GDP takeaways From BB

K

  • 4Q growth at 2.6% annualized pace, cooling less than expected, as business spending accelerated, but down from 3.4% in 3Q.
  • Still, GDP grew 3.1% from a year earlier, the most since 2015 and a chance for the White House to claim a win
  • Consumer spending decelerated to 2.8%, missing the 3% forecast yet still solid
  • Non-residential investment held up with a 6.2% gain, even as investing in structures fell 4.2%, the most in a year
  • Equipment investment picked up to 6.7% from 3.4%, while intellectual property jumped 13.1% following 5.6%
  • Reduced services during the government shutdown subtracted about 0.1 percentage point from 4Q growth, the Commerce Department said in a technical note
  • Net exports subtracted 0.22 percentage point from growth
  • Inflation doesn’t add much urgency for the Fed, with the PCE gauge rising 1.5% and the core measure up 1.7%
  • Defense spending grew 6.9%, the most in nine years
  • Housing was a drag on growth for a fourth-straight quarter

Risk Parity back

After a day of Unwinds the risk parity trade back on track as both treasuries,bonds just above yesterday’s highs and stocks,spx +.6% higher today. The heavy dose of Fed speak reiterates: inflation not a problem in fact persistently low inflation is a bigger problem,We still believe in phillips curve and the neutral Rate of Interest likely to stay depressed for some time.A quick note on phillips curve if we take Williams and Daly at their word then Jobs gains can continue without sparking wage gains,further evidence that higher inflation is not a worry. Clarida also said that Fed will be looking at new ways to Stimulate economy when the time comes,such as capping yields on treasuries,I thought a bold an important statement.SPX needs to trade above 2800 to get another shot of upside momentum,10 year yields need to break below 2.61% to get break the sideways range it has been stuck in.

Feds powell testifies next week,Q4 GDP,Housing Starts so plenty of event risk to create some volatility,I hope,

Buy bonds

Alerts History

  • 22-Feb-2019 11:00:00 AM – FED’S CLARIDA SAYS FED IS LAUNCHING BROAD REVIEW OF POLICY FRAMEWORK
  • 22-Feb-2019 11:00:00 AM – FED’S CLARIDA SAYS FED WILL WEIGH CHANGES TO INFLATION-TARGETING FRAMEWORK
  • 22-Feb-2019 11:00:00 AM – FED’S CLARIDA SAYS FED WILL CONSIDER NEW TOOLS TO EASE POLICY IF NEEDED
  • 22-Feb-2019 11:00:00 AM – CLARIDA SAYS NEW TOOLS TO BE REVIEWED INCLUDE SOME FED REJECTED BEFORE, LIKE CAPPING TREASURY YIELDS
  • 22-Feb-2019 11:00:00 AM – CLARIDA SAYS FED IS ALSO REVIEWING WAYS TO IMPROVE COMMUNICATIONS

Morning 2-22

Yesterday’s action in Stocks resulted in the first down day for both the Nasdaq composite and Russell 2k in the last nine trading sessions, second for Spx during that time frame. YTD  dow and SPX ~ +10.7%,Russell +16.8%,NDX +11, S&P 600,Small caps+16%, Both SOX (Semi) and KBW bank index  +16.8%. The percent of companies in SPX trading above 50 D MA is 91%, the Highest in 3+ years it goes for Nasdaq at 72% this is not an overbought indicator but something to take note of. I will be watching to see if this percent starts to deteriorate as this could indicate upside Momentum is slipping or has reached a peak. The Fed is never going to hike again trade may again take a hit today as A plethora of Fed Speakers will be at Conference in New York speaking on Inflation, Balance sheet and the Economy.

 Copper having herself a week +6% in Comex 5.2% LME as stockpiles shrink. Per LME statistics, Copper in warehouses would only satisfy 13 days of Demand, near a record low. The cash-3 mo LME spread has been in backwardation for last 6 days, Spot higher then deferred price, touching the highest level at one point in 4 years. Helping copper advance is continuing speculation that US / China trade deal will result in positive outcome, Copper +1.5% so far today.

