Jun 23, 2017

WSJ | Early Today Morning Beat - on June 23, 2017.

Market Snap at 06/23/2017 08:45:24 AM ET
S&P 500 Futures 0.06%
DJIA Futures -0.12%
U.S. 10 Year -0/32
WSJ Dollar Index -0.15%
Crude Oil 0.3%
Gold 0.78%
FTSE 100-0.23%
Nikkei 2250.11%
Hang Seng-0.02%
CAC 40-0.47%

Overnight Developments

Global stocks found little traction Friday, while the British pound inched up on the first anniversary of the U.K.’s vote to leave the European Union.
Futures pointed to flat open for the S&P 500, following a muted session in Asia. The Stoxx Europe 600 was down 0.3% in recent trading, led lower by declines in autos and chemicals companies, while London’s export-heavy FTSE 100 was off 0.6% as the pound climbed 0.4% to $1.2728.

The Breakfast Briefing

Investors should be skeptical of the mantra that benchmark bond rates are destined to head higher in the next year.
The yield on the 10-year Treasury note, which is used to help determine everything from corporate debt yields to home loans, was at 2.153% on Wednesday, down from 2.446% at the end of last year. That bucked the consensus going into 2017 that rates would have to head higher, pushed up by rising inflation and a lift-off in growth. Higher growth was though to be a factor ultimately pushing the Federal Reserve to lift rates faster.
Instead, growth has remained tepid, and inflation has dipped in recent months, even as the Fed has lifted rates twice this year. President Donald Trump's presidency hasn't yet ushered in a second wind for this economic cycle. Gross domestic product grew at an annual pace of 1.2% in the first three months of the year, according to the latest Commerce Department data. Bond investors have since been paring their expectations by buying Treasurys, thereby pushing yields down.
The optimistic forecasts to begin 2017 underscore how difficult it is to predict the direction of rates -- and other financial assets for that matter. Plenty of market watchers have called an end to the bond bull market, only to have it persist.
"The problem is that Wall Street economists have been consistently too optimistic for the past 15 years," said Torsten Sløk, chief international economist at Deutsche Bank, in a note to clients about the 10-year yield.
The projections for the next 12 months in the Federal Reserve Bank of Philadelphia's quarterly survey of professional forecasters have been 0.6 percentage points too high on average since 2003, according to Deutsche Bank (which, it should be noted, also participates in the survey).
The latest survey, released last month, suggests a 2.9% yield in the April-to-June period of next year. Adjusting for the average level of over-optimism, that suggests the rate will be 2.3%, just a smidgen higher than current levels, according to Deutsche Bank.
To be sure, rates can surprise to the upside at any time. In 2013, as the Fed signaled that it was getting ready to curtail its bond-buying program, the 10-year yield jumped from below 2% to about 3% in a short span, far overshooting expectations. After that, economists lifted their expectations for the 10-year yield sharply, but rates fell instead.
The 10-year Treasury yield has been trending lower for more than three decades. It may eventually embark on a reversal, but calling when that will happen is anyone's guess.

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