|Day's Range||1.7520 - 1.7520|
|52 Week Range||1.4290 - 3.2390|
Yahoo Finance's Julie Hyman, Adam Shapiro, Brian Sozzi, Ramsey Smith Alex.fyi CEO and Ed Al-Hussainy - Columbia Threadneedle Investments Senior Interest Rate and Currency Analyst discuss market action.
On Friday, investors will receive a snapshot on consumer sentiment in October and hear from several Federal Open Market Committee members ahead of the central bank’s next rate-setting meeting.
At its September meeting, Federal Reserve officials began debating how far their current interest-rate cutting campaign should extend, even as they agreed to lower rates in response to growing risks to the U.S. economy.
(Bloomberg) -- Explore what’s moving the global economy in the new season of the Stephanomics podcast. Subscribe via Pocket Cast or iTunes.Despite a 50 basis point decline in the U.S. 10-year note yield since late July, the average interest rate on credit cards continues to hover close to record levels, newly released data from the Federal Reserve show.The U.S. prime lending rate, the rate that commercial banks to charge their most credit-worthy customers, has fallen thanks to easier Fed monetary policy. But the spread between the prime rate and the average annualized rate on credit cards widened to a record at the end of August.Many issuers have been competing for new customers with richer rewards rather than lower rates. They may also be maintaining this record spread because risks are brewing, underscored by a pickup in delinquency rates at smaller issuers of cards. Fed data show a growing gap between delinquency rates for the 100 largest banks compared with all others. Delinquent accounts for the largest banks were at 2.44% in the second quarter, while other banks saw the rate spike to 6.34% from 5.73% the prior quarter. At 3.9 percentage points, the spread between the two measures is also at an all-time high.U.S. consumers’ love of credit cards is apparent. Spending on Visa Inc. and Mastercard Inc. credit cards has surged to a record in recent years, propelling the combined market value of the two largest card networks to more than $600 billion.Credit card issuers have been busy adding customers. Since 2010, more than 100 million new accounts have been created, bringing the total to 486.5 million in the U.S. as of the second quarter. These new accounts and increases in credit availability within existing accounts have increased potential credit card spending power to $3.8 trillion -- an increase of $1.1 trillion since 2010. Credit card debt outstanding has increased to $870 billion.To contact the reporter on this story: Alex Tanzi in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Scott Lanman at email@example.com, Vince Golle, Alex TanziFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Powell may stress independence when it comes to Trump’s pressure, but will the Fed stand its ground against a backdrop of weakening economic data, or cut rates like the market expects?
Earnings expectations for the third quarter, which unofficially kick off next week with reports from major banks like JPMorgan Chase, are looking grim. Wall Street is expecting a 3% year-over-year decline in S&P 500 earnings per share.
The early price action on Wednesday suggests investors are just waiting for other shoes to drop before officially pricing in a rate cut. The first shoe to drop could be today’s ADP Non-Farm Employment Change report at 12:15 GMT.
The U.S. Dollar is the strongest currency at this time partly because traders believe the Fed will pass on an October rate cut and of pockets of strength in the economy. However, this could change rather quickly if, for example, Wednesday’s ADP private sector jobs report and Friday’s U.S. Non-Farm Payrolls report show cracks in the labor market.
