Daily Market Color January 18, 2019Risk Assets Continue to Climb with Positive US – China Trade News Easing of US-China trade tensions sends rates higher. Speculation that the U.S. and China are coming close to a trade truce pushed Treasurys lower and yields higher. Five year swap rates rose nearly five basis points while 10 year treasury yields rose 3.4 basis points to close at 2.784%. The dollar also strengthened on the back of the report, the DXY index rising 1.32% to extend its positive streak to four days in a row. Fed officials John Williams and Charles Evans preach patience. New York Fed President John Williams joined the growing number of Fed presidents preaching patience in hiking rates. Williams noted that while there are sure to be short-term headwinds from the government shutdown the economy should rebound later in the year to offset any significant disappointments in the data. Philadelphia Fed President Patrick Harker echoed that optimism on the US economy, saying that the “high level data look really good”. Fed funds futures are currently pricing in only a 32% likelihood of a hike in 2019. US equities rise on US-China news, the S&P 500 off to its best start since 1987. The index is up for its fourth week in a row, and volatility continues to recede after a difficult end to 2018. The rally comes despite a lack of consensus among analysts- Bank of America survey showing next to no consensus trade ideas for 2019. Also at odds with the rally is a record drop in consumer confidence- the University of Michigan survey showing a 10% drop since December. Partial government shutdown extends to record 28th day. With no end in sight, the government shutdown entered its 28th day as the feud between President Trump and House Speaker Pelosi continues to grow. The shutdown has made for an unusual initiation to Washington for the 111 new members of congress, and likely doesn’t bode well for the government’s legislative agenda for the rest of 2019.
