Start Each Week With
Weekly Relative Value
Published at the top of each week by Balance Sheet Solutions, Weekly Relative Value tracks market and economic trends, analyzes key releases and watches ongoing political developments.
Commentary prepared by Balance Sheet Solutions, LLC, a wholly owned CUSO of Alloya Corporate Federal Credit Union. Balance Sheet Solutions is a leading broker/dealer, investment advisor and ALM risk management consultant to credit unions.
Friday, November 24, 2017 at 8:00 a.m. CST
Commentary prepared by Tom Slefinger, SVP, Director of Institutional Fixed Income Sales, Registered Representative of ISI*, Balance Sheet Solutions
|2s/5s Tsy Spread||0.32||+0.01|
|2s/10s Tsy Spread||0.59||0.00|
|2s/30s Tsy Spread||1.01||0.01|
Today's Market Commentary
Recap – With the U.S. markets closed for Thanksgiving, European markets were mixed but little changed. On the quiet holiday session yesterday, the most interesting story was Chinese equity markets ending the day 2-3% lower – the biggest daily decline since June 2016. The reason for the decline were attributed to the recent domestic government bond market sell-off and volatility, rising corporate yields and profit taking. That said, the market is still higher by almost 24% year-to-date. Over in government bonds, changes in benchmark 10-year yields were muted. Turning to currencies, the U.S. dollar index dipped modestly in quiet trade. In commodities, West Texas Intermediate oil edged up 0.93% to a fresh two-year high, while iron ore jumped 3.87% to a two-month high (up 8% up in two days), partly driven by steel production cuts in China.
Moving to Europe, the November Markit Purchasing Managers Index (PMI) was strong and beat consensus. The Eurozone’s flash composite PMI rose to a six and a half year high (57.5 vs. 56 expected), and is at a level that is broadly consistent with 3.5% year-over-year GDP growth. This is quite remarkable for the “old world.” Of note, the manufacturing PM rose 1.5 points to 60 (vs. 58.2 expected) – the highest in 17 years, while the Services PMI also slightly beat (56.2 vs. 55.2 expected). With growth so above trend and the level of slack narrowing, the European Central Bank may struggle to maintain expectations of a very gradual removal of easy policy.
Welcome Black Friday, which marks the traditional start of the U.S. holiday shopping season. Foot traffic and overall sales will be closely watched. Early reports indicate the strongest Black Friday in years with more than $1.52 billion already spent on Thursday night.
Market Update – Post-Thanksgiving volumes remain subdued. Government bond yields are up slightly. In FX, the U.S. dollar remained under pressure after the minutes from the U.S. Federal Reserve’s latest policy meeting highlighted concerns over persistently low inflation, pushing the trade weighted index (DXY) 0.2% lower. The Dollar Index is heading for its third week of losses, the longest losing streak since July, and is down 1.6% this month. World stocks hovered just below record highs, and set to reverse two straight weeks of losses; Asian markets are mostly in the green. The optimism spread to Europe where strong economic data supports the bullish sentiment. In premarket trade, S&P futures are up, in fresh record territory, with early optimism among merchants expected to benefit from strong Black Friday sales.
Looking at the day ahead, in the U.S., there is the flash November PMIs. The U.S. markets will be open for half day of trading.
November 20 - 24, 2017: The Week Ahead
Future Fed Expectations
|Probability of Fed Funds rate increase on December 13, 2017||97%|
|Probability of Fed Funds rate increase on January 31, 2018||97%|
**All quoted rates are indications and are subject to change without notice.
* ISI is a member of the FINRA/SIPC.
The information contained herein is prepared by ISI Registered Representatives for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Balance Sheet Solutions to discuss your specific situation and objectives.