Stocks Recover from Forgettable Q2 Start While Treasurys Selloff

Risk Assets Rebound

US financial markets shifted back into risk-on mode today as all 11 of the S&P 500 industry sectors finished in black, with technology shares reversing a portion of this week’s decline after Director of the National Trade Council Peter Navarro eased concerns that President Trump’s recent criticism against major tech companies would lead to any major policy changes.  Navarro even went on to say that “The smart money is certainly going to buy on the dips here because the economy is as strong as an ox”.  The DJIA led major indices with a 1.65% rise, while the S&P 500 jumped 1.25% and Nasdaq climbed 1.05%.

US Treasurys sold off during the trading session, as yields/swap rates bounced off two month lows, rising 3-5 bps across the curve.  The 10-year note yield climbed nearly 5bps to 2.78%.  The US dollar managed a 0.1% gain against major currencies, led by a 0.7% rise against the Japanese yen.  In commodities, crude oil futures were able to pare a portion of yesterday’s losses as WTI crude increased 0.90% to $63.60/barrel.

FedWatch: Williams to Replace Dudley           

John Williams, current president of the San Francisco Federal Reserve Bank, has been named as the replacement for Bill Dudley as head of the New York Fed and will assume the role on June 18 of this year.  The New York position is arguably the most powerful of those within the Fed given its oversight of the Wall Street banks and permanent voting position on the FOMC.  Williams is seen as moderately hawkish on policy (supports 3-4 rate hikes in 2018) and is expected to be an ally to current chair Jay Powell.  A Stanford trained Economist, he has spent the vast majority of his career working for the Fed.  Williams replaced former Chair Yellen as President of the San Francisco Fed when she took over the Fed under President Obama.  Williams’ appointment will leave a vacancy at the San Francisco Fed, and a search committee will be convened to find a permanent replacement. 

SOFR Begins 

The NY Fed began publishing the Secured Overnight Financing Rate (SOFR) this morning, with the first rate setting as 1.80%.  The overall rate is comprised of General Collateral Financing trades (GCF), Bilateral Treasury Repo Trades (BGCR) and Triparty Repo Transactions (TGCR).  It has been compiled with the intention to reflect the true market rate where US Treasuries can be financed on an overnight secured basis.  SOFR is currently meant to work alongside LIBOR and may eventually replace LIBOR as the benchmark rate on US Dollar denominated derivative contracts.  Published levels SOFR can be found here.