Government Shutdown and Trade Talks Will Hold Markets’ Attention

Jan 22, 2019
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Government Shutdown and Trade Discussions

If you thought last week was devoid of first tier economic releases due to the shutdown this week will be even quieter as the closure rolls past the one-month mark. In addition, the data silence will be exacerbated by the Fed moving into their quiet period before the January 30th FOMC meeting. The only releases we’re likely to receive are from private sources and those agencies not subject to the shutdown. The bottom line is that this holiday-shortened week will be dominated by shutdown developments (likely none) and any movement on the China trade negotiations. Last week was marked by rumors that the administration would roll back tariffs in hopes of soothing market volatility. That rumor was quickly refuted by the administration but the market still traded with a risk-on tone. The other trade-related rumor was that our lead trade representative was asking the Chinese to close their $325 billion trading surplus in two years. Most trade experts peg a realistic reduction in the $50 billion range over several years, so there you go. 



Short-Term Rates

Short-term Rates

Economic Calendar

Economic Calendar


calendar icon Top 5 Events for the Week


JAN. 22-25,  2019

1. Government Shutdown and Trade—All Week
2. Leading Index for December – Wednesday
3. December Existing Home Sales —Tuesday
4. January Manufacturing & Services PMI’s—Thursday
5. Initial Jobless Claims —Wednesday


1.  Government Shutdown and Trade Developments–All Week

As the ongoing government shutdown moves past the one-month mark we’re struck by the resilience in risk markets in light of our mounting government dysfunction. That is probably driven by two factors: (1) when the market wants to rally it will find a reason to rally. After the tumultuous trading in December the rebound in January is not totally unexpected given the extent of the year-end bloodletting. (2). The other factor is probably trade-related. While a rumor that the U.S. was considering relaxing tariffs with China in order to smooth market volatility was refuted by the administration, the rumor didn’t spring from whole-cloth. Despite the official denials equity markets traded with plenty of enthusiasm and without much real-time data to back it up the buy-the-rumor mode was obviously in full force. We’ll see how far that optimism runs this week as rumors and headlines will be the main driver of both stocks and bonds.


2.  December Leading Index —Wednesday 

The Conference Board’s Leading Index is a compilation of metrics that tend to lead the economy and the index has a solid track record of predicting recessions. As the chart below shows, the index always falls well below zero prior to a recession and currently the index has been flirting with the zero-level. The index, however, will need to move below-1.0 to provide a more reliable recession indicator. That being said, the December number is expected to dip to -0.1 versus 0.2 in November.


Leading Indicators


3.  December Existing Home Sales —Tuesday

The housing market has become the center of the universe in divining whether the economy is truly headed south due to declining affordability and nine Fed rate hikes, or is it just a pause that refreshes before the next leg higher?  Existing home sales account for nearly 90% of the market and gives us the broadest view of market health but with data based on closings it can be a bit dated. December existing home sales fell to 4.99 million annualized units which is down –6.4% from the 5.33 million in November. The average over the past year has been 5.39 million annualized so in keeping with recent housing releases a below-average print with a material month-over-month decrease of –6.4%.


4.  January Markit Manufacturing & Services PMI’s —Thursday

This privately produced series will get some attention on Thursday as it will be a January reading of sentiment in both the manufacturing and services sectors. The series works like ISM in that readings over 50 represent expanding sectors while readings less than 50 are contracting. For January, the manufacturing survey is expected to print a 53.5 in January versus 53.8 in December and the 12-month average of 55.4. The services sector is expected to be 54.0 versus 54.4 the prior month and a 12-month average of 54.9.


5.  Initial Jobless Claims for Week Ending January 19—Wednesday

The weekly jobless claims number will be the first to pick-up any shutdown-induced increase in joblessness. The series has been motoring along at near all-time lows and this week claims are expected to total 215,000 versus 213,000 the prior week. The series bottomed at 202,000 back in September. The average over the past year has been 220,000. So the latest week is forecast to show an uptick but the level is expected to remain historically low with no acceleration beyond typical week-to-week fluctuations. 




arrow up icon Investment Yield Ranges Over Last Year


US Treasuries

FHLB Agency Bullets

Mortgage Backed SecuritiesMunicipals

US Corporate - Financials

US Agency Swap Rates

 Source: Bloomberg





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Thomas R. Fitzgerald

Director, Strategy & Research



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