• Calmer financial markets and further foreign central bank stimulus combine with reduced enthusiasm for a 2015 Fed rate hike
• Near-term event risk includes corporate earnings, Federal budget deal & US data on new home sales, durable goods & Q3 GDP
• Conflicting economic signals pose a more complex backdrop and ongoing market dilemma warranting increased discretion
US monetary policy Markets have calmed since the Fed’s last policy meeting in Sep. In the upcoming Oct 28 th FOMC statement, investors will look for any clues suggesting the potential for rate lift-off before year-end. Futures currently assign < a 40% chance for a Dec rate hike.
CB accommodation Last Thurs, while the ECB held its key rate @ 0.050% & monthly bond purchases of €60 Bn, president Draghi said the risks to the Euro-area growth & inflation outlook remain to the downside hinting that bond buying could be expanded or extended if necessary.
US equity prices Last week, the S&P 500 rose 2.1% (+0.8% YTD) & the DJIA added 2.5% (-1.0%
YTD). Stocks benefitted from better than expected earnings in the tech sector, calmer risk markets, dovish comments from ECB Pres. Draghi & add’l accommodation from China’s PBOC.
Interbank market 3m US Libor set today @ 0.32315%, highest since Oct 5. Per the futures,
3m Libor’s expected to end ’15 & ’16 @ 0.38% & 0.89%, little changed from early Oct. US swap spreads are tight amid low UST yields plus repo, corporate & UST debt issuance considerations.
US Treasury sector Rates rose last week, despite dovish ECB comments, as risk markets held a more favorable tone. The US Treasury postponed its Oct 27 th 2-yr note auction, due to debt limit concerns, providing some lift to UST demand. Two-yr yields rose 3 bps last week to 0.64%.
US data highlights Homebuilder confidence hit a 10-yr high in Oct. Housing starts rose 6.5% in Sep to an annual pace of 1.21 mn … permits fell to a 1.1 mn rate. Existing home sales hit a
5.55 mn pace in Sep, 2 nd highest since ’07. Jobless claims (4-wk avg) fell to 263, lowest since ‘73.
Oil sector Last week, WTI crude fell $2.7/bl to $44.6 amid a firmer US$ and higher US oil inventories … crude stockpiles rose a 4th straight week. WTI’s ’15 closing low was seen Aug 24
@ $38.2. Wholesale gasoline fell 2.4¢ to $1.30/gal Fri … lowest ‘15 close was $1.25 on Oct 19.
nd
China credit Effective Oct 24, the People's Bank of China (PBOC) cut its benchmark 1-yr lending rate by 25 bps to 4.35% (6th rate cut since Nov ’14). The PBOC also cut its benchmark deposit rate 25 bps to 1.50%. Reserve requirements for major banks were cut 50 bps to 17.5%.
Global growth In Oct, Germany’s manuf PMI fell to 51.6, a 5-mos low, & Ifo’s business confidence index fell slightly while beating expectations. New home prices in China rose in 39 cities last month (35 in Aug) & Japan’s exports rose 0.6% YOY, slowest annual growth in 13 mos.
Euro-zone German yields are again negative out to 6 years (not seen since Apr) following ECB
President Draghi’s dovish comments last Thurs. Draahi said he was prepared to cut the ECB’s already negative deposit rate if needed. Italian 2-yr ylds went negative for the 1 st time on Thurs.
Robert Podorefsky ( 617 ) 973 - 4091

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