US Economy and Credit Markets Ended February 1, 2019

 
Treasury Prices rose over the course of the week as the Federal Reserve signaled a more dovish rate policy. The Fed met this week and on Wednesday reported that they would take a more patient approach and adjust its balance sheet reduction process if necessary. The benchmark interest rate remained unchanged with an upper bound of 2.50% and the Fed removed language on the expectation for "further gradual increases" in its policy statement. This caused interest rates to drop significantly through the end of trading Thursday with the expectation that the Fed would pause interest rate increases if there were further economic headwinds. However, Treasury yields rebounded on Friday due to strong economic data. January's change in Nonfarm Payrolls increased 304k, significantly beating expectations of 165k, while ISM Manufacturing, U. of Michigan Sentiment and Construction spending all beat expectations. The unemployment rate ticked higher to 4.0% but the labor force participation rate also rose slightly. The market implied probability of a rate hike by the end of 2019 dropped from 29.0% at the end of last week to only 4.9% at the end of this week. Major economic reports (related consensus forecasts, prior data) for the upcoming week include: Monday: November Factory Orders (0.3%, -2.1%), November Final Durable Goods Orders (1.7%, 0.8%); Tuesday: January Final Markit US Services PMI (54.2, 54.2); Wednesday: February 1 MBA Mortgage Applications (N/A, -3.0%), November Trade Balance (-$54.0b, -$55.5b); Thursday: February 2 Initial Jobless Claims (225k, 253k).
Posted on Monday, February 4, 2019 @ 8:46 AM

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.