The Market Today
Yields Grind Lower on Wild Week in Washington
by Craig Dismuke, Dudley Carter
This Week’s Economic Calendar – Business Investment and ECB Policy: Today’s economic calendar is very quiet with just the Chicago Fed’s National Activity Index on the calendar. The index, which tracks 85 different economic variables and converts them into one, monthly momentum measure, fell from +0.16 to -0.01 in July. While the overall index remains weak, the general trend for the monthly reports has been improving since mid-2016.
While the calendar remains quiet for the majority of the week, it does get busier at week’s end. Friday will bring the July Durable Goods Orders report which is expected to show decent data on business investment. Given all of the uncertainty coming from Washington right now, the level of business investment will be a keen indicator of how resilient business leaders’ confidence is. The Kansas City’s Fed’s Jackson Hole Symposium will begin on Thursday. Of primary intrigue, ECB President Mario Draghi is likely to speak and may discuss the future of the ECB’s QE program. The program is scheduled to end at year-end but the ECB is generally expected to extend it at a slower pace (current pace is E60 billion per month). Also worth catching this week will be Wednesday and Thursday’s New and Existing Home Sales reports – otherwise a fairly quiet week for the economic data.
Overnight Activity – 10-Year Yield Sneaks to Lowest Since June in Quiet Overnight Session: Global markets opened cautiously to start the week and sovereign yield curves have flattened slightly on lower yields. The trend started in Asia where the 10-year JGB yield fell 0.2 bps to 0.021%; the closest to the BoJ’s 0.00% target since May 8. Similar shifts have played out in Europe where the 10-year yields in Germany and France are lower by roughly 1.5 bps. Firmness in the bid for sovereign debt is consistent with the mixed performance in global equities. The net effect of the equity ups and downs across Asia and Europe has the FTSE All-World Equity Index unchanged on the day. Currencies meandered modestly but the day’s risk aversion has helped the Yen edge higher. Crude prices have held Friday’s 3.5% gain. In the U.S., equity futures are little changed as is the 2-year Treasury yield. The 10-year yield is down 1.2 bps at 2.18%, quietly reaching its lowest yield since June 26.
ICYMI – August 18, 2017 Weekly Market Recap: Yields rose for the first two and a half days last week as the fears surrounding North Korea abated, for now, and U.S. retail sales data showed a significant bounce in consumer spending in July. However, the upward trend reversed midday Wednesday in the midst of another round of White House turmoil. Two of the President’s advisory councils were disbanded around lunch on Wednesday, largely as a result of his response to activities in Charlottesville the weekend before. The Fed’s July Minutes added downward pressure to yields as evidence of a divide on the inflation outlook became more evident. Other White House staffing concerns with Cohn (rumored) and Bannon (actual) keeping Washington in focus on Thursday and Friday. A terror attack in Barcelona had an effect on Thursday’s trading – more so in Europe than the U.S. Click here to see the full recap.