Market Update: Tuesday, July 17, 2018

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Daily Insights

  • Solid week for economically-sensitive fixed income. High yield, emerging markets debt (EMD), and bank loans all performed well (as measured by the Bloomberg Barclays Capital High Yield, JP Morgan Emerging Markets Bond Global, and the S&P/LSTA US Leveraged Loan indexes, respectively) last week alongside solid equity market returns. The continued recovery in EMD bodes well for trade tension fears, as the asset class was previously hit hard by concerns over trade skirmishes and a strengthening dollar. Investment-grade corporates also continued to recover, as fears about interest rate risk and anticipated heavy issuance due to merger and acquisition activity are relenting after pressuring the asset class early in the year.

  • In this week’s Bond Market Perspectives, we take a look at our fixed income insights from the Midyear Outlook 2018: The Plot Thickens, including our views on interest rates, sector preferences, the yield curve signal, and what we think is likely to transpire over the remainder of 2018.

  • Another look at the yield curve. One of the most popular market-related discussions recently is on the yield curve (as measured by the 2-10 year Treasury spread) with it now at its flattest level since right before the financial crisis. Why does that matter? The past nine recessions have all been preceded by an inverted yield curve. It is important to note that the yield curve is not currently inverted, but that hasn’t stopped the masses from focusing on it. Today on the LPL Research blog we will take a look at what stocks tend to do after the yield curve inverts.

  • Boring one. Yesterday, the Dow traded in a range of less than 0.93% (from peak to trough), which was the second smallest intraday point range of the year. The S&P 500 Index, meanwhile, saw an even slower day, as it traded in a range of only 0.37%, which was its fourth smallest percentage range of the year. After the big move higher last week, this was a nice chance for markets to catch their breath ahead of what should be a busy (but strong) earnings season. Last, as we explain in Midyear Outlook 2018: The Plot Thickens, we expect volatility to pick up over the remainder of 2018, so days like yesterday could be few and far between.

  • Fed chair semiannual testimony. Federal Reserve (Fed) Chair Jerome Powell will appear before Congress today for the first of his two-day, semiannual testimony. He’s expected to reiterate the Fed’s consensus views, which include an upbeat assessment of the economy and a hawkish tilt towards the central bank’s intended rate-hike path. Expect global trade to be a key topic as well, particularly given recent comments from other Fed officials who’ve expressed heightened concerns about escalating trade tensions. Other topics expected to be covered include the flattening yield curve and the Fed’s balance sheet normalization timeline. Though insightful, don’t expect a significant market reaction as Chair Powell’s testimony will likely stick to the script.

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Tuesday

Wednesday

Thursday

  • Conference Board Leading Index (LEI) MoM
  • UK: Retail Sales (Jun)
  • Japan: CPI (Jun)

Friday

  • Japan: All Industry Activity Index (May)

 

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Index data obtained via FactSet

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