Daily Market Color February 22, 2019Trade Talks in Washington Extended, Risk Assets Gain Progress in US-China Trade Talks, Hurdles Remain Trade talks in Washington between the US and China have been extended two more days to allow more time to build upon this week’s negotiation progress. It was reported that the topic of currency manipulation had been resolved between the two sides, but the ever-important disputes over technology transfer and intellectual property remain outstanding. President Trump presented an optimistic outlook following his meeting with Chinese Vice Premier Liu He this afternoon, stating “I would say it’s more likely that a deal will happen” while confirming his openness to extending the March 1st tariff deadline. Trump also acknowledged that he plans to meet with Chinese leader Xi Jinping sometime during March at his Mar-A-Lago outpost in Florida Treasury, Equity Prices Climb US Treasurys rallied from the open as the uncertainty over trade talks prompted a reversal in yesterday’s selloff. Yields/swap rates declined 2-5bps across the curve, bringing the 10-year note yield to 2.65% (1bp lower than where it opened Tuesday morning). Major equity indices posted advances ranging from 0.65%-0.90%, as the DJIA and Nasdaq recorded their ninth straight week of gains, and the S&P 500 closed at its highest level since November 2018. Much of today’s fluctuation in equities and Treasurys was tied to updates in the US-China negotiations, with stocks briefly turning negative early in the trading session after it was reported that more time would be needed to reconcile certain technology policies. The US dollar declined marginally on the day, while in commodities, energy prices were mixed, while metals and ags were mostly higher on the day. The Fed’s Economic Scorecard Playing second fiddle to the ongoing trade negotiations (in terms of market attention), today the Fed provided its semiannual report to Congress on the US economy. Highlights of the text included: Expected GDP growth in 2018 “a little less” than Trump administration’s 3% target US financial system is on “substantially” better footing than it was prior to the 2008 financial crisis Strength in the labor market, albeit there exists a strong dichotomy between urban and rural areas Unwelcomed expansion in the amount of business debt at weaker firms More color is expected next week when Fed Chair Jerome Powell is scheduled to testify before Congress on Tuesday and Wednesday.