(Bloomberg Opinion) -- When the Federal Reserve first lowered interest rates in July and then a few weeks ago, it was hard not to think that perhaps the central bank was bowing to pressure from the White House. Although there were signs that the economy was slowing, there were few true red flags that suggested the wheels were falling off the cart. That all changed Tuesday with the release of the Institute for Supply Management’s manufacturing index, which fell to its lowest in 10 years, moving deeper into the zone that signals output is contracting. But that’s not all the Fed needs to worry about. U.S. stocks fell the most in more than five weeks as measured by the MSCI USA Index. The gauge’s 1.24% drop far was triple the 0.31% decline in MSCI’s measure of equities outside the U.S. That’s concerning because it happened even as the bond market stepped up its bets on future rate cuts. This means investors may be starting to doubt that easier monetary policy from the Fed will be enough to spark the economy, especially if the U.S.-China trade war continues to drag on, which looks increasingly likely. “There is no end in sight to this slowdown,” Torsten Slok, the chief economist at Deutsche Bank AG, wrote in a research note. “The recession risk is real.”In other words, the central bank “put” may be a thing of the past. The longer the data in the U.S. and elsewhere in major economies around the world continue to disappoint, the more investors will perceive policy makers as doing little more than pushing on a string by lowering rates that are already near or at record lows.BOND TRADERS IGNORE HISTORYIn the eyes of the bond market, the ISM report obliterates the narrative that took hold early last month that perhaps the economy wasn’t as bad as first thought. The yield on the benchmark 10-year Treasury note fell to 1.55% on Tuesday, the lowest since Sept. 6 and down from last month’s high of 1.80% on Sept. 13. The probability of two more Fed rate cuts this year jumped from 20% to about 35%, according to data compiled by Bloomberg. And traders are set up for even more declines in yields, judging by JPMorgan Chase & Co.’s widely followed weekly survey released on Tuesday. The firm’s sentiment index jumped to 21, the highest reading since June 2016. The bad news is that mid-2016 marked the absolute bottom for yields, which started a steady increase from 1.36% to 2.66% that December. The Bloomberg Barclays U.S. Treasury Index dropped 4.11% in the second half of that year. Of course, Donald Trump’s election victory had a lot to do with the decline as investors anticipated his policies would stimulate the economy by cutting taxes. That just shows it pays to keep an eye on sentiment, which can act as a contrarian indicator at extreme levels.TRUMP IS HALF RIGHT ON THE DOLLARTrump took another swipe at the Fed on Tuesday after the disappointing ISM data, calling policy makers “pathetic” for not cutting rates deeper than they have already. If rates were lower, the dollar would be much weaker and manufacturers would be better able to compete on the global stage, Trump explained in a tweet. In some ways, Trump is right. The relative levels of interest rates tend to have an influence on currencies. Economies where rates are higher tend to attract international capital, bolstering their currencies. And right now, no major economy in the world has a policy rate that’s higher than the one overseen by the Fed, which helps explain why the Bloomberg Dollar Spot Index has gained 3.20% from its low this year in late January and more than 9% since February 2018. But interest rates are only part of the equation. Money flows where economic growth is most attractive, and despite the signs of a recent slowdown, the U.S. is still a lure. The OECD said last week that it expects the U.S. economy to expand 2%, more than any other developed economy except Australia’s, which is expected to grow by the same amount.EMERGING-MARKET FLOWS RETURNLast month was the best for emerging-market equities and currencies since June. The MSCI Emerging Markets Index of stocks jumped 1.69% while a sister gauge tracking foreign-exchange rates rose 0.79% in September. The Institute of International Finance in Washington figures that emerging markets attracted $37.7 billion of net inflows last month, marking a big turnaround from the $13.9 billion that flowed out in August. The money flowing into emerging markets as well as the rally in their stocks throws some cold water on the notion that these economies should perform poorly when the greenback is rising. The thinking is that the stronger the greenback gets, the harder it will be for emerging-market borrowers to repay the trillions of dollar-denominated debt taken out in recent years. But what many fail to realize is that emerging-market economies on the whole are in a much better fiscal state than ever before. The foreign-exchange reserves for the 12 largest emerging-market economies excluding China just reached a milestone by surpassing $3.25 trillion for the first time. That’s up