The Daily Prophet: Bond Views, Pharma Foibles, Hot Commodities

Connecting the dots in global markets.

The Federal Reserve has all but pre-announced that it will be raising interest rates next week, and more economists say that another two hikes will follow before the year is over. So, that must mean bond traders are a pretty depressed bunch, right?


In fact, a widely followed weekly sentiment index put out by JPMorgan Chase & Co. today showed investors are net positive on the outlook for U.S. Treasuries for the first time since before the U.S. election, albeit by a small amount. Yields on longer-term bonds have risen to levels that have attracted buyers in recent months. Plus, many economists predict that the big fiscal stimulus promised by the Trump administration may not come until next year. That should help keep inflation in check, for now.

Despite the Fed's hawkish tone, and unlike a growing number of economists, the bond market isn't ready to buy into the three-hike scenario. "The market had priced in a lot of hope in terms of U.S. fiscal policy and the details have been slow in coming,” Roberto Perli, a partner at Cornerstone Macro LLC in Washington and a former senior Fed economist, told Bloomberg News's Liz McCormick. Perli also said worries about European elections have led to investors to seek haven assets.

Or, maybe the reason the bond market is relatively sanguine is that actual economic data has been coming in on the softer side. The Atlanta Federal Reserve's GDP Nowcast puts annualized growth at a downright sluggish 1.3 percent this quarter. The Organization for Economic Cooperation and Development said today the global economy may not be strong enough to withstand risks from increased trade barriers, overblown stock markets or potential currency volatility.

Speaking of stocks, the MSCI All Country World Index has fallen for four straight days, matching its longest slumps since August. Major indexes were pulled lower by health care and pharmaceutical stocks after President Donald Trump jumped back into the debate over drug pricing, sending a tweet shortly before 9 a.m. saying he’s working on a “new system where there will be competition in the drug industry.” Mylan NV, the maker of the EpiPen allergy shot that was the focus of the public outrage over drug prices last year, declined 1.61 percent to $43.33, while Perrigo Co. fell 1.8 percent and Allergan Plc dropped 1.14 percent.

Emerging markets rallied after receiving a vote of confidence from Morgan Stanley. The firm said continued improvement in fundamentals, global trade and exports, as well as a "more constructive" outlook for China, are among the reasons it sees a "stronger for longer'' scenario for emerging markets and their currencies. Fitch Ratings backed up that sentiment in a report yesterday, saying it expects emerging-market growth to accelerate to 4.7 percent this year, from just over 4 percent in 2015 and 2016, reflecting a return to modest expansion rates in Russia and Brazil. Brazil is planning to tap overseas debt markets for the first time since July after its borrowing costs tumbled, joining a record wave of emerging-market bond sales this year. 

One of the world's rarest precious metals, rhodium, is on its best run in a decade on speculation demand will only grow for the material that’s used in cleaning toxic car emissions. Rhodium climbed the past seven months and is up 19 percent this year, outperforming most major commodities. Used alongside palladium in gasoline autocatalysts, prices have rebounded from a 12-year low set in July amid stronger demand from industrial users. In December, China, which mainly favors gasoline vehicles, raised sales taxes on small cars less than expected. Chinese consumers bought vehicles in 2016 at the fastest pace in three years.

Markets will get a heavy dose of jobs data to digest starting tomorrow when the ADP Research Institute releases its payroll report for February. Two days later, the Labor Department will release its monthly employment numbers. The consensus is for ADP, which doesn't track government hiring, to say that payrolls rose by 189,000, compared with 246,000 in January that was better than forecast. According to economists at FTN Financial, there is a tendency for the ADP estimate to miss consistently in one direction or the other for months at a time. The estimate was too high in eight of 12 months last year, FTN found.

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Fed Needs to Work Harder to Deprogram Bond Traders: Scott Dorf

The ECB Confronts a 'High-Class Problem' About a Hike: Ben Emons

Goldman, UBS Quants See Dollar Warning Sign in Theory From 1500s

Fed Takes Fear Out of Markets as Volatility Plunges in Bonds, FX

Cash Dwindles to Two-Decade Low in Global Investor Portfolio

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