Daily Market Color February 8, 2018Another Volatile Day on Wall Street The Wild Ride Continues Volatility remained front and center in the financial markets today as major US stock indices declined for their fourth trading session out of the past five. The equity rout accelerated into the close as the DJIA finished the day 1,033 points (-4.15%) in the red after trading closer to 500 points lower for the majority of the session. The S&P 500 and Nasdaq didn’t fare much better, declining 3.75 and 3.90%, respectively – erasing all gains for 2018 and closing at levels not seen since November of 2017. Overall, equity indices are on pace to post their worst weekly performances in more than two years. Investors continued to remain bearish on stocks amid the potential for inflation growth and prospect of higher interest rates in the US, as seen in the CBOE VIX which climbed more than 11% today to a 33.5 reading (average of 11 during 2017). US Treasurys sold off in the beginning of today’s session before paring declines in the afternoon alongside the tumble in equities. Yields/swap rates finished 1-2bps lower on the day, with the 10-year note yield holding near its opening level of 2.82%. In commodities, crude oil futures fell for a fifth consecutive session, as mounting US production continues to weigh on investor sentiment. The price of a barrel of WTI crude dropped by more than 1% on the day and settled near $61 – its lowest mark in five weeks. While much of the market’s attention has been paid to the Dow’s 2nd 1,000 point loss of the week, there still exists the potential risk of a government shutdown if a bipartisan deal cannot be struck before 12am ET tomorrow morning. Presently, the onus rests with the House of Representatives, where a vote on the Senate’s agreed-upon budget deal is scheduled for this afternoon. In its current state, the agreement would add $300 billion to the government’s deficit, heavily skewed towards military and domestic program spending. Democratic support for the bill remains highly uncertain, as provisions for the “Dreamers” were largely unaddressed in the deal – a central topic in Minority Leader Nancy Pelosi’s record setting 8-hour speech on the House floor yesterday. Jobless Claims Unexpectedly Fall A very light day of key economic data releases included a report from the Labor Department which showed initial jobless claims in the US falling close to the lowest level in the past 45 years. The number of new claims for the week ended February 3rd declined 9,000 to a seasonally adjusted 221,000 (232,000 expected), and the four-week moving average of claims fell by 10,000 to 224,500. Also detailed in the report, the number of continuing claims decreased by 33,000 to 1.92 million for the week ended January 27th. Hawkish Hold by the BOE The Bank of England concluded its first monetary policy meeting of 2018 with the decision to leave its benchmark borrowing rate unchanged at 0.5%. Despite the unanimous vote for no hike, the Monetary Policy Committee noted its expectation for the U.K. to grow at a quicker pace than previously projected and warned of the potential for an overheating of the economy. “It will be likely to be necessary to raise interest rates to a limited degree in a gradual process but somewhat earlier and to a somewhat greater extent than what we had thought in November,” BOE Mark Carney stated after the meeting. “Demand growth is expected to exceed the diminished supply growth.” Both the British pound (+0.9% vs. USD) and market-implied odds for a near-term BOE rate hike rose following the announcement and subsequent press conference.