from less than $2 trillion in 2009.SOMETHING HAS TO GIVEThe good news is that companies in the U.S. and globally sold a record amount of bonds in September, issuing $308 billion of debt securities. It was the first time sales topped the $300 billion mark in any month, according to Bloomberg News’s Finbarr Flynn and Hannah Benjamin. This shows that despite worries about the strength of the economy, there are no signs of an emerging credit crunch that would do real damage. The bad news is that credit quality is deteriorating, with the third quarter experiencing the most ratings downgrades for companies relative to upgrades since 2015 in the U.S. alone, according to S&P Global Ratings data compiled by Bloomberg. The firm upgraded 64 issuers and downgraded 164 for an upgrade-to-downgrade ratio of 0.39. The majority of the cuts, or 143, were suffered by speculative-grade borrowers, which had just 33 upgrades. It’s been a banner year for corporate bond issuers and investors, with the Bloomberg Barclays Global Aggregate Credit Index gaining 8.99%. That makes 2019 already the best year for returns since the index rose 10.8% in 2012. Average yields have tumbled to 2.11% from last year’s high of 3.33% in November. But as the actions by S&P show, the high returns have little to do with confidence in credit and more to do with the grab for anything with some sort of yield in a world with some $14 trillion of debt securities carrying yields of less than zero.TEA LEAVESMany economists played down the surprise drop in the ISM index by noting how manufacturing is a relatively small part of the economy. The implication is that the slowdown probably isn’t doing much to the jobs picture, which is driven by the much larger services sector. Markets will find out over the next few days whether that’s true as a slew of reports on the job market are released. First up will be the ADP Research Institute’s monthly jobs report for September. The median estimate of economists surveyed by Bloomberg is for a drop to 140,000 jobs created from a better-than-expected 195,000 in August. That would put it closer to the low end of the range over the past five years than the average of 200,000. Then on Friday, the Labor Department is forecast to say that 147,000 jobs were created in September, compared with 130,000 in July. This won’t raise the imminent recession alarms, but it’s also not going to cause anyone to pop the champagne corks.DON’T MISSGlobal Bonds Sell Off for All the Right Reasons: Robert BurgessLow Rates Are No Reason to Pay Up for Stocks: A. Gary ShillingPassive Investing Hasn’t Taken Over the World: Barry Ritholtz Trump’s Impeachment Is Already Hurting the Economy: Karl SmithElliott’s Marathon Fight Spells Trouble for MLPs: Liam DenningTo contact the author of this story: Robert Burgess at firstname.lastname@example.orgTo contact the editor responsible for this story: Daniel Niemi at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
The Fed cut its benchmark interest rate 25-basis points as widely expected for the second time since July, as concerns grow about a potential global economic slowdown. The PBOC cut its new one-year benchmark lending rate for the second month in a row on Friday.
President Donald Trump accused the central bank and Fed Chair Jerome Powell of having “no guts” for not meting out a more aggressive cut.
(Bloomberg Opinion) -- September is only halfway done and already the S&P 500 Index is up 20% for the year. This is a remarkable achievement, given that earnings growth has stalled and the bond market is pricing in almost a 40% chance of a recession over the next 12 months. That just shows the degree to which lower interest rates have supported stocks. And yet, as is often the case in life, too much of a good thing isn’t always, well, good.This year’s rally – during which the S&P 500’s forward price-to-earnings multiple expanded to 17.6 from 14.5 at the start of January – can be credited to the Federal Reserve’s dovish pivot, which led to the central bank’s first rate cut since 2008 and sparked big declines in market rates. The yield on the benchmark 10-year Treasury note dropped to as low as 1.43% earlier this month from 2.80% back in January.Simple discounted cash-flow analysis shows how lower rates make future earnings more valuable now, justifying higher multiples for equities even without profit growth. So, logic would dictate that the lower rates go, the better for equities. But the experience in Europe shows that there comes a point where ever lower rates begin to work against stocks.In a research note last week, the strategists at Bank of America pointed out how even though 10-year bond yields in Germany have fallen below zero, stocks there only trade at a multiple of about 14 times earnings. That’s little changed from mid-2014, when yields were around 1.25% and the European Central Bank cut its benchmark deposit rate to below zero. The same is true for the broader euro zone, with the Euro Stoxx 600 Index trading at 14.5 times projected earnings, not much different