activity. The bigger economic news this week will come Wednesday and Friday. The FOMC’s August Meeting Minutes are slated for release Wednesday afternoon. Then Fed members will be in Jackson Hole for their annual symposium hosted by the Kansas City Fed Bank. Speaking on Friday will be Fed Chair Powell. While previous Fed Chairs have used this platform to advocate for new policy directives, the environment today appears stable enough to preclude the need for any such speech from Powell.
Overnight – Hopes for Less U.S.-China Trade Tension Continues to Lift Market Sentiment: For a second week in a row, the previous Friday’s trends have carried over through the weekend and impacted Monday’s global trading. Last week, global equities sold off Monday as a downward spiral in Turkey’s currency carried over from the Friday before. Overnight, global equities are mostly firmer following U.S. gains on Friday after a WSJ report indicated that U.S. and China negotiators were working towards a plan for Presidents Trump and Xi to meet in November. That report came after an announcement last Wednesday that lower-level officials would meet later this week in Washington to discuss trade. After closing at a 23-month low last Friday, shares in China were more than 1% higher Monday and leading most Asian indexes higher. The Stoxx Europe 600 was 0.5% higher and U.S. futures were 0.2% positive on average. As was the case for most of last week, however, Treasury yields have shown little response to the swings in other asset classes. The 2-year yield was 0.6 bps higher while the 10-year yield had declined by as much. Those small shifts were enough to push the spread between 2s and 10s to a new cycle low of 23.9 bps.
ICYMI – August 17, 2018 Weekly Market Recap: Treasury yields barely budged last week when compared to closing levels from the previous Friday. But it wasn’t due to a lack of news. In fact, concerns around Turkey on Monday and positive developments on U.S.-China trade on Wednesday and Friday impacted currencies and equities but ultimately helped neutralize one another. There were a handful of U.S. economic reports that were mixed. The NFIB reported the second strongest level for its small business optimism index in close to 50 years. The Census Bureau’s July retail sales report was better than expected, although there were some softer revisions for June’s activity. And disappointingly, there were several reports on housing that pointed to a continuation of the sector’s struggles. By Friday’s close, the 2-year yield added just 0.2 bps, or 0.002%, while the 10-year yield slipped 1.3 bps, or 0.013% lower. Click here to view the full recap.