Daily Market Color

Treasurys Rally on ECB Decision, US Data

 

The ECB’s Dovish Tightening

Today the European Central Bank concluded its monetary policy meeting with a firm commitment to wind down its existing asset purchasing program that has been in place for the past four years.  The ECB will continue with bond purchases of 30 billion euros per month through September before reducing that amount to 15 billion euros/month until the end of the year when the program will officially end.  While the decision to end asset buybacks was largely expected, the central bank surprised financial markets with the announcement that they would likely wait “at least through the summer of 2019” before making any increases to benchmark borrowing rates.  The main refinancing rate in the eurozone currently resides at -0.4%, and the proposed delay to the hiking schedule further inflated concerns of the widening spread between benchmark rates in the US and Europe.  Following today’s announcement and statement, the euro posted its sharpest daily drop against the dollar in two years before paring a portion of the losses to finish 1.68% weaker for the session.

 

 

Consumer Spending Growth Continues

Sales at US retailers increased for a third consecutive month during May.  Overall retail sales surged a seasonally adjusted 0.8% last month, far outpacing median forecasts of +0.4% and representing the largest monthly rise since November.  Compared to last May, retail sales climbed a robust 5.9%.  Growth was recorded in most major retail sectors, with building materials (+2.4%), gas stations (+2.0%) and restaurants (+1.3%) recording some of the largest upticks.  Core retail sales, which excludes autos, gasoline and construction materials, rose 0.5% on the month, also beating expectations and reflecting a slight deceleration from April’s upwardly revised +0.6% level.

 

 

The Labor Department’s weekly report on initial jobless claims rounded out today’s key economic data releases.  The number of new claims for the week ended June 9th remained near historical lows,  declining by 4,000 to a seasonally adjusted 218,000 (223,000 expected), while the four-week moving average of claims edged 1,250 lower to 224,250.  Also detailed in the report, the number of continuing claims dropped by 49,000 to 1.726 million for the week ended June 2nd.

 

 

Tech Stocks, Treasurys Gain

Major US stock indices were mixed on the day as investors reacted to the strong economic data and ECB announcement.  The tech-heavy Nasdaq closed at yet another record high, rising 0.85% on the day, while the performances of the S&P 500 (+0.25%) and DJIA (-0.1%) were held back by a decline in financial shares.  Largely a result of the ECB decision, US Treasurys experienced a steady rally throughout the trading session, as yields fell 1-4 bps across the curve in a bull flattening pattern.  The yield on the 10yr note closed at 2.935%, down 3bps on the day.  The US dollar posted its strongest day in nearly a year against major currencies, finishing up more than 1%.  The Argentine peso tanked today following significant prolonged declines of the Brazilian Real as the rout in emerging markets continued.  WTI crude oil futures were up on the day in anticipation of the OPEC production decision, gaining 0.5% to close at $66.95/barrel.

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