Daily Market Commentary

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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, January 19, 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

Market Indications

Other Market Indicators

2s/5s Tsy Spread 0.37 -0.01
2s/10s Tsy Spread 0.57 -0.01
2s/30s Tsy Spread 0.85 -0.01

DJIA-30   26017.81 -97.84
NASDAQ 7296.05 -2.23
S&P-500 2798.03    -4.53

Dollar Idx 90.644 -0.04
CRB Idx 195.30 -1.04


Today's Market Commentary

Recap – After a record close on Wednesday, U.S. equities bounced around for most of the day yesterday to close modestly lower, with the S&P (-0.16%), Dow (-0.37%) and Nasdaq (-0.03%) all down. The Volatility Index was up for the fifth consecutive day to 12.22 (+2.6%) – the highest since mid-November. In government bonds, U.S. Treasury 10-year bond yields rose three basis points to 2.63%, marking a fresh ten-month high (and approaching three-and-a-half-year high) weighed down partially by concerns of a government shutdown. Notably, yesterday’s auction of $13 billion 10-year TIPS (Treasury Inflation-Protected Securities) went smoothly and attracted a bid-to-cover ratio of 2.69 – the highest since May 2014. Turning to currencies, the U.S. Dollar Index was marginally lower (-0.05%). In commodities, both West Texas Intermediate oil and gold were broadly flat, while other base metals were mixed but little changed (zinc -0.12%; copper +0.09%; aluminum +0.72%).

In terms of economic data, the January Philly Fed Index fell 7.7 points to a still solid level of 22.2 (vs. 25 expected). Elsewhere, December housing starts were lower than expected (-8.2% month-over-month vs. -1.7%), largely due to a decline in starts from the elevated levels of November in the South. Building permits fell less than expected (-0.1% month-over-month vs. -0.6%). Finally, the weekly initial jobless claims fell to the lowest since 1973 (220 thousand vs. 250 thousand expected), while continuing claims were slightly higher than expectations (1,952 thousand vs. 1,900 thousand).

Overnight, the House voted 230-197 to pass a spending bill to avoid a U.S. government shutdown and extend funding through February 16. This was a relatively easy feat given the Republican’s majority in the House. Looking ahead, the Senate requires 60 votes, which means Republicans need at least nine favorable Democratic votes to pass the bill. Bloomberg noted that Senate Democrats claim to have the votes to block the bill, in part to force Republicans to discuss other matters, such as protection for immigrants brought illegally to the U.S. as children (“Dreamers”).

New York Fed President William Dudley warned of longer-term risks from the U.S. tax cuts, stating, “The economy could actually overheat [and] inflation might not stop at 2%... or 2.2%... Then the Fed would have to step on the brakes a bit harder.” Elsewhere, the Wall Street Journal reported the White House is considering San Francisco Fed President John Williams for the role of Fed Vice Chairman.

Looking at the day ahead, the preliminary University of Michigan Index of Consumer Sentiment in the U.S. is the only notable data due. Today also marks the deadline to prevent a U.S. government shutdown.

Equity Markets Are Trading Modestly Higher – In Asia, Hong Kong’s Hang Seng (+0.41%), Korea’s Kospi (+0.18%), China’s CSI300 (+0.33%) and Japan’s Nikkei (+0.19%) closed higher. In Europe, markets are in the green with the Euro Stoxx 50 higher by 0.63%. In U.S. pre-trade, U.S. futures are pointing to a higher open. This morning, bonds have stabilized with the 30-year long bond yielding 2.89%. The 10-year Treasury benchmark is at 2.61%. Further in on the curve, twos and fives are yielding 2.04% and 2.39%, respectively. Also of note, the Dollar Trade-Weighted Index is hitting a fresh three-year low, and is headed for its sixth week of losses – its longest weekly losing streak in almost a year – amid concerns of a U.S. government shutdown. This concern is outweighing any benefit the greenback normally receives from higher yields.

Economic Calendar

January 16 - 19, 2018: The Week Ahead

Future Fed Expectations
Sources: Bloomberg


Select Probabilities based on the Futures

Probability of Fed Funds rate increase on January 31, 2018 0%
Probability of Fed Funds rate increase on March 21, 2018 88%

**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.