2-18-2014 Weekly

  • Our forefathers were kind enough to inspire a holiday that gave markets a three-day weekend, but despite the vicious never-ending winter, activity should heat up this morning, although a direction is not apparent in the early trade.  Last week brought a bond selloff and rate/equity rally as Fed Chair Yellen spoke to the House Financial Services Committee for the first time.  Rates rose roughly 5 bps across the Treasury curve and global equities regained 2-3% in most markets.  The leader of the Federal Reserve plainly conveyed that recent data weakness and equity volatility alone would not be enough to stop the ‘Taper’ at this point, but obviously she is watching the trend and ready to act if the recovery stumbles, or in her words, “the work of making the financial system more robust has not yet been completed.”  The data for the week wasn’t great, frankly, and prognosticators are trying to figure out how much impact is weather-related and how much is a cramped consumer.  Retail sales fell 0.4% MoM and were revised to -0.1% for December, and the core reading ex autos was flat, so all the numbers missed consensus.  Industrial production fell 0.3% MoM when a gain of same magnitude had been expected, jobless claims rose to 339k for the week, and import and export prices remain down YoY despite rising 0.1% and 0.2% MoM, respectively.  It feels like the US is the tail of the dog at the moment, with rocky EM capital markets and Asian policy gyrations.  Overnight, Japan’s central bank doubled the amount of cheap money for banks to lend after their recent GDP report of 1% QoQ annualized missed its 2.8% projection, sending the Nikkei up 3% and weakening the yen.  China is switching between liquidity and tightening policies while bailing out some the nations questionable ‘wealth’ products, which usually present as leveraged real estate or infrastructure bets at first glance.  Commodity markets remain overachievers as we start 2014, with natural gas surging on the coldness and gold and silver springing back somewhat from massive losses in 2013.  The 30-year fixed rate residential mortgage sits at 4.33% currently, 10 bps worse than the recent low but 70 bps higher than a year ago (15-year average is 5.63%, high was 8.27% in 2000).
  • A fair bit of data will get crammed into the remaining four days of this week plus we see FOMC minutes from Bernanke’s final convention.  Empire State and Philly Fed surveys both are expected to remain positive despite the soft trends in other business indicators, and leading indicators should rise 0.2% MoM when published on Thursday.  Treasury International Capital (TIC) flows just showed a $46 billion outflow of money from long-term US assets in December.  Markets are hopefully that housing will pick up when the weather breaks, but housing starts, the Housing Market Index from homebuilders, and existing home sales could all be weak in the interim.  Consensus says CPI will stay low.

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