Daily Market Color

Financial Markets Mixed as USMCA Excitement Fades


Goldilocks Not Unrealistic

Earlier today, Fed Chair Jerome Powell reiterated the views communicated by the FOMC at the conclusion of its meeting last week.  Specifically, he supported the notion that consumer price growth would remain near the Fed’s target (2%) and not overheat, despite persistently low unemployment and rising wages – a perspective that Powell stated “is not too good to be true”, contrary to the beliefs of several market pundits.  The Fed maintains a “remarkably positive outlook” and believes that we will “remain in extraordinary times”.



Alternatively, it can argued that the current conditions of the economy may eventually force prices higher at a faster pace than expected.  Adding pressure to faster wage growth, this morning Amazon announced that it would be increasing its minimum wage to $15/hour nationwide; a move that could influence other retailers to do the same or something similar.  Workers’ earnings were also a point of emphasis in the recently established USMCA pact between the US, Mexico, and Canada, in which automobile production is required to be produced with higher minimum hourly wages than in the past.  Of further possible impact, there remains the ongoing tariff battles between the US and other major economies around the world, which could also work to drive domestic prices higher.



Financial Markets’ Mixed Reaction

The DJIA closed at another record high today (+0.46%) as the momentum from yesterday’s trade agreement with Canada carried into today’s session.  The S&P 500 (-0.04%) and Nasdaq (-0.47%) did not fare as well, weighed down by the technology and retail sectors.  US Treasurys maintained a modest rally throughout the day, with yields/swap rates finishing 1-3bps lower across the curve and the 10-year note settling near 3.06%.  In commodity markets, crude oil futures remained near a four-year high with a barrel of WTI closing at $75.23/barrel.



More Concern in Italy

European financial markets have grown increasingly concerned with the fiscal debt burden of the region’s fourth largest economy, and local Italian government officials don’t appear to be helping the process.  The newly established ruling coalition in Italy, partially led by Luigi Di Maio of the anti-establishment 5-Star Movement, has set the deficit target at 2.4%, much to the dismay of other EU officials.  While the 2.4% deficit target level is within the European Commission’s limit, the current economic projections for Italy call for an increase in that deficit, which then becomes a violation.  The budget standoff has generated a sharp selloff in Italian bonds and equities, however Deputy Prime Minister Luigi Di Maio is not willing to concede, as he stated earlier today “we are not turning back from the 2.4 percent target… We will not backtrack by a millimeter”.  The euro dropped to a new six-week low against the dollar following those comments.


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