Risk Assets Continue to Rise Despite Geopolitical Uncertainty

 

Financial Markets Continue to Ignore Tariffs

US Treasurys held within a tight range throughout the trading session, as bond markets again paid no mind to yesterday’s trade war escalation between the US and China.  Yields/swap rates finished marginally higher, with the 10-year note yield rising just above 3.06% and the 2-year note yield closed at 2.79% holding at its highest mark since 2008.  The recent jump in yields has provided a boost to financial sector stocks, pushing the DJIA to its highest closing level since January (26,405).  The tech-heavy Nasdaq declined slightly (-0.08%), while the S&P 500 posted a 0.13% gain on the day.  In commodity markets, WTI crude futures recorded a robust 1.8% increase, climbing to $71.12 barrel, as a fifth consecutive week of drawdowns in US stockpiles was reported by the Energy Information Administration.

 

 

BOJ Stands Pat

The Bank of Japan wrapped up its monetary policy meeting today with the decision to leave its massive stimulus in place “for an extended period” of time.  The existing ultra-loose policy calls for holding shorter-term interests at -0.1% and targeting a yield of 0% on 10-year Japanese government bonds, as the central bank continues to try to combat stubbornly low inflation levels.  The persistently low interest rates continue to squeeze margins at major commercial banks in Japan, creating a healthy difference of opinion between the BOJ and the nation’s financial sector.  BOJ Governor Haruhiko Kuroda maintained the forward guidance introduced in July, which aimed at a longer-term accommodative policy (until early 2021), while noting his preference that “any central bank would want to achieve its goal as soon as possible and enter the process of normalization”.       

 

 

New Homebuilding Rises, Permits Struggle   

Key domestic economic data releases on the day were headlined by the Commerce Department’s report on US homebuilding.  For the month of August, overall housing starts rose a robust 9.2% from July to an annualized rate of 1.282 million (1.238 million estimated).  Much of the rise was attributed to a 29.2% surge in the volatile multifamily sector, as single-family starts recorded a more modest 1.9% increase.  Building permits, often a forward-looking gauge to homebuilding, declined by 5.7% in August to a 1.229 million pace – its lowest reading in more than a year.  Shortages in the labor market and increased costs of materials compose the central concerns in the new housing market amongst builders, confirmed by National Association of Home Builders’s report on builder confidence where no change was recorded in September.