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Daily Market Commentary

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 consultant to credit unions.

Friday, October 11, 2019 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

Market Indications

Historic Treasury Curves - graph

Other Market Indicators

Market Indicators  
2s/5s Tsy Spread-0.05+0.03
2s/10s Tsy Spread0.12+0.03
2s/30s Tsy Spread 0.61+0.03
DJIA-30 26,496.67+150.66
NASDAQ 7,950.78+47.04
S&P-500 2,938.13+18.73
Dollar Idx 98.60-0.09
CRB Idx 173.58+0.51

Market Commentary

Recap – It remains to be seen if Donald Trump has made America great again, but for investors, I can promise you that he has been very successful in making volatility great again. Equity markets remain on tenterhooks ahead of     U.S.-China trade talks, which seem to take a different turn every 24 hours. Two days ago, Bloomberg broke with a story that Beijing is ready and willing to opt for a smaller trade deal, and traders got all excited with that news. A day later, the Chinese trade team said that it is reluctant to sign any deal in the wake of the White House move to blacklist certain Chinese companies. Now, a currency pact with China is being contemplated and Trump is reconsidering the next round of tariff hikes and he may even start allowing U.S. companies to start supplying Huawei again! You simply cannot make this stuff up.

Political Cartoon about U.S.-China Trade DealSource: Hedgeye

Anyways, regarding the latest developments on trade negotiations, President Donald Trump said the first day of trade talks with China in Washington went “very well” and that he plans to meet with Chinese Vice Premier Liu He today.

And it seems the algos and momentum-types are really preparing for a partial trade deal that serves up a cease-fire and an end to the tariff actions. This includes a potential decision by the White House to delay, yet again, the proposed 30% tariff-hike deadline of October 15, and the one slated for December 15, which God forbid, would include smartphones (who cares about clothing, right?). It’s not as if the President hasn’t waffled before and a beleaguered Trump desperately needs a win right now, and a small one will do. Trump’s base wants a deal (no group more than the farmers) so I’m assuming that the President cowers and signs some kind of interim deal that doesn’t cover anything that is truly in America’s long-term interest (though it will improve the flow of farm products to China, to be sure). He will then sell it as a win like he did with this latest mini deal with Japan, which was really much ado about nothing.

Overnight Asian markets climbed by approximately 1% as investors welcomed the positive trade noises from talks in Washington. In Europe, the Stoxx 600 Index was 1.3% higher. Likewise, in pre-market trade S&P 500 futures pointed to a higher open, the 10-year Treasury yield was three basis points higher at 1.70%.

I hope everyone enjoys the long holiday weekend!

Economic Calendar

October 7-11, 2019: The Week Ahead

Economic Calendar October 7-11

Future Fed Expectations

Source: Bloomberg

Future Fed Expectations - graph

Expected Fed Funds Path - graph


Select Probabilities based on the Futures 
Probability of Fed Funds rate CUT on October 30, 201973%
Probability of Fed Funds rate CUT on December 11, 201990%

**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.