Daily Market Color

US Stocks Higher While Puerto Rico GO Bonds Plummet

Another Day, Another Record High – Major US stock indices edged higher during today’s trading session to hit new record levels for the sixth consecutive day, led by gains in consumer stocks.  US Treasurys fluctuated within a tight range and are poised to finish the day near unchanged, with the 10-year note yield remaining close to 2.33%.  The US dollar similarly traded near unchanged for the session. The same could not be said for Puerto Rican GO bonds, which tumbled 10% to 37 cents on the dollar after President Trump stated that “we’re going to have to wipe that out” in reference to the US territory’s debt during his visit to the area yesterday.  In commodities, WTI crude oil tumbled more than 1% to $49.85/barrel after data revealed increased US crude exports, adding to the already escalating supply glut concerns amongst OPEC members.



Hurricane Effects Seen in Private Payrolls, Service Sector

The ADP national employment report for September was released today, showing 135,000 new hires by private employers during the month.   The figure represents a sharp decline from August’s 228,000 revised level and was close to the consensus prediction of 140,000.  The service sector added 88,000 jobs, while employment in goods-producing industries rose 48,000.  Often a leading indicator for the Labor Department’s more comprehensive monthly employment report, today’s ADP figure foreshadows tepid gains in Friday’s nonfarm payrolls figure, with current expectations pointing towards a 100,000-monthly increase for September after 156,000 jobs were added in August.



Other key economic data on the day included ISM’s non-manufacturing index, which rose to its highest level since 2005 in September.  The overall index increased to 59.8 (55.5 expected), a significant jump from August’s 55.3 reading, helped in part by robust new and backlog order data.  Additionally, a major contributor to the headline figure was the reported slowing in deliveries, which was a direct result of the hurricanes’ impact on businesses.  14 of the 17 service sector industries reported growth last month, with the three contractions recorded in educational services, mining & agriculture, and forestry, fishing & hunting.  The strength in the US economy reflected in today’s report, along with Monday’s factory data, boosted expectations for a December Fed rate hike, the probability of which now stands at over 80% as per the CME FedWatch Tool.


Scaling Back Volcker Still in Plans

On the regulatory front, both Christopher Giancarlo, Chairman of the CFTC and Jerome Powell, Federal Reserve Board Governor expressed confidence that the Volcker Rule would ultimately be revised to reduce the onerous requirements on proprietary trading.  Both regulators were very optimistic that the five regulatory agencies would agree on a rewrite that would provide greater clarity on permissible activities as well as reduce the regulatory burden on many banks, resulting in greater business flexibility and lower administrative and compliance costs.  While many are anxious to see these changes made, neither regulator committed to a timeline on the rewrite.
Adding to the regulatory color for community banks, today Janet Yellen stressed the importance of limiting unnecessarily burdensome regulations on community lenders when she spoke at a banking conference in St. Louis.  “For community banks, which by and large avoided the risky business practices that contributed to the financial crisis, we have been focused on making sure that much-needed improvements to regulation and supervision since the crisis are appropriate and not unduly burdensome,” Yellen stated.  

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