Market forecasters continue to handicap 2019

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Published Date 1/2/2019

It is a new year, but the stock market is continuing to fall in early trade this morning; the 10 yr note yield and the rest of the yield curve following the end of last year still declining. The 10 yr at 7:00 am ET 2.65% -3 bps after dropping 4 bps on Monday. Since early Nov. the 10 yr yield has declined 60 bps and 30 yr mortgage rates down 30 bps. The 10 yr yield the lowest in 11 months.

No economic data today.

Tomorrow Congress is due back with the government shutdown the main topic. No signs of a workable plan to end a 12-day-old partial shutdown of about a quarter of the U.S. government, and President Trump not budging on his demands. Current thoughts, the Democrats in the House will propose a two-part spending bill that includes a bill to fund the Department of Homeland Security at current levels through Feb. 8 and provide $1.3B for border fencing and $300 million for other border security items including technology and cameras. Already the plan has been defined as dead on arrival “The Pelosi plan is a non-starter because it does not fund our homeland security or keep American families safe from human trafficking, drugs, and crime,” White House press secretary Sarah Sanders said.

2019 forecasts still arriving, most see the economy slowing to 2.4 to 3.0% GDP growth. The Fed still is debated on whether there will be any more rate increases to as many as three. Growth will slow, but we don’t see a rescission (2 consecutive lower GDP quarters. The US is expected to continue to grow; the larger question, however, is the outlook for the global economies that are likely to continue to weaken. China’s data as it is revealed is slowing, its PMI index at the lowest level in 2 years.

Our main concern for the economy in 2019 is political and the possible implications that will spill into the economy. Trump’s travails with Mueller and the other legal issues surrounding his campaign will come to a head this year. Three of his ‘team’ already indicted and awaiting sentencing, his continued denial that there were business relationships between the Trump organization and Russia to develop a Trump Tower that did not end before the campaign has been refuted. His ‘people’ are rolling over rapidly. The talk of impeachment will escalate, whether the House actually begins impeachment is questionable; that it will be on the front page will be enough to keep markets edgy and less optimistic.

On trade with China and the North Korea nukes, President Trump’s position is weakened. China and North Korea, as well as Russia and in Europe, have a stronger hand if Trump’s domestic problems escalate. He will be seen as a weak US leader and possibly willing to accept less on trade and geopolitical negotiations. 2019 won’t be like 2018 when stocks climbed exponentially (although by the end of 2018 the indexes were back to 2018 January levels).

Let’s not overlook the 2020 elections. Not too soon for prepping for the battles. As the year progresses expect more potential Democratic aspirants will go on the attack. The President has a steep hill to climb if there is anything significant coming from the Mueller investigation; those impeachment echoes will increasing resound.

No data today, but Friday the BLS will report employment data for Dec. Tomorrow ADP is expected to report private jobs +175K. Dec ISM manufacturing index also out tomorrow at 57.9 from 59.3. As important as monthly employment is, Jerome Powell on Friday will sit with Janet Yellen and Ben Bernanke for a discussion on monetary policy and central banking; very interesting and will be closely monitored by markets.

Pres. Trump has invited top Democratic and Republican leaders in Congress to the White House today for what congressional sources described as a border security briefing.

10 yr at 2.65% -3 bps from Monday on the open but by 10:00 2.67% -1 bp; MBS prices on Monday up 17 bps; this morning MBS prices are essentially unchanged even with the 10 improving. Good times to refinance and for purchases.

Source: TBWS

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