1-21-2014 Weekly

  • In a week that was full of earnings and modestly important data releases, equities consolidated near all-time highs and interest rates beyond three years fell a few bps as most traders waited on a catalyst for the next move. Despite a number of high-profile negative preannouncements for holiday receipts, retail sales in December managed to beat consensus (+0.2% MoM vs. flat headline, 0.7% vs. 0.4% ex-autos), and the healthy consumer also helped initiate 999,000 housing starts on an annualized basis, besting estimates. Inflation remained muted, per PPI and CPI reports, with both still reading sub-2% at the headline and core levels, but some near-term pressure appears to be forming in gasoline, tobacco, and shelter indices. Both the Empire State and Philly Fed surveys rebounded, to 12.5 and 9.4, respectively, with the former showing strength in new orders and the latter having a positive employment bias. Industrial production rose 0.3% MoM, and capacity utilization stands at 79.2%, it’s highest level since the first half of 2008. Treasury International Capital (TIC) data for November showed a decline of nearly $30 billion in foreign demand for long term US equities and bonds after several months of gains. Jobless claims fell to 326,000 for the week of January 11th, as the 4-week moving average attempts to challenge resistance at 325k once again. Chinese and Japanese portfolios of Treasury paper both rose by $12 billion MoM. Overseas markets are stronger today even though German investor confidence is falling, with a big boost out of China. As their Q4 2013 GDP missed consensus at 7.7% QoQ and the short term repo rates jumped ahead of funding needs for the Chinese Lunar New Year, the PBOC injected $42 billion via reverse repos and a lending facility for commercial banks. It’s a quiet holiday week for domestic capital markets that could get quieter, as more winter weather threatens to bog down the northeastern US in the next 48 hours. The Federal Reserve is in radio-silence mode ahead of next week’s Federal Open Market Committee meeting, the final rendezvous over which Chairman Bernanke will preside, as his eight-year stint comes to a close on January 31st after President Bush appointed him as successor to Alan Greenspan in 2006.
  • While consensus has yet to crystalize on whether the $10 billion-a-month ‘Taper’ will continue, some, including Hilsenrath at the WSJ, suspect the shoddy jobs report has not dissipated enough positive sentiment to warrant a pause in slowing bond purchases. The portfolio stands at $4.07 trillion. All of the data to be gleaned this week will arrive on Thursday, with leading indicators (consensus at +0.1% MoM), jobless claims (330k expected), and existing home sales (4.9MM annualized per estimates, which would be flat MoM) the most notable releases. The FHFA House Price Index should reveal that prices rose 0.4% MoM in November, the 22nd consecutive month of price increases.

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