Markets are down after yesterday’s blood bath. Bonds and MBS are up small.
Since the Fed tightened rates at the December meeting, the 10 year bond yield has fallen by 58 basis points. Fun fact: The Japanese 10 year bond yield is now negative.
In economic data, the NFIB Small Business Optimism Index fell from 95.2 to 93.9 last week. This is surprisingly tame given the activity in the markets over the past couple months. That said, small business optimism didn’t ride the post-2009 rally in the markets up, so it probably will be a little insulated on the way down. Hiring plans remain intact, which is a good sign, however finding qualified applicants continues to be an issue.
Job openings are pushing close to new highs, according to the JOLTS job report. Quits are increasing, which is a bullish sign for the labor markets.
Wholesale sales and inventories both fell in December. We are seeing a buildup in inventory, which is bearish for the economy.
Bottom line: the markets are signalling pain in the global economy, but it is hard to draw the conclusion that conditions in the US are driving it. If anything, the US appears to be taking its historical role of the engine of growth in a soft global economy.
The canary in the coal mine (besides oil) has been the absolute carnage in the banking sector, especially overseas. Deutsche Bank has been cut in half since September. Same as Credit Suisse. Citigroup is down 27% since Jan 1. So is BNP Paribas. Not sure what this is signalling (exposure to energy? exposure to China?) but it is a big warning button for the global economy and it is flashing red.
Even though the economy has recovered, the hatred of the financial sector hasn’t changed, and it is being channeled through Bernie Sanders. The ironic thing is that the “Wall Street” they are railing against hasn’t existed for 10 years. Regardless it isn’t an environment conducive to risk-taking.
Speaking of politics, the New Hampshire Primaries are today. Clinton and Sanders look neck and neck, and Trump looks to be ahead of the pack for the Republicans.
Completed Foreclosures fell to 32,000 in December, which is down 2.4% from November and 22.6% year-over-year.
Filed under: Morning Report |