1-6-2014 Weekly Interest Rate Market Update

1-6-2014 Weekly

  • Just as temperatures drop below zero for half of the United States, vacation ends and traders get back to weighing the world’s value full-time.  What better way to usher in the new year than with a Jobs Friday, with market consensus showing around 200,000 net new payrolls and a steady unemployment rate at 7%.  With all likelihood, Janet Yellen will be fully confirmed in the Senate today (they come back to work as well), officially claiming the Chair of the Federal Reserve for the upcoming four-year term.  Wednesday we will see the minutes from last month’s ‘taper’ meeting, our last glimpse at the Fed psyche until the end of the month.  With only three+ trading days last week, the ‘drift’ was in effect, sending equities modestly lower and keeping interest rates from getting too far from their current bearings.  The weekly data failed to impart feelings of jubilation or dread, but the most notable reports, Chicago PMI (59 down from 61) and ISM Manufacturing (57, at consensus), were strong despite both being weaker than the three-year highs in the November readings.  Jobless claims came in at 339k, an improvement from the volatile figures around the holidays, while S&P Case-Shiller Home prices rose 1% MoM and are now up 13.6% in the last twelve months.  The best news of the week may have come from Markit’s flash PMI report for the second half of December that showed a reading of 55, the highest reading since last January, in fact, and it included positive signs for employment and limited inflationary pressures for the manufacturing sector at the moment.  Construction spending rose 1% MoM and now sits 6% higher from the same period last year.  For the rally to continue, this number and other capital expenditure indicators need to strengthen domestically in the coming year–this may be possible with government austerity lifting to a certain extent as well.  Auto sales for the month came in lighter than expected.  In Asia overnight, service industry data from China softened and Japan’s Nikkei stock index fell over 2% after finishing 2013 with gains approaching 60% in yen terms.  Some pundits expect the rally to commence again this week, as Fed purchase operations (tapered!) kick back in and new-year tax selling (gains-taking) should be over.
  • The lead-up to Friday should be fairly interesting unless the weather ruins our lives this week, since along with the ADP report and other job indicators, we have the Fed minutes, policy meetings for the Bank of England and the ECB (will they taper?…probably not), and then earnings season for Q4 will begin with Alcoa reporting.  ADP should report that private payrolls rose 205k in December, down from 215k in November.  The interesting change that we have seen in the jobs reports of late is that private payrolls are now less than the total, meaning that public payroll cuts have stopped adding to unemployment.  The trade balance should show another -$40 billion deficit for November.

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