Daily Market Color

Stocks, Yields Fluctuate with Global Uncertainty


Caution in Financial Markets

US equities held within a tight range today as investors continued to grapple with the uncertainty of economic growth prospects alongside this past week’s rise in rates.  The S&P 500 (-0.14%) declined for a fourth straight session, weighed down largely by the materials sector which posted its biggest daily loss in the past eight months.  US Treasury yields briefly rose to a new seven-year high before reversing course later in the day.  Yields/swap rates finished the trading session 1-4bps lower across the curve in a bull flattening pattern.  In commodity markets, WTI crude futures remained within striking distance of a four-year high, settling 1% higher to $74.96/barrel.  Pushing prices higher, several oil producers have already been forced to suspend operations as Hurricane Michael heads toward the central gulf with the threat of turning into into a Category 3 storm.



Kaplan Downplays Recent Uptick in Rates

Speaking to the Economic Club of New York earlier today, Dallas Federal Reserve Bank President Robert Kaplan confirmed his preference to increase the Fed Funds rate “gradually and patiently” over the next couple of years despite the recent surge in yields/swap rates.  While last week’s USMCA (post-NAFTA) trade agreement and robust labor data helped contribute to the selloff in Treasurys, Kaplan cautioned that “there are lots of conflicting factors going on” and “prospects for future U.S. growth are somewhat sluggish”.  He provided his projection for three more quarter-point hikes, but “what we do beyond [the three increases], I’ve been candid in saying ‘I don’t know’”.  


Global Growth Jitters

Today the International Monetary Fund (IMF) reduced its expectations for global economic growth over the next two years as trade wars continue to drive geopolitical uncertainty, along with weakening conditions in certain emerging markets.  The IMF warned that risks “such as rising trade barriers and a reversal of capital flows to emerging market economies with weaker fundamentals, and higher political risk—have become more pronounced or have partially materialized.”  President Trump did little to ease those concerns today as he reiterated his willingness to impose further tariffs on China.  He stated, “China wants to make a deal, and I say they’re not ready yet,” before confirming that he was “absolutely” ready to levy the new taxes on another $267 billion worth of Chinese imports.


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