Another Record High for Stocks While Treasurys Decline after Jobs Data, Fedspeak

Headlines in US financial markets were dominated by the Dow Jones Industrial Average closing above the psychological 22,000 level for the first time in history.  Shares in Apple Inc. boosted major indices after yesterday evening’s third quarter earnings report, which provided better than expected forward-looking guidance driven by robust sales volumes.  US Treasury prices held marginally lower on the day, with yields/swap rates increasing 1-3bps across the curve, bringing the yield on the 10-year note to 2.27%.  The dollar continued its decline, edging 0.1% lower against major currencies following this morning’s dovish rhetoric from Fed members James Bullard and Loretta Mester, both of whom struck a cautious tone when speaking of future rate hikes and inflation expectations.   “Given the inflation outlook, which has deteriorated in 2017, I would not support further moves in the near term,” Bullard explained. “It’s possible data will turn around, but we’ll have to see. I think for now we should remain on pause.”

 

 

Economic data released today included ADP’s employment report, which displayed the number of new hires by private employers in the US at 178,000 during July.   The figure represents a slight decline from June’s 191,000 upwardly revised level (158,000 initial reading) and was marginally lower than expectations of 185,000.  Steady employment gains were observed across most major industries, with the manufacturing sector reporting the lone reduction in payrolls.  Often a leading indicator for the Labor Department’s more comprehensive employment report, today’s ADP figure foreshadows moderate gains in Friday’s nonfarm payrolls figure, with current expectations pointing towards a 180,000-monthly increase for July after a robust 222,000 gain in June.

 

 

Outside of the US, government bond values in Venezuela continue to plummet as political controversy escalates in the region.  Venezuelan President Nicolas Maduro and his cabinet drew sanctions from the US government this week after putting in motion a plan to rewrite his nation’s constitution, a move viewed as anti-democratic by the Trump administration.  The referendum vote to pass the revision has now been called into question after several reports surfaced detailing the unwarranted arrests of several leaders who opposed the move by Maduro.  With the situation still largely unresolved, potential sanctions on oil exports by the US remain a legitimate concern for the Venezuelan economy, as seen by the yields on Venezuelan state oil company bonds touching over 150%.  Additionally, credit-default swap data points to a higher than 60% probability that Venezuela with miss one of its schedule debt payments over the next year.

 

 

In regulatory news, Wall Street officials have agreed that changes need to be made to the Volcker Rule to provide more flexibility around trading and private fund investments. Re-writing the rule would enable lawmakers to lessen restrictions without having to obtain congressional approval. Although details have not been provided regarding the potential re-write, the regulators have indicated that they will look to Treasury Secretary Steve Mnuchin’s June report which indicated that significant changes need to be made to the rule.