The yield curve has received attention this year because it has flattened 67 basis points.
The yield curve has received attention this year because it has flattened 65 basis points. While the shape of the yield curve is one of the better tools for evaluating the state of the US economic cycle, markets appear distant from any potential inversion. We see the shape of the yield curve as top of mind in 2018, but would stress that the composition of economic data is largely supportive of an ongoing expansion.
Source: Chart shows the spread between the 10-Year and 2-Year Treasury yield. Please see page 4 for additional disclosures.
Events in Washington drove much of the week’s equity trading, with investors keeping a close eye on tax deliberations. The S&P 500 closed 1.6% higher and pared an early Friday loss as the U.S. Senate prepared for the vote that would pass the tax overhaul. The Stoxx 600 closed down -0.7% and the FTSE 100 ended down -1.5% as a stronger Pound weighed on UK equities. Read More
WTI Crude oil ended the week down -1.1%, though oil prices saw some support from the Thursday OPEC meeting. At the meeting, the 14-member group agreed to extend production cuts through the end of 2018. Markets have remained watchful of OPEC member compliance with agreed-upon production cuts. The IEA reported compliance with recent cut pledges at 86%, higher than with historical cuts. In the US, the oil rig count increased for a second week, reaching the highest level since September. Read More
The US 10-year Treasury yield rose 2 basis points on the back of firmer inflation readings and the prospects of tax reform. In the UK, the 10-year Gilt mirrored strength in the Pound as it climbed to 1.33%. Progress on Brexit talks has raised the odds of another rate increase from the Bank of England. Core and peripheral yields in the Euro area eased lower as weaker inflation figures support a more dovish central bank outlook. Read More
Following consecutive weeks of depreciation, the US Dollar index ended flat, supported by stronger economic data and optimism over the tax bill’s potential passage. The British Pound reached its best level in two months, on speculation surrounding a UK-EU agreement on a Brexit financial settlement. The Pound is now less than 10% off of its pre-Brexit vote levels. Risk-on sentiment paused the Yen’s rally, leaving it flat. Read More
Q3 US GDP growth was revised up by three tenths to +3.3% – the fastest pace since 2014. In terms of the composition, personal consumption was revised down while growth in business fixed investment was revised up, and inventories contributed a tenth to the revision. Read More
The ISM manufacturing index fell to 58.2 from 58.7 in November, slightly missing consensus. However, the index remains firmly in expansionary territory and the underlying report was favorable, with increases in the new orders and production components and a roughly stable employment subindex. Read More
The index of consumer confidence rose more than markets expected in November to 129.5, with broad based strength from respondents across the assessment of current conditions, future expectations, and the labor market. Read More
In the Euro area, November HICP inflation came lower than expected, at +1.5% YoY, below consensus expectation of +1.6%. In Japan, the core CPI increased to +0.8% YoY, but is still less than half the central bank’s target. We believe inflation may accelerate in 2018 as the yen continues to depreciate and economic growth strengthens. Read More
For style performance, Large, Mid, and Small refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Government, Corporate, and High Yield refer to the US Treasury index, the US Corporate Credit index, and the US High Yield index, respectively. Short, Intermediate, and Long refer to the Short, Intermediate, and Long segments of their respective curves. Quality returns refers to the credit quality of asset classes ranging from Government, highest quality, to High Yield, lowest quality.
US Durable Goods
(Cons: -1.0%, Prior: -1.2%)
US Factory Orders
(Cons: -0.4%, Prior: 1.4%)
( Cons: --, Prior: 53.4)
China FX Reserves
(Cons: $3112.0B, Prior: $3109.2B)
US Nonfarm Payrolls
(Cons: 199K, Prior: 261K)
(Cons: 4.1%, Prior: 4.1%)
UMich. Cons. Sent.
(Cons: 99.0, Prior: 98.5)
“Euro PMI” refers to the Markit Eurozone Composite Purchasing Managers’ Index. “Cons. Conf.” refers to US Consumer Confidence. “GE IFO Business” refers to the German Ifo Business Climate Survey. “New Home Sales” refers to US New Home Sales (MoM). “Dur. Gd. Ord.” refers to US Durable Goods Orders. “UK GDP” refers to the QoQ estimate of the United Kingdom’s Gross Domestic Product for Q3. “Euro M3” refers to the YoY change in the Eurozone’s M3 Money Stock. “US GDP” refers to the estimate of US Gross Domestic Product for Q3. “Pers. Cons.” refers to US Personal Consumption. “UMich Cons. Sent.” refers to the University of Michigan Consumer Sentiment Index. “Japan Core-Core CPI” refers to Japan’s Consumer Price Index (ex- Food, Energy YoY).
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