Daily Market Color

US Treasury Yields Continue Higher, Tech Stocks Tumble as Global Central Banks Hint at Tightening

US Treasurys sold off at the beginning of today’s trading session, following European government yields higher as financial markets continue to price in a more likely chance of an ECB and BOE tightening (or at least reduction in easing mode) in the short term.  Inflation data out of Germany today added to the hawkish tone as initial readings for June displayed a 1.6% annual increase in consumer prices, up from a 1.5% reading in May and exceeding forecasts of 1.4%.  The yield on 5-year German bunds is now at its highest level in over a year, leading yields higher throughout the Euro zone.  US Treasurys yields/swap rates are up 1-5 bps across the curve, bringing the 10-year yield to its highest level in a month at 2.27%.  The increased expectation of the removal of monetary stimulus by global central banks continues to impact growth stocks, including in the tech sector.  All three major US stock indices are trading 0.75%-1.65% lower on the day, with the tech-heavy Nasdaq experiencing the largest losses.  Bank shares remain a bright spot in equity markets, continuing yesterday’s positive momentum after all 34 banks passed the Fed’s second round of stress testing in 2017 and raised their dividends and stock buybacks.     

Economic data releases on the day began with an upward revision of Q1 GDP by the Commerce Department.  The third estimate of economic activity during the first three months of the year was reported at 1.4%, beating the previous estimate and median forecast of 1.2%, as growth in consumer spending (+1.1%) and exports (+7%) boosted the headline figure.  Expectations for Q2 GDP growth are currently near 3%, which would represent a welcomed rebound from the weak start to the year, although the recently reported soft manufacturing data may lead to some disappointment in Q2 as well.  A separate report today featured initial jobless claims for the week ended June 24th.  The number of Americans filing for unemployment benefits for the first time last week totaled a seasonally adjusted 244,000 — a 2,000 increase from the previous week’s revised level.  The four-week moving average of claims decreased 2,750 to 242,250, albeit remained well below the 300,000-threshold associated with a healthy labor market.  Also included in the Labor Department’s report, the number of continuing claims for the week ended June 17 inched higher to 1.948 million, marking eleven straight weeks of sub-2 million claims, as the labor market continues to remain extremely tight.


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