Baker Market Updates: Lunch with Lester

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Lunch with Lester - Week in Review is The Baker Group’s Friday newsletter that provides community bankers with an accurate recap of the week’s economic developments. Authored by our seasoned Associate Partner Lester Murray, this insightful publication tracks Federal Reserve policy and provides useful credit market updates including: Weekly Economic Calendar; Fed Fund Futures; Treasury Yield Curve; Agency Spreads; MBS Spreads; Municipal Spreads; MBS Prepayments; and FHLB Advance Rates. 


November 30, 2018

There was a time in the industrial evolution of America when Wall Street was guided by an ironclad axiom: As General Motors goes, so goes the nation. The Honda Accord, in conjunction with a few other things, long ago invalidated that dogmatic domestic dictum. Good thing, too, because GM’s announcement this week that it will be firing over 14k workers might just be a sign that things aren’t going so well for the tax-payer subsidized auto maker. Read more.

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November 23, 2018

“Over the river and through the woods” would hardly describe the route taken by some financial markets this week. But, “through the guardrail and into the ravine” does not conjure up a cheerful holiday image; despite its being closer to the truth. Maybe some of these equity investors just can’t handle the truth. Maybe they need someone on that wall; that wall of worry that continues to darken economic prospects that, until very recently, seemed so bright. Read more.

November 16, 2018

As the week’s caravan of economic data reached investors’ radars this week, some were expecting to see some evidence of the long-awaited inflation invasion. Has it arrived? According to the Bureau of Labor Statistics (BLS), inflation measures are on the rise, but those measures still fall a little short of reaching invasion status. In October, the Consumer Price Index without food and energy rose by 0.2% and that pretty much matched market expectations. It also brought the year-over-year rate to 2.1% and that was actually down a tenth from the prior month. Invasion? Not just yet. Read more.

November 9, 2018

If President Trump doesn’t want to take economic advice from Fed Chairman Jerome Powell, maybe he will be more receptive to Jerome’s counsel regarding public relations: don’t fight with reporters at press conferences. Mr. Powell’s next press conference won’t be until December 19th where he will likely be explaining and defending the 9 th rate hike of this cycle. If market participants needed affirmation of that event’s likely occurrence, it was provided to them by the statement that J.P. and his minions issued yesterday upon the completion of the FOMC’s penultimate meeting of the year. Read more.

November 2, 2018

As Americans prepare to give back the daylight they’ve been saving since March, the Bureau of Labor Statistics announced that a lot more of us have a reason to rise and shine come Monday morning. In today’s Employment Report for October, the Bureau of Labor Statistics (BLS) reported that Non-Farm Payrolls increased by a much larger-than-expected 250k. For those that attach significance to the Unemployment Rate, it remained unchanged at 3.7% while the Labor Force Participation Rate recorded a two-tenths rise to 62.9%. That is significant. Read more.

October 26, 2018

“Very little is needed to make a happy life; it is all within yourself, in your way of thinking.” That’s what Roman emperor Marcus Aurelius said a couple thousand years ago. Earlier this week, President Donald Trump criticized Fed Chairman Jerome Powell for appearing to derive happiness from raising interest rates. The roads to happiness are many, and everybody’s different. Read more.

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October 19, 2018

Good news! The market’s up! No, wait; it’s down. Well, it looked like it was down, but now it’s back up. Well, I think it’s back up, but it’s hard to tell. What the heck is going on? Fan interference? There’s plenty of interference, all right, but not from fans. A confluence of conditions has contributed to a wild week for equity and credit markets alike. Read more.

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October 12, 2018

The Fed has “gone crazy” according to the President, but Christine Lagarde, head of the International Monetary Fund told reporters “I wouldn’t associate Jay Powell with craziness”. For Mr. Powell’s part, he doesn’t seem like one who is overly concerned about what other people think, one way or the other. Markets this week seem to suddenly be concerned about rising interest rates and “sell-off” is an accurate description of what both credit and equity markets experienced. Read more.

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October 5, 2018

Most avid sports fans are familiar with a concept known as the announcer’s curse. The moment a play-byplay commentator remarks that a quarterback hasn’t thrown an interception all season or that a golfer hasn’t missed a three- foot putt in two years, well, you know what happens next. Read more.

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September 28, 2018

President Trump took the week off from castigating the Chinese over trade policy, and instead, switched to upbraiding them for meddling in America’s upcoming mid-term elections. He even intimated that Chinese President Xi may not be his friend anymore. Happily, the members of the FOMC are still buddies. The Friendly Open Market Committee got together this week and, to the surprise of no one, gleefully consummated its eighth rate- hike on this merry road to monetary normalcy. Read more.

