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. 


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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