Morning Report: Markets start new year on a lower note

Vital Statistics:

 

Last Change
S&P futures 2470.5 -35.25
Eurostoxx index 334.98 -2.61
Oil (WTI) 45.01 -0.4
10 year government bond yield 2.66%
30 year fixed rate mortgage 4.60%

 

Stocks are lower this morning on weak overseas economic data. Bonds and MBS are up.

 

The global economy is slowing down, and we are seeing the effects in the “risk off” trade, which is lower stock prices and lower interest rates. The 10 year in the US is now comfortably below 2.7%, and the German Bund is at a multi-year low. While overseas events don’t necessarily drive the US markets, they aren’t immune either, and that is partially what is driving the US bond yield lower, along with lower commodity prices.

 

The Atlanta Fed is forecasting 2.7% growth for Q4, and many strategists anticipate that Q1 will be in the low 2s. Now that Fed Policy is considered neutral, it would be hard to continue to hike rates as long as PCE inflation remains stuck where it has been for the past decade.

 

Now that the holidays are over, the focus shifts to the government shutdown and what to do about it. With a new Congress coming in, compromise seems more difficult than before, and both sides are still dug in on the issue of the wall. Democrats have prepared bills that keep the government open until the end of the fiscal year, but doesn’t include anything for a wall. That is a non-starter for Trump and therefore won’t even be considered in the Senate. The deal that is waiting to be struck is something along the line of Dreamer legislation for a wall.

 

 

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Author: Brent Nyitray

Why do you need new bands? Everyone knows rock attained perfection in 1974. It's a scientific fact. - Homer Simpson

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