Good Afternoon on the wintry Thursday.
Yes, sorry for the late start. Son was having his adenoids removed, which I of course felt it was imperative that I was there just in case the Dr. needed any help mid-procedure.. Anyway, by the time it was done and I got him home, it became clear it was safer to mosey over to the office, and here I am.
This afternoon note is far different from what this mornings would have been. Mid a.m., stocks were down 780, bonds up with the 10-yr at 2.83% (unbelievable) and mortgage bonds +34bps. Concern over whether a trade deal can be made with China especially after the US asked Canada to arrest Wanzhou Meng, chief financial officer of Huawei Technologies Co. in order to extradite her to the US. Huawei is the world’s largest supplier of telecommunications network equipment and second-biggest maker of smartphones. The US is saying the company is violating sanctions against Iran. Meng is the daughter of the founder of Huawei, a national champion at the forefront of Xi’s efforts for China to be self-sufficient in strategic technologies. It’s not clear yet, but her arrest is seen as a setback for trade discussions. Clearly masterfully played by the White House but these tactics don’t build partnerships. Then a WSJ piece came out around midday and turned everything upside down. Here is a link to the piece but the first paragraph says it all “Federal Reserve officials are considering whether to signal a new wait-and-see mentality after a likely interest-rate increase at their meeting in December, which could slow down the pace of rate increases next year.” Stocks loved this and battled almost all the way back to almost unchanged on the Dow. The Nasdaq closed in the green and the money had to come from somewhere and some certainly came from bonds. We closed better but way off our best levels. The certain uncertainty here is what will the Fed do at the next meeting in 13 days. The 10-yr at 2.89% and mortgage bonds +2bps. The 2-yr note – 1-yr note spread is at .12 bps. The only thing that is really in the way at this point is tomorrow’s jobs report. That can always be a market mover. Bonds are due for a correction from their recent run. If you are thinking about floating at this point, be cautious. With the jobs report on the horizon and the weaker closing this afternoon, the risk reward has to favor locking at this point and taking advantage of the recent gains. The market would have to open up 12+bps tomorrow for pricing to be the same as it is now.
Make the rest of the day great!