Yields Climb Higher and Higher

 

Stocks Gain, Treasurys Slump   

Today US financial markets looked past the ongoing trade war concerns with China and Canada as risk assets moved higher.  The three major equity indices finished with gains between 0.35%-0.65%, driven by strength in the technology and energy sectors.  US Treasurys sold off sharply, with yields/swap rates rising 3-6bps across the curve.  The yield on the 2-year note climbed to its highest level in the past decade at 2.745%, as the probability for two additional quarter-point hikes by the FOMC in the remainder of 2018 increased to 78% (per Fed Fund futures).  Additionally, the 10-year yield is poised to finish the session near 2.98% — its highest level in more than a month and within 12 bps of its highest yield over the last 7 years.  In commodity markets, WTI crude futures surged 2.80% to $69.45/barrel, largely influenced by the expected detrimental impact of Hurricane Florence.     

 

 

Job Openings Hit New Record 

In a relatively light day of economic data releases, the Labor Department’s JOLTS report provided further evidence of a tightening in the jobs market.  Job openings during July increased by 117,000 to a seasonally adjusted 6.94 million – the highest level since reporting on this statistic began in 2000.  The number of hirings remained relatively steady at 5.7 million, pushing the gap between openings and hires to more than 1.2 million.  In short, companies are expanding and hiring (or at least trying to), however it seems that the requirements of the jobs available are not being met by many of those in the job-seeking pool.  The trend was further confirmed in the quits rate, an often-referenced measure of confidence in the jobs market, which rose to 2.4% in July – matching the highest level since April 2001.

 

 

Trade War Update

Negotiations with our neighbor to the north made baby steps in the right direction today.  This morning it was reported that Canada would be willing to open up access to its dairy market, a concession that has been one of the major points of conflict in the revision of NAFTA.  There still remains a number of other topics left to be worked out, including autos, however President Trump did confirm this afternoon that talks were going well.  Unfortunately, progress was not made with the US/EU trade negotiations that took place in Brussels yesterday.  The next meeting between the two sides is now set for the end of September.  In the meantime, a truce of sorts struck in July between the two sides, in which both will refrain from imposing new auto-industry tariffs, remains in force.