June 19, 2019

06-19-2019 buyline

The market is nicely above the HCM-BuyLine Alpha giving us plenty of room for the market to bounce back and fill. Tech has been stabilizing and moving a bit higher after a tough May. The bond market is in a nice uptrend as you can see it is clearly above the HCM-BuyLine Alpha. You can also see the long-term chart of bonds, with no real concerns of a bear market since mid-2016. As of now, things are good for bonds, despite talks of a rate cut.

06-19-2019 bondPlus

 

We think it is premature for the Fed to cut rates this week. Although risks appear to be tilted to the downside, we doubt there will be a material change to the outlook, which would warrant a change in monetary policy.  The Fed is also likely to replace “be patient” with “act as appropriate to sustain the expansion.”  We think the Fed learned its lesson from December and will not be insensitive to the market’s concerns.

06-19-2019 XCG

 

The Federal Open Market Committee (FOMC) participants will be looking at the economic data and any fiscal policy changes.  The economic data is mixed with weakness in manufacturing being offset by continued strength from the consumer and tight labor markets.  Inflation remains a little below the Fed’s target with some further deterioration in inflation expectations. At the March meeting, not one FOMC participant was calling for rate cuts.  Since then St. Louis Fed President, Bullard has indicated he would cut rates.  We want to see if others join him, and how close the Committee is to cutting rates.

06-19-2019 Trump Xi

 

If Presidents Trump and Xi agree to meet at the G20 and resume talks, the Fed can remain in a wait-and-see mode.  But if they do not meet and/or President Trump slaps 25% tariffs on the remaining $300 billion of Chinese goods imports, policymakers will likely see that as a “material” change and respond by lowering rates at the next meeting, perhaps by as much as 50 bp.

  • Industrial production rebounded 0.4% in May, the most in six months, and above the consensus of 0.1%.
  • It was led by a 2.1% rise in utilities output.
  • Mining edged up 0.1%.
  • Excluding all energy output, industrial production was up a smaller 0.2%.
  • Manufacturing output also picked up 0.2%, its first increase this year, led by a 2.4% jump in vehicles.
  • Ex-vehicles, manufacturing was flat.
  • Core industrial production, which excludes energy, vehicles, and high-tech, was unchanged from the previous month.
  • On a y/y basis, industrial production rose 2.0%, an improvement over the last month, but less than half the pace from last fall.
  • Core industrial production was up just 0.2% y/y.

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