Well, the day ended pretty much as it started – with a reversal of recent trends.
It was a largely quiet session (trust me, I watched the whole damn thing as a persistent drizzle undercut my plans to spend the day at the beach) except for a few diplomatic kerfuffles between Washington and China/Russia.
I wouldn’t be surprised to see recent history repeat itself next week as hopes for a Trumpian economic miracle continue to support the USD and fuel a screaming rally in US stocks which are up some 8% since the election.
Below, find a quick summary of today’s “action” (or “inaction” as it were) from Barclays followed by some economic commentary from Deutsche.
Equity markets retreated today, turning the S&P 500 negative for the week as political tensions rose between the US and China over the latter’s seizing of a US underwater drone in the South China Sea. About half of the major sectors ended the session lower, including tech, financials and consumer discretionaries, while energy, consumer staples and rate-sensitive stocks closed higher. Treasuries pared the week’s losses as haven demand brought buyers out for shorter-term debt. However, yields on 10-year notes closed essentially flat on the day, hovering at the highest levels since 2014 as the yield curve walked back some the recent flattening trend. The commodity complex shook off the weakness of the last two sessions as the dollar rally took a breather, leaving room for oil and gold to regain some footing. Trading in industrial metals turned negative, however, in response to a sharp uptick in LME stockpiles of copper. In FX, the dollar pared post-Fed gains, as strength vs. the commodity currencies was more than offset by weakness against the GBP, EUR and JPY.
Commentary for Monday: This week’s data docket is relatively light and note that the US bond market has a SIFMA-recommended early close this Friday ahead of the Christmas Day holiday, observed next Monday. Fed Chair Yellen will be speaking this afternoon at the University of Baltimore. While the topic of her discussion is the state of the job market, it is doubtful that the speech will yield much new information given that it is a mid-year commencement address. In short, the Fed Chair will likely not use this venue to communicate to the markets. There is also little need to say anything more at this point as the Fed is likely pleased to see the bond market finally pricing a trajectory of interest rates closer to the FOMC’s median projections.
This week’s jobless claims data take on elevated significance as they correspond to the survey period for December employment. While claims can be volatile around the holiday period, as long as the four-week average continues to hover near roughly a four-decade low, we can be confident that the labor market remains sturdy