Daily Market Color January 29, 2021Johnson & Johnson Vaccine Trial Data Pulls Rates Higher Treasury yields rise on positive Johnson & Johnson vaccine trial Johnson & Johnson became the latest pharmaceutical company to see positive results from a late-stage vaccine trial and will file for emergency use authorization next week after the vaccine prevented 100% of hospitalizations and deaths in a study of over 40,000 people. Treasury yields and swap rates moved higher on the news but finished well off the days highs- the 10-year Treasury yield climbing 2 bps to 1.06%. Despite the positive vaccine news major equity indices turned negative for the year and posted their largest weekly declines since October after a highly volatile week of trading – the S&P 500 and DJIA closing 1.9% and 2% lower, respectively. US household purchases declined 0.2% while incomes rose 0.6% in December Purchases continued the downward trend for a second straight month following November’s 0.7% decline. M/M income growth beat economists 0.1% forecast, after funds from last month’s $900 billion virus relief bill boosted the level. The Y/Y PCE price index, the Fed’s preferred measure of inflation, closed out the year 1.3% higher, remaining well below the central bank’s 2% target. Three-month LIBOR falls to all-time low of 0.20188% The US cash balance experienced a recent steep increase after an abundance of T-bills were issued last year to cover pandemic-related funding. The cash balance is expected to drop from its current $1.61 trillion to $118 billion due to the federal debt ceiling and additional stimulus funding, signaling that fewer T-bills will be issued this year. The imminent increase in liquidity is weighing on short-term rates, leading economists to believe three-month LIBOR will continue to drop over the coming months. FX Friday: dollar index closes out the month on a high note Recently, the greenback has been largely rangebound as markets continue to monitor trepidation on frothy stock valuations, reports of more COVID-19 variants, and new cases. After declining almost 7% last year, the dollar rose ~0.9% this month and is ~1.34% higher from its three-year low of 89.206 hit on January 6th. US consumer sentiment index falls to 79 from 79.2 earlier in the month Sentiment remains well below pre-pandemic levels as the pace of the economic recovery remains in question. Economists believe the economic gauge will rise in the coming months as vaccines continue to be rolled out and a potential new stimulus package is passed.
