Market Snapshot February 7, 2019

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Good Morning on this fantastic Thursday,

 

Slow week for data with today’s release being unemployment claims… they were up 11k or so from expectations.

 

Global economic and trade-war concerns this morning have created a safe-haven move to bonds with the Dow down over 300 points, the 10-year yield has dropped to 2.66% and MBS have improved by 10 bps. Europe is close to being in a recession and economic concerns were reinforced overnight with a dramatic downward revision in projected growth from the European Commission. The Commission projects euro zone growth decreasing to 1.3% during 2019 versus the 1.9% increase experienced in 2018 (RUT ROW).  This type of economic news is a catalyst for a risk off trade (hence the improvement in US bonds). I haven’t touched much on it recently, but the German 10-yr Bund is yielding just .11% now (and Japan’s is back negative again… yes negative. If you invest 100 in the Japanese 10-yr bond, you have to pay 90 cents at the end of the year to maintain your $100 investment, they are charging you to hold your money). Why would any investor take that return vs. no risk 10-yr treasury at 2.66%? The markets are also being moved by White House economic advisor Larry Kudlow’s commentary that U.S. and China were far away from a trade agreement. Additional tariffs on Chinese goods become effective March 1 if no agreement is reached. Keep in mind it is all about balance. For the last week, stocks have improved and bonds along with them as they both leaned in on the new stable/lower rate expectation from the Fed. Today, stocks are taking a beating and bonds still improving, as there is a need for risk off trading. Bonds are currently winning in either direction and I expect we may see more of this same strategy throughout the month of Feb but keep in mind, 1) it is never a straight line up or down and 2) tides always turn 3) bonds are about 80% overbought at this time.

 

Make today great.