from mid-2014.Of course, the euro zone’s struggles are worse than the U.S. Still, the increasing globalization of the world economy means America is having a much harder time shrugging off the slowdown elsewhere. Morgan Stanley says the U.S.’s share of global gross domestic product has shrunk from 22% in 1990 to 15% today. That’s a big reason traders are pricing in at least three more Fed rate cuts over the next 12 months, bringing its target rate for overnight loans between banks to 1.50% from 2.25% currently.On top of that, the number of Wall Street strategists slashing their Treasury yield estimates has grown in recent weeks, citing the outlook for weaker global growth and inflation. UBS Group AG and BNP Paribas SA, which are among the select group of dealers authorized to trade with the Fed, both slashed their 10-year forecasts, predicting yields will drop to 1% by the end of 2019. Could yields go even lower, tracking those in Europe and Japan by following below zero? Former Fed Chairman Alan Greenspan doesn’t thing that’s a crazy idea, telling Bloomberg News last month that he wouldn’t be surprised if they turned negative.It’s true that the stock market posted a massive rally between early 2009 and mid-2015, rising as much as 215%, as the Fed kept rates near zero and pumped money directly into the financial system via quantitative easing. But that was a time when investors largely believed that central banks still had a lot of arrows left in their quivers to stimulate the economy. That’s not really the case now. The S&P 500 fell four straight days after the Fed cut rates on July 31, dropping a total of 5.59%.Also back then, profits were in recovery mode and stocks were relative cheap, with the forward price-to-earnings ratio holding below 14 for much of that time and peaking at around 17 times in late 2014 – about where it is now - just before the S&P 500 turned in its first annual decline since 2008. This year, though, earnings growth is flat and Bank of America’s strategists are telling its clients that forecasts for an 11% increase next year are “too high.” Stocks have had a good run, with the S&P 500 closing last week at 3,007. The median estimate of strategists surveyed by Bloomberg in January only expected the benchmark to rise to 2,913 this year. But with economists moving up their time frame for when the next recession will hit to 2020 from 2021, earnings estimates coming down and price-to-earnings ratios on the high side, it won’t be easy for stocks to keep marching higher even if the Fed does continue to slash rates. To contact the author of this story: Robert Burgess at firstname.lastname@example.orgTo contact the editor responsible for this story: Beth Williams at email@example.comThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Robert Burgess is an editor for Bloomberg Opinion. He is the former global executive editor in charge of financial markets for Bloomberg News. As managing editor, he led the company’s news coverage of credit markets during the global financial crisis.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
The Dollar/Yen could rise sharply after the Fed announcements if central bankers come across as hawkish, leading to the reduction in the chances of another Fed rate cut before the end of the year.
Gold traders will also be watching Wednesday’s Fed interest rate and monetary policy decisions. A 25-basis point rate cut is widely expected, however, traders will be more interested in how Fed policymakers feel about a December rate cut.
President Trump’s latest Twitter escapade against the Fed calls for negative interest rates to jump-start the slowing economy. But the prospect of using a monetary tool usually reserved for deeply-troubled economies has many strategists on Wall Street seriously worried. Butcher Joseph Asset Management Chief Investment Strategist Nancy Tengler believes the practice of implementing negative interest rates is “seriously dangerous.” The “$16 trillion in negative yielding debt around the globe - I don't understand how you account for it as an investor,” Tengler said in an interview on Yahoo Finance’s The Final Round.
Mortgage rates hit reverse once more as market jitters over the economic outlook and expectations of a FED rate cut delivered for prospective buyers.
Trade talks and a rate cut by the Federal Reserve is a bullish formula for stocks. Let’s hope President Trump lays off the Twitter Send Button.
The increasing size of negative yielding government bonds across the globe could spark a new era in financial markets. That’s the assessment from Nick Colas, a veteran market strategist and co-founder of DataTrek Research.
Recent economic data has indicated the case for the Federal Reserve being more aggressive with its rate cut this month is getting stronger.
Gold is likely to remain underpinned on Tuesday as long as Treasury yields remain under pressure and stocks weaken. However, gains are likely to remain limited by the stronger U.S. Dollar, which tends to reduce foreign demand for dollar-denominated gold.