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Bob Carey
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  US Economy and Credit Markets Ended December 7, 2018
Posted Under: Weekly Market Commentary

 
Markets are digesting mixed views on how hawkish the Federal Reserve will be in 2019. The consensus expects one more hike to wrap up 2018, but 2019 expectations are vacillating as Mr. Powell was perceived making seemingly dovish remarks in November but last week New York Fed President John Williams, generally seen as a centrist on the governor's board, said that the Fed should continue to raise rates "over the next year or so." He cited the U.S. economy "continuing to grow nicely above-trend" as support for the Federal Reserve to continue tightening monetary policy. Fed Fund futures currently price in a probability of one hike in 2018, but of late they are pricing in an approximate 33% chance of no hikes in 2019 assuming one 2018 hike. The yield curve had an inversion of the 3- and 5-year yields during the week which has investors nervous that a 2- and 10-year inversion could be forthcoming. Of no doubt, the narrowing curve has weighed on Bank sentiment as net income margin is not expected to meaningfully improve without an increase on the longer-dated yields. Oil stalled its multi-week plunge to close Friday at $52.22 per barrel from a not so long-ago October price in excess of $75 per barrel. Also affecting markets was tariff talk between China and the United States. No resolution emerged, and tariffs will continue to generate uncertainty into 2019. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Tuesday: PPI final November demand (0.0%, 0.6%); Wednesday: prior week MBA Mortgage Applications and November CPI (0.0%, 0.3%); Thursday: Prior week Initial Jobless Claims (233K, 231K); Friday: November Retail Sales (0.2%, 0.8%), November Industrial Production (0.3%, 0.1%) and December preliminary Markit US Manufacturing PMI (55.1, 55.3).
Posted on Monday, December 10, 2018 @ 7:52 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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