19 Dec EQUITIES QUIET BUT 10-YEAR SOLD OFF
As with months’ past, there was little attention focused on the impeachment drama. For the moment trade, the primary catalyst of 2019 is not an immediate issue. Will activity continue wane as the year is quickly coming to an end?
Some are suggesting that the traditional drivers of interest rates and earnings will again dictate market direction. I rhetorically ask have they ever ceased being market catalysts?
Speaking of interest rates, Treasuries again increased in yield causing the yield curve between the two year and ten year Treasury to steepen to the greatest amount since mid-July. The 10 year closed yesterday at 1.95 % yield up from a 1.62% yield two weeks ago.
Some suggested the continued sell off in the 10-year is the result of technical and momentum selling with a 2.0% yield all but inevitable.
Will sentiment change dramatically if the psychological 2% barrier is definitively broken?
As noted several times, around this time last year the 10-year was yielding 2.82%, a cause for the dramatic December 2018 sell off.
Historically interest rates are the primary determinate of market activity given their importance in all valuation models.
I will argue the recent Treasury selloff is more fundamental in nature; the result of stronger than expected economic activity. Will monetary policy assumptions change again if the recent strength in data continues? I would answer yes.
Wow! That would be a surprise but as noted many times 2019 has been the years of surprises.
What will happen today?
Last night the foreign markets were down. London was up 0.13%, Paris down 0.07% and Frankfurt down 0.34%. China was up 0.01%, Japan down 0.29% and Hang Sang down 0.30%.
The Dow should open flat. Impeachment is mentioned but is not necessarily a catalyst. Most are focusing on a possible change in global monetary policy as more central banks are suggesting they are done easing. The 10-year is off 8/32 to yield 1.95%.