Daily Market Color

Stocks Stop the Bleeding (For Now)


Risk Assets Rebound     

US equity markets were able to reverse a significant portion of yesterday’s losses during today’s trading session as the tech-heavy Nasdaq posted a 2.95% gain to pace the major indices.  Unfortunately, it looks like it may be a red Friday tomorrow for stocks as both Amazon and Google posted disappointing quarterly earnings after the close, pushing their share prices down 8% and 4% in after-hours trading, respectively.  US Treasurys maintained a steady selloff throughout the session, with yields/swap rates climbing 1-3 bps across the curve.  Tomorrow, financial markets will also be closely monitoring the Commerce Department’s release of its initial estimate of third-quarter GDP, where a 3.3% annualized rate is expected (vs. 4.2% Q2).



Fed Vice Chair Commentary       

Today Federal Reserve Vice Chairman Richard Clarida spoke publicly for the first time since being sworn in.  Similar to recent comments from a number of his colleagues, Clarida echoed the need for the Fed to raise interest rates (much to the dismay of President Trump).  “If the data come in as I expect, I believe that some further gradual adjustment in the federal funds rate will be appropriate,” he stated.  However Clarida did go on to discuss the potential for inflation to remain relatively stagnant despite a further tightening in the labor market, which could result in the Fed slowing or suspending its pace of increases.  In the end, the Fed will be keeping a firm pulse on consumer price data while monitoring the correlation between other growth metrics and inflation, to see if such relationships will follow historic patterns.  Fed funds futures markets are currently placing a 74% probability of a rate hike at the December FOMC meeting (< 5% hike probability at the November meeting).



No Surprises with the ECB

Today the European Central Bank concluded its monetary policy meeting with the decision to leave the base deposit rate unchanged at -0.4% and maintain the plan to gradually wind down its quantitative easing program, which is currently capped at 15 billion euros in bond purchases per month.  The statement released afterwards also reiterated the expectation for “key ECB interest rates to remain at their present levels at least through the summer of 2019.”  ECB President Mario Draghi remained upbeat about the European economy in the press conference afterwards despite the potential for international trade wars and ongoing political turbulence in Italy.  Draghi cited positive wage growth and labeled any risks to the euro zone as “broadly balanced”.  The euro finished the trading session mildly lower against the US dollar, despite the somewhat hawkish message from the ECB.


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