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.

Wednesday, January 18, 2017 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 0.68 +0.02
2s/10s Tsy Spread 1.18 +0.01
2s/30s Tsy Spread 1.79 +0.01
DJIA-30 19826.77 -58.96
NASDAQ 5538.73 -35.39
S&P-500 2267.89 -6.75
Dollar Idx 100.87 +0.54
CRB Idx 193.82 -1.32

Today's Market Commentary

Recap – Trump once again dominated headlines by suggesting that a strong U.S. dollar was killing exports. The reaction in U.S. equity markets following all this seemed to imply that there are growing doubts about what policies Trump might follow through on. Treasuries continue to unwind after the 10-year yield fell seven basis points yesterday to close at 2.32% – the lowest since November. Financials were most under pressure with the S&P 500 financials index tumbling -2.28% for its worst day since June last year. Amazingly that was despite another strong set of bank earnings yesterday. The S&P 500 and Dow both ended -0.30%.

Meanwhile, in addition to Trump’s comments, yesterday at the World Economic Forum in Davos, Anthony Scaramucci – who is a member of Trump’s transition team – added further weight to the argument by saying that “we have to be careful about a rising dollar.” The U.S. dollar index finished down -0.86% and is now down -3.40% from the 2017 high mark already. Coming back to the Trump interview for a second, another comment from the President-elect, which appeared to gain some traction was his calling a so-called border tax “too complicated.”

There was also some interesting Fedspeak to mention yesterday. New York Fed President William Dudley probably didn’t help the dollar sell-off by saying that “the risk that the Fed will snuff out the expansion anytime soon seems quite low because inflation is simply not a problem.” He also said that “the economy is not growing much above its sustainable long-term pace.” Meanwhile, the usually dovish Fed Governor Lael Brainard sounded a bit more hawkish by saying that “if fiscal policy changes lead to a more rapid elimination of slack, policy adjustment would, all else being equal, likely be more rapid than otherwise.”

China Fires Back – China President Xi Jinping made his debut at the annual Davos shindig. While refraining from mentioning Trump by name, Xi said that “countries should view their own interest in the broader context and refrain from pursuing their own interests at the expense of others.” He also warned that “no one will emerge as a winner from a trade war” and referred to the Paris agreement as being a “hard-won achievement” and one that “all signatories should stick to.”

Looking at today’s calendar, this morning the December inflation report noted headline inflation sitting at +0.3% month-over-month for the headline and +0.2% month-over-month for the core. Industrial and manufacturing production prints for last month will also be released, followed shortly after by the NAHB housing market index reading for this month. Away from the data, the most notable Fedspeak today will likely be Fed Chair Janet Yellen when she speaks and is expected to give an economic assessment. The Fed’s Robert Kaplan and Neel Kashkari will also throw their two cents into the mix. Finally, the U.S. corporate reporting calendar today is headlined by Goldman Sachs and Citigroup, both reporting strong earnings prior to or at the U.S. open.

Market Update – Bonds are trading lower in early trade with the 10-year Treasury benchmark priced at 2.37%. The long bond is yielding 2.97%. Further in on the curve, twos and fives are priced at 1.18% and 1.86%, respectively. U.S. futures are pointing to a modestly higher open. In the commodity space, WTI is lower. In FX trading, the trade weighed dollar index has rebounded modestly.

Economic Calendar

January 9 - 13, 2017: The Week Ahead

Future Fed Expectations
Sources: Bloomberg

Select Probabilities based on the Futures

Probability of Fed Funds rate increase on February 1, 2017 12%
Probability of Fed Funds rate increase on March 15, 2017 30%

**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.