Market Brief – Thursday 1/3/19

On the heels of Apple’s shocking first-quarter guidance, US equities were down in early trading on fears that other companies will post similar forward-looking guidance. The seven-to-ten-year Treasury bond ETF saw one of its largest inflows in several years yesterday, which quickly drove 10-year Treasury yields to 2.58% in early trading.

After sales plunged -9% in December, Ford has announced they will no longer release monthly sales numbers. Both General Motors and Ford will release sales numbers on a quarterly basis starting in 2019. Morgan Stanley predicts that the global automobile market will see its first volume drop since 2009 this coming year.

ADP payrolls jumped unexpectedly by +271,000 jobs, the highest in two years. Excluding the mining industry, job gains were broad-based across employers of all sizes.

The official ISM PMI manufacturing survey crashed at the largest monthly rate since the Great Financial Crisis, signaling a problem in the manufacturing sector. The December ISM fell from 59.3 to 54.1, which is its lowest level since November 2016 when the economy was about to slip into a recession. The drop in the ISM shouldn’t come as a surprise, even though nearly every analyst was off on their estimates, as oil prices are leading the factory survey lower.

Dallas Fed President Robert Kaplan, a non-voting member, stated in a Bloomberg interview this morning that the Fed should wait on its next rate hike until the second half of 2019 and should be willing to adjust its balance sheet unwinding program.

Despite lower interest rates, mortgage applications continue to fall. Mortgage applications fell -8.5% in the week of December 28th, after falling -1.4% the week prior, and -5.8% the week before that. On an annualized basis, mortgage applications have fallen -94%. This is not a good sign for the economy, as housing is a leading indicator of economic growth and deceleration.

All major US equity indices closed lower today, which wiped out the prior three days of gains. Treasury yields continue to fall with 10-year Treasury yields closing at 2.56% and 30-year yields around 2.90%.