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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, March 16, 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||0.34||-0.01|
|2s/10s Tsy Spread||0.55||-0.02|
|2s/30s Tsy Spread||0.78||-0.02|
Today's Market Commentary
Recap – U.S. stocks ended mixed Thursday, as industrial and tech gains were offset by losses in the consumer and energy sector. After briefly sinking below 2.80%, 10-year Treasury yields steadied as traders look forward to next week’s Federal Reserve policy decision. With volume running about 17% below average, the S&P 500 Index notched its longest losing streak of 2018 – four days. The Empire State Manufacturing Index exceeded projections, and initial jobless claims came in just below estimates. While an increase in borrowing costs at the Fed meeting is seen as a done deal, it remains in question whether U.S. policy makers will lift their expectations for the pace of future increases. The yield on 10-year Treasuries rose one basis point to 2.82%. The Dollar Spot Index advanced 0.5%, the biggest rise in over two weeks. West Texas Intermediate crude climbed 0.4% to $61.21 per barrel. Gold fell 0.7% to $1,316.20 per ounce, the biggest fall in a week. Copper fell 1%.
Jobless Claims in U.S. Decline for Third Time in Four Weeks – Labor Department data revealed U.S. filings for unemployment benefits fell for the third time in four weeks and remain near the lowest level in 48 years, underscoring tightness in the job market. Jobless claims decreased by 4,000 to 226,000 (versus a consensus estimate of 228,000). Continuing claims rose by 4,000 to 1.879 million in week ended March 3. The four-week average of initial claims fell to 221,500 from the prior week’s 222,250; the year-earlier figure was 243,000.
U.S. Senate Just Quietly Passed Biggest Rollback of Wall Street Regulations Since Financial Crisis – A major overhaul of the U.S. financial system's regulatory structure passed the Senate on Wednesday in a move that could relax some of the most stringent post-financial-crisis regulations for dozens of banks. The legislation is officially known as the “Economic Growth, Regulatory Relief, and Consumer Protection Act,” but more commonly referred to as the “Crapo bill” after its author, Mike Crapo, the Senate banking committee chair. Supporters of the bill say it will free up regional banks from burdensome regulations and give consumers easier access to credit. Opponents, such as Democratic Senator Elizabeth Warren of Massachusetts, say the bill will increase risk in the financial system and possibly set the industry up for another devastating crisis. Despite pushback from Warren and other Democrats, the bill easily passed the Senate by a vote of 67 to 31.
The Atlanta Fed's GDPNow Tracker is Looking Worse and Worse –The Federal Reserve Bank of Atlanta's GDPNow model projects that gross domestic product will increase at a 1.8% annualized rate in the first quarter. That's down from last week's 2.5% estimate, and well below the 5.4% print from the beginning of February, which was based on one month of data. The most recent survey shows Wall Street anticipating a 2% growth. The model was revised lower after Tuesday's Consumer Price Index (CPI) report and Wednesday's advanced retail sales reading. CPI was in line, up 2.2% year-over-year, while retail sales slid 0.1% month-over-month. Wednesday's downward revision pushes the Atlanta Fed's estimate for first-quarter GDP growth well below the 3% target that President Donald Trump has touted for his administration.
U.S. Economic Releases Remain Heavy – Housing starts and building permits will be released at 8:30 am before industrial production and capacity utilization cross the wires at 9:15 am. Data concludes at 10:00 am with JOLTS Job Openings and University of Michigan consumer confidence. Stock markets around the world are mixed. China's Shanghai Composite (-0.65%) lagged in Asia and Germany's DAX (+0.3%) leads in Europe. The S&P 500 is set to open +0.15% near 2,751. The U.S. 10-year yield is down two basis points at 2.81%.
March 12 - 16, 2018: The Week Ahead
Future Fed Expectations
|Probability of Fed Funds rate increase on March 21, 2018||100%|
|Probability of Fed Funds rate increase on May 2, 2018||100%|
**All quoted rates are indications and are subject to change without notice.
* ISI is a member of the FINRA/SIPC.
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