While the U.S. was closed for Presidents Day, a “sea of red” in global markets returned and U.S. equity futures slumped following a mixed session in Asia. Bond markets are retaining a very small bid, though some renewed politically induced. Crude is continuing to behave very well as West Texas Intermediate has tested three-month highs and gold has traded up all the way to the best level since last April. The oil move is completely supply-driven, which hardly is good news for global growth, and the fact that bonds and gold are bid calls into question the ebullient mood that the stock market has been in for the better part of the past seven weeks.

Currently, Treasuries are stable with the 10-year Treasury benchmark at 2.66%. Further in on the curve, twos and fives are at 2.51% and 2.49%, respectively. The 5s/2s spread remains negative at -2 basis points while the 10s/2s spread is at 15 basis points. See this week’s edition of the Weekly Relative Value for more discussion on the yield curve and its implications for the economy and markets.

Also, consider for a moment that there is now $11 trillion of bonds around the world trading with a negative yield. This is occurring 10 years after the end of the financial crisis. Since October of last year, the volume of bonds worldwide with a sub-zero percent yield has ballooned 21%! Just how strong is the global economy?

With earnings season coming to an end, the latest meeting minutes from the Federal Open Market Committee (FOMC) and European Central Bank (ECB), and President Trump weighing an extension of the deadline for a trade deal with China, investors have plenty to digest this week. Uncertainty over the outlook for global growth hangs over everything, and markets will be hoping for some good news from U.S. and China when talks resume in Washington on Tuesday. On the political front, the Chinese are joining vocal forces with the U.S. trade team to indicate that a memorandum on a deal is around the corner. The mantra is that both sides have too much to lose otherwise and both leaders have their eye on the coveted equity markets. Is this news already discounted by the equity markets? In other words, given the equity rally year-to-date, is this a classic “buy the rumor, sell the facts” scenario? Stay tuned!

Quote of the day – “I still remember back in 1998, during the Asian financial crisis, Alan Greenspan argued for an interest rate cut in spite of the fact that the U.S. economy was doing very well. And, in justifying it, he said ‘it's just not credible that the United States can remain an oasis of prosperity unaffected by a world that is experiencing greatly increased stress…’ And I think that remains as true today as it was then.” – Former Fed Chair Janet Yellen

The only data due today is the February National Association of Home Builders (NAHB) Housing Market Index reading. Away from that, we’ve got the first Fed speaker of the week when Loretta Mester speaks this afternoon on the economic outlook and monetary policy.

While there are no major decisions this week, it’s going to be a busy time for central bank watchers with minutes from the most recent Fed and ECB meetings due. There are also several speakers to watch including the ECB’s Vice President and Chief Economist, while Cleveland Fed President Loretta Mester gives an address on the economic outlook.

For a more in-depth analysis of the economy and markets be sure to read this week’s edition of the Weekly Relative Value – Crazy Talk – to be released later this morning.

The Week Ahead – The key report this week is January existing home sales. On the manufacturing front, the February Philly Fed manufacturing survey will be released.

Monday, February 18
All U.S. markets were closed in observance of Presidents Day.

Tuesday, February 19
10:00 am: The February NAHB Housing Market Index. The consensus is for a reading of 59, up from 58. Any number above 50 indicates that more builders view sales conditions as good than poor.

Wednesday, February 20
7:00 am: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

2:00 pm: FOMC minutes, meeting of January 29-30, 2019.

Thursday, February 21
8:30 am: The initial weekly unemployment claims report will be released. The consensus is for 230 thousand initial claims, down from 239 thousand the previous week.

8:30 am: Durable goods orders for January from the Census Bureau. The consensus is for a 1.7% increase in durable goods orders.

8:30 am: The Philly Fed Manufacturing Business Outlook Survey for February. The consensus is for a reading of 14.5, down from 17.0.

10:00 am: Existing home sales for January. The consensus is for 5 million annualized, up from 4.99 million.

Friday, February 22
No major economic releases scheduled.