Daily Market Color

Treasurys Rally, Dollar Slides Amid Geopolitical Tensions, Mixed Data

The risk-off sentiment dominated today’s trading session as investors juggled the uncertainties surrounding the persistent tensions with North Korea, dovish comments from the European Central Bank and potential impact of Hurricane Irma.  US Treasury yields declined 4-7 bps across the curve to their lowest levels since the presidential election, while the 10-year swap rate touched as low as 1.99%.  The US dollar reached new two-year lows against major currencies, falling 0.7% on the day.  Conversely, gold futures gained 1.1% to $1,349/ounce, exceeding the highest levels of the year.  All three major US stock indices fluctuated between gains and losses during the session before ultimately finished close to unchanged.



Internationally, the European Central Bank concluded its policy meeting today, deciding to leave its benchmark borrowing rate unchanged and announcing its intention to unveil a plan for the tapering of the existing QE at its next meeting in October.  The recent surge in the euro, up 14% against the dollar since the beginning of the year, was also a major point of discussion given its impact on export/import prices and potential to temper inflation.  ECB President Mario Draghi labeled the currency volatility as a “source of uncertainty” that would need to be carefully monitored going forward.  As a result, the ECB’s inflation forecasts were downwardly revised to 1.2% in 2018 (previously 1.3%) and 1.3% in 2019 (previously 1.6%), both significantly below the central bank’s target of 2%. 



The Labor Department’s report on initial jobless claims displayed the largest weekly jump since November 2012, as new unemployment applications in Texas surged following Tropical Storm Harvey.  The number of new claims for the week ended September 2nd jumped to a seasonally adjusted 298,000 (245,000 expected) – the highest level since April 2015.  Additionally, the four-week moving average of claims climbed to 250,250 from 236,750.



Other key economic data on the day included nonfarm productivity, which rose at a seasonally adjusted pace of 1.5% during the second quarter, beating the initial estimate of 1.4% and a steady improvement from the 0.1% rate in the first quarter.  Detailed in the report, output increased at a 4% pace while hours worked climbed 2.5%.  Compared to a year earlier, productivity increased 1.3% in Q2, which was slightly above the average annual growth of 1.2% observed since 2007.

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