General market news
- Rates have risen slightly on the long end of the curve. The 10-year U.S. Treasury opened Monday at 2.67 percent, while the 30-year opened at 3.03 percent. The short end of the curve remained unchanged, with the 2-year starting the week at 2.50 percent.
- The three major U.S. stock indices were all up on the week. The continued push toward a U.S.-China trade deal, along with dovish signals from the January Federal Open Market Committee minutes, benefited stocks. Trade talks continued to progress, with Vice Premier Liu He agreeing to extend his visit, and President Trump offering to push back the tariff deadline of March 1. Turning to the Federal Reserve, last week’s minutes indicated that most officials want to reduce the runoff of the balance sheet (which includes Treasury and debt securities) later this year.
- Emerging markets rebounded as a result of the continued dovish stance. This asset class typically contains U.S.-dollar-denominated debt, which is cheaper in lower rate environments. The same theme played out in the U.S.; utilities and materials were the two top-performing sectors on the week, as they are supported by lower interest levels on debt and a potentially higher inflationary environment. This did not translate over to energy, however, which lagged along with health care and financials.
- There were only a handful of major data releases during the holiday-shortened week. On Thursday, December’s durable goods orders were released. Demand was weaker than expected, with 1.2-percent headline growth against expectations for 1.8 percent. The core figure, which strips out the effect of volatile transportation orders, grew by only 0.1 percent.
- Also on Thursday, January’s existing home sales disappointed, with a drop of 1.2 percent. Economists had expected modest growth, but with this drop, existing home sales have now declined for four months in a row.
What to look forward to
This will be a busy week in terms of economic updates, as we continue to see the release of data that was delayed by the government shutdown. On Tuesday, December’s housing starts are set to be released. Economists expect starts to decline slightly, from 1,256,000 in November to 1,250,000. Homebuilder confidence declined sharply in December, so it is possible that housing starts may decline by more than expected. But homebuilder confidence has rebounded to start the year, so any weakness in housing starts would likely be temporary.
On Thursday, the first estimate of fourth-quarter gross domestic product growth will be released. This measure of overall economic activity is expected to show solid 2.5-percent growth on an annualized basis. This result would be down from the 3.4-percent annualized rate we saw in the third quarter. The slowdown in the fourth quarter was partially driven by a slowdown in consumer spending at year-end, as December’s retail sales suffered the biggest monthly drop since 2009. As was the case with homebuilders, consumers saw a large drop in confidence in December that likely lowered spending. Consumer confidence numbers have also bounced back to start the year, so this slowdown in consumer spending is likely not as bad as it seems.
Speaking of consumer spending, on Friday, we will see the release of January’s personal income report and December’s personal spending report. Both are expected to show moderate growth—with income expected to increase 0.3 percent and spending slated to rise by 0.2 percent. These would be solid results; however, both income and spending were growing at faster rates in the third quarter.
Finally, also on Friday, the Institute for Supply Management Manufacturing index is expected to decline slightly, from 56.6 in January to 56 in February. This is a diffusion index, where results greater than 50 indicate expansion. As such, this slight decline is not a pressing concern. Continued trade talks with China have helped bolster manufacturer confidence in the face of slowing global trade, so this continued positive sentiment is very welcome.
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