Daily Market Color

Treasurys Selloff Amid Trump Nominations, Labor Data; OPEC Deal Finalized

Economic Data Continues to Impress  With nonfarm payrolls due to be released at the end of the week, today the ADP National Employment Report provided a glimpse of what to expect with an increase in private payrolls of 216,000 jobs for the month of November (170,000 expected).  Median forecasts for Friday’s figure hold near 175,000 jobs, with the US employment picture looking to improve from October’s 161,000 payrolls gain.  Additional economic data on the day included a tepid consumer spending level for October at 0.3%, and a strong 0.6% increase in consumer income that outpaced expectations of 0.4% and foreshadowed stability in demand heading into the holiday season.     

Trump Reveals Treasury and Commerce Choices
By way of political news, this morning President-elect Donald Trump announced Steven Mnuchin as his nomination for Treasury secretary.  In addition to scaling back portions of the Dodd-Frank financial reform, the former Goldman Sachs partner will be tasked with reforming the tax code, revisiting the agreement that lifted sanctions on Iran, and renegotiating various trade agreements with nations across the world.  Mnuchin’s background in banking also includes being part of the group that bought IndyMac Bank from the government and restructured it in the period following the financial crisis before eventually selling it to CIT Group.  In an interview today, he explained how his bank experience revealed to him many of the overly burdensome elements of the Dodd-Frank Act on regional/community banks, citing that a bank’s ability to make loans stands as the engine of growth for the economy.  Other nominations by Trump include billionaire investor Wilbur Ross as Commerce Secretary and Chicago Cubs co-owner Todd Ricketts as Deputy Secretary of Commerce.

OPEC Secures Agreement for Production Cut
For the first time since 2008, members of OPEC agreed upon terms to enact oil output reductions in an effort to stabilize future prices of oil.  After weeks of speculation following the preliminary agreement reached in September, the consortium settled on a 1.2 million barrels per day reduction that would bring the current daily level of output, 33.7 million bpd, down to 32.5 million bpd.  Accounting for the largest share of cuts will be Saudi Arabia, OPEC’s largest producer, who stands to shave almost 500,000 bpd.  After resisting cuts initially, OPEC’s second biggest producer, Iraq, conceded to reduce output by 200,000 barrels daily.  Additionally, despite notching record highs in production over the past few months, non-member Russia agreed to take part in the accord with a 300,000 bpd decrease.  Iran stands as an outlier in the deal, exempt from cuts as the nation attempts to regain market share after the recent lifting of sanctions.  Following news of the agreement, crude prices jumped as much as 11% before WTI crude settled near $49/barrel (+8.4%) and Brent crude ended close to $50.50/barrel (+8.85%).   

Bonds React to Market News with Selloff
Influenced by the bevy of inflation-friendly updates today, Treasury prices tumbled, pushing yields/swap rates up 3-10 bps in a bear steepening fashion.  The yield on the 10-year Treasury currently resides near 2.37% while the 30-year yield crossed back above 3% settling around 3.04% – the highest level in a year.  US stock indexes were mixed on the day, with the DJIA finishing just above even while the Nasdaq (-0.8%) and S&P 500 (-1.05%) declined.


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