  Other markets Show oil +1%, Spoos +11 handles, Bunds +40 ticks, Dollar small bid and treasuries steady to higher. All is well in the World optimism regarding China /US trade deal grows, US Deficit is not a concern and Global growth Trade is not an issue.

 Zero Economic data today thus all eyes and ears will be the Fed conference in New York with the First speaker Bostic, Speaking at 7:20.Vice chairman Clarida speaks at 11:00 this is the highlight on the schedule. For good measure Draghi speaks at 10:15.No I.G. corporate deals announced overnight  so it looks like a quiet day ,Some  of yesterday’s  selling in Bonds was  caused by the Heavy Corporate slate of Deals.

More treasuries

Plenty of action/Volatility in treasury Complex today driven by large amount of IG paper announced today,Fed unwind trade,Roll activity and just maybe the late to the party short Vol traders getting a bit nervous.lets look at generic Vol metrics to see what Vol has been doing lately ,it has been trending lower.

MOVE Volatility index ,trending towards multi month lows
Expected 3m Volatility for 10s printing at multi month lows

Lets look at today’s Change in Interest rates across the Treasury Curve

The seven year Yields standout to me as the anomaly.

A handful of items causing the weakness in longer end today,A 30 year tips auction shouldn’t be ignored at noon.

morning 2-21

*RTRS Source    US/China have started to outline commitments in principle on the hardest issues in the trade dispute marking the most significant progress to date towards ending the trade war; negotiators are drawing up 6 MOUs covering forced tech transfer & cyber theft; IP rights; services; currency ; agriculture & non barrier tariffs to trade

*Fed’s Clarida says lack of data still clouds U.S. economic forecast– it is not clear how much of growth slowdown the United States is currently seeing, in part because of incomplete data following the U.S government shutdown, Fed Vice Chairman said in a television interview aired on Wednesday.

* The release of the monthly PMI data from Europe.in the aggregate reported In-line to slightly better, the only sore spot and a big one is Germanys Manufacturing 47.6 vs. f/c 49.8.Dax took a hit on this release.

 The weakness in European Stocks continued after comments from Austrian Central Bank president and hawk, Nowotny he said no need for more Liquidity and ECB should have acted more quickly and raised rates. Dax further hit as the ECB minutes showed that members were not excited about issuing a new target loan program

 Both Stocks and Bonds lower this morning, Bunds reacting to a break in support levels being helped by some optimism regarding china trade news, both treasuries and U.K. Gilts following the lead of Bunds. Yesterday’s FOMC minutes not as Dovish as markets have been pricing in as no clear signal of an Easing bias was given in fact  I believe they left door open for  rate hikes to continue,if data cooperates. Dollar index steady the one standout currency is the Aussie dollar it is on the offer vs. all majors today as China has banned coal imports from that country.

 Commodities mostly lower Copper -.5%, Oil steady, palladium -1.4% and gold -.3% markets trading without a macro theme so far today. China pledged to buy $30B more of US agriculture goods  Soy +1%,Wheat + 2%  Corn +1.8%.A handful of Economic  data and a bit of Fed speak could be drivers of today’s flows.

Calendar:

  • 7:30 Durable goods, Jobless claims, Philly fed
  • 8:45 market PMI
  • 9:00 LEI and Existing home sales

FED speak:

  • 9:15  Williams and Daly discuss Inflation
  • 11:00 Vice chair Clarida
  • 12:30  Bullard and Quarles

Market update

Public Service Announcement

Due to harsh weather Most D.C. offices shut so the FOMC minutes will be released on Web site before any news agencies can read and provide important headlines.We could see a bit more volatility due to this as it will take a bit more time for minutes to be digested.Recall that the Fed pivoted to a central bank on hold from one on a rate hike cycle so many questions need to be answered.Discussions surrounding Balance sheet runoff will be monitored as well ,the current forecast is for Fed to halt the unwind by year end.

Spoos Higher by 5 handles and struggling to trade aggressively above yesterday’s highs.Long end bonds being weighed down by hefty amount of IG paper to be priced today,short end steady.All markets waiting for FOMC minutes and dollars reaction

Impressive move higher by Crude and brent today as Nigeria contemplating cutting production to boost prices.Gasoline on the bid since 8:00 pit open refinery issues one possibility