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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, June 22, 2018 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||0.23||-0.01|
|2s/10s Tsy Spread||0.36||-0.01|
|2s/30s Tsy Spread||0.51||-0.01|
Today's Market Commentary
Recap – Equities fell following declines in Asia and Europe, as the profit warning from Daimler AG (German multinational automotive corporation) fed into investor concerns for global trade and growth outlooks. Treasuries gained and the dollar weakened. The S&P 500 Index slumped, and the Dow Jones posted its eighth straight drop after the Supreme Court ruled states can collect sales tax from online retailers – rattling Amazon and EBay. Automakers also came under pressure after Daimler’s forecast and energy producers declined. The Dollar Spot Index fell 0.3% and the yield on 10-year Treasuries declined four basis points to 2.9%. In the commodity space, West Texas Intermediate slipped 0.7% to $65.75 a barrel. Gold was little changed at $1,267.50 an ounce.
In terms of data, filings for U.S. unemployment benefits declined to a six-week low, indicating the job market remains tight. Jobless claims decreased by 3,000 to 218 thousand (est. 220 thousand), and continuing claims rose by 22,000 to 1.723 million in week ended June 9. Elsewhere, the Conference Board Leading Economic Index (LEI) rose to 109.5 in May (vs. 109.3 the month prior). LEI rose 0.4% in both April and March. The six-month annualized LEI narrowed to 6.1%, with the biggest positive contributor being the Institute for Supply Management’s New Orders Index at 0.17. Conversely, the biggest negative contributor was building permits at -0.14. Also, the U.S. April Federal Housing Finance Agency’s Home Price Index rose 0.1%, with home prices rising 6.4% year-over-year.
Wall Street Clears First Stress Test Hurdle – Big banks cleared the first hurdle of this year’s U.S. stress tests. The exams assess how much capital lenders would have left after enduring financial shocks. The Federal Reserve found all of the 35 examined lenders could withstand a severe economic downturn, though Goldman Sachs and Morgan Stanley came closest to the edge among Wall Street behemoths. This marked the third straight year that every bank exceeded the Fed’s minimum capital demands, indicating the industry’s increased comfort with reviews that once triggered headaches.
U.S. Considers Resuming Talks with China – Some White House officials are trying to restart talks with China to avoid a trade war before U.S. tariffs on Chinese products take effect July 6. This is igniting a battle with others in the administration who favor a harder line. Staff of the National Economic Council (NEC) have contacted former U.S. government officials and China experts in recent days to gauge chances for high-level talks in the next two weeks. NEC staff have floated the idea of inviting Chinese Vice President Wang Qishan before the tariff deadline. The outreach signals a willingness by some U.S. officials to seek a truce before $34 billion in Chinese products are hit with tariffs, rather than trigger a trade war between the world’s two largest economies. Still, the chances of such negotiations happening in the near term are slim as long as opponents inside the administration favor penalizing Beijing. President Trump has shown no signs of backing down.
Fed’s Kashkari Says He'll See Full Employment When Wages Pick Up – Minneapolis Fed President Neel Kashkari says that he would have expected stronger wage growth at this point in the recovery. “Are we really at maximum employment? Until I start to see wage growth pick up, I don’t think we are,” he said at an event hosted by the African Development Center. “We would’ve thought there’d be stronger wage growth,” he said.
U.S. economic data keeps coming, with the release of Markit U.S. manufacturing and services numbers at 9:45 am ET. Earnings reports will trickle out. BlackBerry reports ahead of the opening bell.
Markets This Morning – Stock markets around the world are higher. China’s Shanghai Composite (+0.49%) led the gains in Asia, and Britain’s FTSE (+0.78%) is out front in Europe. The S&P 500 is set to open +0.45% near 2,762. The U.S. 10-year yield is up two basis points at 2.91%.
June 18 - 22, 2018: The Week Ahead
Future Fed Expectations
|Probability of Fed Funds rate increase on August 1, 2018||15%|
|Probability of Fed Funds rate increase on September 26, 2018||86%|
**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.