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September 24, 2018

“The trade war is now a reality,” according to a new report from Fitch Ratings economist Brian Coulton. Apparently, the Chinese have taken umbrage to America’s negotiating style. Over the weekend, the state-run Chinese news agency reported that, “negotiations cannot be carried out under the threat of tariffs.” One wonders what kind of threats they would prefer. Read more.

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September 21, 2018

Many of those with an opinion about such things seem to be of the opinion that China’s muted retaliation to Mr. Trump’s tariffs is proof that Chinese President Xi was the first to “blink” in the SinoAmerican trade skirmish. There are those, however, that see things a little differently. They think the “blink” was really a “wink.” As in the “I know something you don’t” kind of wink. Read more.

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September 17, 2018

Investors can be forgiven for being unable to distinguish the differences between tariffs, the threats of tariffs, and the retaliatory threats that can be interchangeably applied to either. The uncertainty currently reigning over just what to be uncertain about has helped inject an additional dose of jitters into markets that some believe are already over-caffeinated. But, the Ten-Year Treasury stubbornly refuses to have its yield pushed over 2.99%. So far, anyway. Read more.

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September 14, 2018

As observers of weather events watch Hurricane Florence make landfall on the east coast today, observers of market events are keeping an eye on their bond radars to see if the Ten-Year is going to make landfall at 3%. It’s close. But the bond market, like the weather, can be capricious, and similar to the downgrading of Flo’s intensity, this week’s downgrading of inflation can alter perceptions. Read more.

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September 10, 2018

Maybe it’s because the Kansas Jayhawks won a football game; or maybe it’s because the Cleveland Browns didn’t lose one. Whatever the reason, the early price action in both credit and equity markets seems a lot more stable than where we left it last Friday. But, it’s early, and there’s plenty of time for Friday’s blues to become Monday’s. Tesla shareholders aside, what potential potholes await investors this week? Read more.

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September 7, 2018

“This is about as good as it gets,” is not, refreshingly, one of those unattributable quotes from an unnamed senior administration official. But then again, this is not the New York Times and we give credit where credit is due. New York Fed President John Williams gets the credit for the above-referenced quote as he explained to reporters in Buffalo yesterday that the Central Bank’s dual mandate of full employment combined with low inflation has, at long last, been achieved. Read more.

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September 4, 2018

Just like in America, Canada celebrates Labour Day on the first Monday in September. And, even though they can’t spell it right, everybody gets the day off. So, we all came through the long, holiday weekend without any new NAFTA deal. Many will recall that the deadline for a new trade agreement was last Friday, but President Trump, who is nothing if not flexible, is giving the provinces more time to work out the major sticking points. Read more.

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August 31, 2018

If visitors to Washington D.C. happen to wander past the Marriner S. Eccles Building this morning, they probably won’t see a “Mission Accomplished” banner draped across the Doric columns that grace the entranceway. But, with the announcement this week by the Bureau of Economic Analysis (BEA) that core inflation has reached the long-sought-after level of 2%, many feel that some kind of garish display of recognition may be in order. Others don’t. Read more.

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August 27, 2018

The bargain hunting of last week continues this morning as markets greet the news that a trade deal between Mexico and the U.S. is in the offing. Some news accounts speculate that a final agreement might even be announced as soon as today. No word yet from Canada. Plenty of words, though, from others still trying to divine the subtleties, real or imagined, of Jerome Powell’s Jackson Hole speech. Mr. Powell must be secretly pleased that pundits can’t seem to universally conclude on the degree to which his remarks were hawkish. 
Read more.

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August 24, 2018

It’s widely known that not everyone on the Federal Reserve Open Market Committee gets to vote. But, did you know this; everybody gets a trophy for participating. And according to the minutes of the August meeting, there was a lot of participation. After the obligatory nod to uncertainty, all of those new trophy-holders agreed that we are getting close to the point at which describing monetary policy as “accommodative” would no longer be appropriate. Really? Read more.

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August 20, 2018

Following a week in which bonds and stocks both performed admirably, one wonders if this week will be a reprise of that paradoxical situation. As markets roll out of bed this morning, it appears that a continuation of that trend may be in the offing. Also in the offing is the official end of the European Union’s bailout of Greece and, coincidentally, a seemingly sanguine adjustment in the perception of emerging markets’ malaise. 
Read more.

