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, September 19, 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
|2s/5s Tsy Spread||0.42||-0.01|
|2s/10s Tsy Spread||0.83||0.00|
|2s/30s Tsy Spread||1.40||0.00|
Today's Market Commentary
Recap – It's been a quiet start to the week ahead of the important Fed meeting today and tomorrow. But no news is better than any news as the Volatility Index (fear gauge) briefly fell below 10 yesterday for the first time since August 7 (closed 10.15). Equities strengthened further in the U.S., but the changes were modest, in part as investors await the Federal Open Market Committee (FOMC) meeting. The S&P edged 0.15% higher, while the Nasdaq and the Dow rose 0.10% and 0.28%, respectively. Core bond yields underperformed, but changes were modest as U.S. Treasury 10-year yield rose two basis points. Currency markets were quiet. The U.S. dollar index gained 0.19%. In commodities, West Texas Intermediate oil was broadly flat again while precious metals fell (gold -0.97%; silver -2.15%) given the bias away from safe-haven assets. In terms of macro data, the National Association of Home Builders’ Housing Market Index was slightly lower than expected at 64 (vs. 67) with both the current sales and sales expectations indices returning to their July readings.
In his first visit to the U.N., President Trump said a decision on Iran’s nuclear deal will be seen “very soon” and the U.N. has not reached its full potential. Trump's first official address will occur later today, so eyes will be on that.
Meanwhile, nobody appeared concerned about tomorrow's Fed announcement, where the balance sheet unwind is expected. Attention will focus on any revision to the Fed's dots. Regarding the Fed’s quantitative tightening plans, Matthew Diczok, U.S. Trust’s Fixed Income Solutions Executive, said: “We are not overly concerned… If you model it out, over about the next three years they’ll take out about $1.3 trillion or so. That’s only a third of what they put into the market. So, it’s going to be very slow, very gradual, very deliberate and it shouldn’t lead to any near-term fireworks into the market at all.”
Early Market Update – Despite the cautious action ahead of the Fed, the Morgan Stanley Capital International All-Country World Index rose 0.1% to a new record high. Overnight, the Nikkei was up 1.96%, playing a bit of catch-up as the market was closed yesterday for a holiday. European shares are unchanged. S&P futures are also little changed as the Fed begins its two-day FOMC meeting pushing the Volatility Index below 10, down 1.3% and falling for the seventh day. The U.S. 10-year Treasury is also trading a bit firmer (-1 basis point) this morning. The trade weighted dollar index was little changed before tomorrow’s Fed’s policy decision. In terms of monetary policy, December rate hike odds once again rose back to 50%, suggesting another rate hike may be possible this year.
Looking at the day ahead, there are housing starts, building permits, current account balance and the import / export price index.
September 18 - 22, 2017: The Week Ahead
Future Fed Expectations
|Probability of Fed Funds rate increase on September 20, 2017||2%|
|Probability of Fed Funds rate increase on November 1, 2017||3%|
**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.