Daily Market Commentary

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Weekly Relative Value

Published at the top of each week by Balance Sheet Solutions, Weekly Relative Value tracks market and economic trends, analyzes key releases and watches ongoing political developments.  

Commentary prepared by Balance Sheet Solutions, LLC, a wholly owned CUSO of Alloya Corporate Federal Credit Union. Balance Sheet Solutions is a leading broker/dealer, investment advisor and ALM risk management consultant to credit unions.

Tuesday, June 19, 2018 at 8:00 a.m. CST
Commentary prepared by Tom Slefinger, SVP, Director of Institutional Fixed Income Sales, Registered Representative of ISI*, Balance Sheet Solutions

Market Indications

Historic Curves

Other Market Indicators

2s/5s Tsy Spread 0.23 -0.01
2s/10s Tsy Spread 0.36 0.00
2s/30s Tsy Spread 0.50 -0.01

DJIA-30   24987.47 -103.01
NASDAQ 7747.02 +0.65
S&P-500 2773.75 -5.91

Dollar Idx 95.215 +0.45
CRB Idx 1953.72 -2.46

Today's Market Commentary

Recap – After sinking as low as -0.81%, the S&P 500 pared back losses to close -0.21% (helped by stronger energy stocks) while the Nasdaq was marginally up. Bonds had a less eventful day; 10-year Treasury yields were marginally lower, closing at 2.91%. Regarding the yield curve, the 2s/10s spread was steady at 36 basis points. In terms of data, the June National Association of Home Builders (NAHB) Housing Market Index fell two points month-over-month to a still solid level of 68 (vs. 70 expected).

Now Turning to Fed Speak on Rates and the U.S. Economy – On rates, the Atlanta Fed’s Raphael Bostic noted he is “comfortable continuing to move policy towards a more neutral stance” – which he believes to be around 2.25%-3%. He also reiterated that he is “still at three [rate hikes]” for this year but will consider the data when determining how rapidly rates should move. Meanwhile, Bostic noted, “[Business] optimism has almost completely faded” among his contacts, replaced by concerns about trade policy and tariffs, while the bar for new business investments are getting quite high.

Elsewhere, on his first day as the new President of the New York Fed, John Williams was relatively upbeat as he noted, “The U.S. economy is in great shape… [and] this solid growth, a strong labor market and inflation near our target are exactly what I want to see.” Although he did caution, “Paradoxically, it’s precisely the sense that things have gotten so much better that worries me most.”

President Trump said in a White House statement late last night that he instructed the Office of the U.S. Trade Representative to identify higher tariffs (+10%) on an additional $200 billion worth of Chinese imports and threatened to impose those tariffs if China retaliates. He said, “The U.S. will no longer be taken advantage of on trade by China and other countries.” On the other side, China’s Ministry of Commerce said if the U.S. publishes such a list, “China will take comprehensive quantitative and qualitative measures and retaliate forcefully.” Earlier on, Secretary of State Mike Pompeo also stepped up the tension as he noted, “Chinese leaders… have been claiming openness and globalization, but it’s a joke,” and added that China is “the most predatory economic government, [which is] a problem that’s long overdue in being tackled.” See this week’s Weekly Relative Value – The Strongest Economy We Have Ever Had? – for more on trade tariffs.

Markets Are in a Risk-off Mode – Today’s “tripling down” by the Trump administration – which has now threatened to “re-double down” by imposing 10% tariffs on up to $200 billion in Chinese imports – has finally spooked U.S. equity futures and global markets. The Dow futures are down 340 points this morning, and global markets are a sea of red, while safe havens such as the dollar and U.S. Treasuries are sharply bid. 

Looking at the day ahead, the only data of note is U.S. housing starts and building permits for May.

Economic Calendar

June 18 - 22, 2018: The Week Ahead

Economic Calendar


Future Fed Expectations
Sources: Bloomberg

Future Fed Expectations

Expected Fed Funds Path

Select Probabilities based on the Futures

Probability of Fed Funds rate increase on August 1, 2018 15%
Probability of Fed Funds rate increase on September 26, 2018 86%

**All quoted rates are indications and are subject to change without notice.
* ISI is a member of the FINRA/SIPC.

The information contained herein is prepared by ISI Registered Representatives for general circulation and is distributed for general information only. This information does not consider the specific investment objectives, financial situations or particular needs of any specific individual or organization that may receive this report. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. All opinions, prices, and yields contained herein are subject to change without notice. Investors should understand that statements regarding future prospects might not be realized. Please contact Balance Sheet Solutions to discuss your specific situation and objectives.