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August 17, 2018

The dog days of summer are coming to an end and the kids are back to school! For some parents, this time of year couldn’t come any sooner. I think my fellow parents would agree, there’s something to be said about adhering to a consistent routine. Unfortunately, I’ll be interrupting your regularly scheduled broadcast of Lunch with Lester as Mr. Murray enjoys our nation’s Rocky Mountains. The good news is that it’s Friday and while Lester won’t be joining us for Lunch today, Drinks with Drew will have to suffice. So cheers! Read more.

August 13, 2018

Well, it seems the new Turkey Melt isn’t just for lunch anymore. As markets open this morning, the latest investor snack first popularized last Friday has now made its way onto breakfast menus, too. Despite the promise by Turkey’s central bank to “take all necessary measures” to stem the lira’s freefall, the currency is still falling freely. Read more.

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August 10, 2018

In his novel Foucalt’s Pendulum, Italian author Umberto Eco wrote that “I believe that you can reach the point where there is no longer any difference between developing the habit of pretending to believe and developing the habit of believing.” Signore Eco wasn’t talking about economic fortunes or financial markets when he wrote those words, but their relevance to today’s environment might be greater than many would like to admit. 
Read more.

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August 6, 2018

The dog days of summer are upon us. In America, that means it’s hot just about everywhere. Why is it though, that we feel so much more uncomfortable when we know it’s 101 compared to when it’s only 99. Either way, it’s pretty hot. Somehow, knowing it’s over 100 degrees makes it seem worse. Maybe we’re seeing the same kind of psychological implications with bond yields. Read more.

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August 3, 2018

In the last Jobs Report before the onset of college football season, the Bureau of Labor Statistics (BLS) came out with a little bit of a pre-season surprise, and not a particularly good one. The better news is, it’s not a particularly bad one, either. The not-so-good part is that job creation, as measured by Non-Farm Payrolls, disappointed the market estimators that were expecting a gain of 193k. Read more.

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July 30, 2018

It’s the morning after, kind of, following Friday’s news of the biggest growth quarter in almost four years. All news is old news, some say, and that makes last week’s Q2 GDP announcement practically ancient history. We’ll see this week if the seemingly counter-intuitive response of financial markets to the BEA’s announcement of 4.1% Q2 growth rate will continue, be reversed, or be overshadowed by new news. Read more.

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July 27, 2018

Remember when, as a youngster on the 4th of July, how tempting it was to set off the whole string of Black Cats at once? You knew if you did, you’d be treated to fifteen seconds, or so, of intense fire and fury. Flashes of light and billows of smoke against a background of loud bangs! Pretty tempting. You also knew that if you yielded to that temptation, there was a downside; you were out of firecrackers. Read more.

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July 23, 2018

It looks like the little oil leak that the Treasury market was experiencing last Friday hasn’t fixed itself over the weekend. Last week closed out with yields inching up slightly on thin volume, but the Ten- Year yield could not breach 2.90%. This morning, that spot on the driveway appears to be getting a little bigger as the inching up of yields looks to be continuing. Read more.

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July 20, 2018

Move over, Austin Powers; the world has found a new “International Man of Mystery.” Federal Reserve Chairman Jerome Powell displayed uncharacteristic coyness with lawmakers this week when he presented his semi-annual Monetary Policy Report to Congress. No one was surprised when Jerome said that the Fed would continue to raise rates gradually, but, his coquettish caveat of “for now,” has left many wondering what the self-satisfied central banker might have meant. Read more.

July 13, 2018

While President Trump is busy sweet-talking our allies in Europe and the U.K., Fed Chairman Powell might want to think about how he’s going to sugar-coat his inflation message to American consumers. The much-desired and long-sought-after condition of rising price levels has now succeeded in eliminating any gains in the purchasing power of those that are compensated on an hourly basis. Read more.

July 9, 2018

When last we left the Treasury market, it seemed unsure about how to react to last Friday’s news events. Would the positive jobs report, a good thing for the economy, induce a sell-off that pushed rates higher and maybe re-steepen the yield curve, or would the instant tariff retaliation by China, an economic negative, result in a rally that would push yields lower? Read more.

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July 6, 2018

Can Superman do more push-ups than The Hulk? Could Nolan Ryan strike-out Ted Williams? Is a good Jobs Report more important than a bad trade war? Good questions all, but tough to answer. To begin with, some might wonder how an increase in the Unemployment Rate from 3.8% to 4.0% could be positively perceived. A reasonable question. Read more.

