Daily Market Commentary

Start Each Week With 
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.

Tuesday, November 21, 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 0.34 -0.01
2s/10s Tsy Spread 0.65 -0.02
2s/30s Tsy Spread 1.10 -0.02

DJIA-30   23358.24 -100.12
NASDAQ 6782.79 -10.50
S&P-500 2578.85 -6.79

Dollar Idx 93.78 +0.13
CRB Idx 189.29 -1.09

 

Today's Market Commentary

Recap – U.S. equities strengthened with the S&P and NASDAQ up 0.1% and the Dow up 0.31%. The modest risk on sentiment was evident in volatility measures with the Volatility Index down for the third consecutive day (-6.8% to 10.65). Government bonds were little changed with the 10-year Treasury yield higher by two basis points. Meanwhile, the collapse in the U.S. Treasury curve continued with 2s/10s moving below 60 basis points – a strong indication we could see an inversion as soon as early next year. Elsewhere, the 5s/30s spread flattened by three basis points to 67 basis points, marking a fresh new 10-year low. Turning to currencies and commodities, the U.S. Dollar Index gained 0.44% while West Texas Intermediate dipped 0.58%. Elsewhere, precious metals weakened with gold down by the most since late September.

Yesterday, the Fed Chair Janet Yellen confirmed she will be stepping down from the Board of Governors once nominee Jerome Powell is sworn into office as the next Fed chair. Her vacancy will give President Trump a fourth spot to fill in the new Fed, including the vice chairman spot. Elsewhere, Trump has re-designated North Korea as a state sponsor of terrorism and the Treasury department is expected to announce additional sanctions today. Notably, Secretary of State Rex Tillerson “still hopes for diplomacy” with the State.

Moving onto central bankers’ commentaries, the European Central Bank’s Mario Draghi reiterated that despite the sound economic recovery, “underlying inflation pressures are still subdued as labor market slack remains significant.” He continued saying labor markets, “still need time to translate into dynamic wage growth.”

Looking at the day ahead, central bank speakers will likely be the center of attention again. Fed Chair Janet Yellen is due to speak this evening as part of a series with former Bank of England Governor Mervyn King. Data-wise, the Chicago Fed National Activity Index and Existing Home Sales data for October are due.

Stock Markets Around the World Are Higher – Hong Kong's Hang Seng (+1.91%) led the advance in Asia, and Germany's DAX (+0.48%) paces the gains in Europe. The S&P 500 is set to open higher. In fixed income, longer dated Treasuries continue to be bid higher. Currently, the long bond is yielding 2.76%. The key 10-year Treasury benchmark is priced at 2.35%. Further in on the curve, twos and fives are unchanged at 1.75% and 2.09%, respectively. As mentioned above, the big news in the bond market is the persistent flattening of the yield curve. Currently, the 2s/30s spread is at 99 basis points. At the beginning of the year, the spread was 180 basis points. The spread between 2s/10s has collapsed to 58 basis points from 120 basis points. Likewise, the 5s/30s spread is now at 665 basis points versus 110 basis points at year end.

For more detail on what the yield flattening may foreshadow, please see this week’s
Weekly Relative Value – Let’s be Careful Out There
 

Economic Calendar

November 20 - 24, 2017: The Week Ahead

Future Fed Expectations
Sources: Bloomberg


 

Select Probabilities based on the Futures

Probability of Fed Funds rate increase on December 13, 2017 97%
Probability of Fed Funds rate increase on January 31, 2018 97%

**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.