Daily Market Color February 19, 2019Trade Negotiations Temper Financial Markets Rates Slide to Start Week Treasury markets returned from the holiday-extended weekend with a steady rally, as yields/swap rates declined 2-5bps across the curve in a bull-steepening pattern. The yield on the 10-year note finished the session near 2.63% (-3bps), approaching its lowest level since the first week of 2019. In another apparent flight to safety market move, gold futures rose 1.66% to a 10-month high of $1,344/ounce. US-China Talks to Guide Financial Markets Much market focus will be honed on the next round of trade negotiations between the US and China, which kicked off this morning in Washington. Last week’s talks in Beijing did not result in a deal, but were described by President Trump as “fruitful”. This Thursday will begin higher-level discussions between U.S. Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He, with both sides hopeful that enough progress will be made to delay the tariff increase from 10% to 25% on $200 billion of Chinese imports set for March 1. Speaking optimistically today regarding the March 1st deadline, President Trump stated “I can’t tell you exactly about timing, but the date is not a magical date. A lot of things can happen.” Despite the moves in gold and bonds, US equities eked out gains on the hopes of progress in trade negotiations between the world’s two largest economies. All three major indices finished in the black, with the tech-heavy Nasdaq (+0.19%) leading the way. Retail giant Walmart captured headlines in the equity markets after posting better than expected profits and sales during the holiday season, driving its share price more than 2.2% higher during the trading session. Walmart credited its strong Q4 performance to a 43% surge in e-commerce sales. Fed Official Commentary While there was little to observe by way of key economic data releases, today Cleveland Fed President Loretta Mester provided her economic outlook for 2019, supporting the Fed’s current “wait-and-see” approach, while noting that “if the economy performs along the lines that I’ve outlined as most likely, the fed-funds rate may need to move a bit higher than current levels”. Her expectations include 2%-2.5% GDP growth, the benchmark unemployment rate “at or below 4%” and inflation near 2%. Presenting a different stance, this afternoon New York Fed President (and Fed Vice Chair) John Williams stated his opinion that interest rates need not be raised during 2019 barring any unexpected surge in growth or inflation. “Monetary policy is where it should be,” Williams explained. “It’s around my view of what neutral interest rates are.” Financial markets will be treated to several more perspectives the FOMC tomorrow afternoon when the minutes from the January meeting are scheduled to be released.