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July 2, 2018

This week may be short on days with markets closing Wednesday for Independence Day, but it’s not short on news. Over the weekend, Canada began collecting tariffs on a variety of U.S. products from beef to maple syrup as the trade dispute becomes ever more war-like. Later this week, China and Mexico will be piling on with tariffs of their own for America’s pork, among other things. Read more.

June 29, 2018

The economically erudite among us devote much of their time these days to the discussion of cyclic behavior. Business cycles, price cycles, rate cycles. This week, though, it was another type of cycle that garnered the most attention; the kind that’s powered by a V-twin and has belt drive. When Harley Davidson announced that it would be moving some of its production facilities abroad, you’d have thought Ol’ Yeller died. Read more.

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June 21, 2018

Fed Chairman Jerome Powell was in Portugal yesterday speaking at a conference hosted by the European Central Bank. One assumes he was there to share his wisdom and experience with his counterpart, Mario Draghi. “As is often the case,” said Mr. Powell, “in the current environment, significant uncertainty attends the process of making monetary policy.” Read more.

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June 15, 2018

In a thinly veiled response to ABC’s recent cancellation of “Roseanne”, Fed Chairman Jerome Powell announced this week that he will be holding a press conference after each of the FOMC’s meetings rather than the traditional every-other-one schedule. Ratings will soar. The telegenic Mr. Powell indicated that interest rates, while perhaps not soaring, will still be gaining altitude. Read more.

June 8, 2018

Betting on sports is no longer against the rules, but swimsuits at the Miss America Pageant are. Things have a way of changing. It’s not much different with investors’ appetite for risk; that has a way of changing, too. Not much more than a week ago, the unpalatable Italian situation along with trade war concerns drove Ten-Year yields below 2.80%. Those fears proved to be short-lived as, in recent days, renewed risk consumption pushed that yield back to the 3% threshold. Read more.

June 1, 2018

One thing we’ve learned in recent days is that holiday-shortened weeks can be just as fun as the five-day variety. Tuesday morning (a substitute for Monday morning) brought angst and excitement in the form of a 500-point meltdown in stocks matched by a six-week low on the 10yr T-Note yield as it hit 2.78%. Read more.

May 25, 2018

Now boarding Group 1 for the next flight to quality; passengers are required to leave all baggage in the terminal. Overhead bin space is limited and is reserved for Treasury bonds only. However, passengers will be permitted to carry-on one personal item, as long as it has coupons attached. We’ve got a full flight today, so the quicker y’all can get in your seats; the quicker we can get away from all this risk. Read more.

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May 18, 2018

So, what do you think Jerome Powell hears; “yanni” or “laurel”? More importantly, to whom will he listen; James Bullard or Loretta Mester? The reason that might be important is because Mr. Bullard, President of the St. Louis Fed, and Mrs. Mester, President of the Cleveland Fed, are both on the Federal Open Market Committee and, as such, will both have Chairman Powell’s ear when the FOMC meets next month. Read more.

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May 11, 2018

Human nature being what it is, humans can sometimes go looking for problems where perhaps none exist. In last week’s Jobs Report from the Bureau of Labor Statistics (BLS) it might have seemed problematic that 6.3 million people were unemployed. Read more.

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May 4, 2018

Figures don’t lie, we’ve all been told, and this morning’s figures from the Bureau of Labor Statistics (BLS) tell us that the nation’s Unemployment Rate fell by two-tenths last month to 3.9%. In technical terms, that’s pretty low. One might think that a flood of new jobs must have been created in order to bring the rate down that much in just one month. Read more.

April 27, 2018

The doctrine of relativism and the belief that there are no absolute truths seldom make their way into economic discussions, but maybe they should. Absolutely. Otherwise, we might not be able to feel good about this morning’s report that GDP grew at 2.3% in the first quarter and, of course, we want to feel good. Read more. 

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April 20, 2018

The Federal Reserve released the latest edition of its Beige Book this week and the good news is, it still goes with everything. Beige is the new black. The near-universal sentiment from all twelve Fed districts was that import tariffs do not go well with much of anything, and never will. Read more. 

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April 13, 2018

Treasuries yields and equities alike drifted up this week volatility continued to decline from the mid-February run-up. Yields across the curve are up modestly (2Yr 2.36%, 10Yr 2.82%) and the 10s-2s spread remains tight around 50bps. Read more.

April 6, 2018

If this week’s wild market gyrations are any indication, investors worldwide still don’t quite know how to react to the unlikely popularity of an American television show that seems to editorially support the Administration. Read more.

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