2-3-2014 Weekly

  • With a month now under our belts in 2014, the markets have turned jittery and reactive in recent days, encapsulated by the S&P 500 moving more than 0.5% on 4 out of 5 days last week, ending the month down nearly 4%, and continued Treasury demand as ’safety’ becomes less of a dirty word thanks to emerging market concerns.  The Federal Reserve finished its two-day meeting on Wednesday and the FOMC policy statement released did in fact reduce asset purchases by another $10 billion a month starting now, meaning ‘Taper’ effects are now at $20 billion and the Fed is buying at a monthly pace of $35 billion of Treasuries and $30 billion of agency MBS.  For Chairman Bernanke’s final meeting everyone was able to unanimously agree on the decision for the first time in over a year, and Janet Yellen was internally confirmed to take over the Chair role as of Feb.1.  No other changes were made to policy, although the language on economic conditions was slightly better and reflections on the jobs picture were more muted as we head into a payrolls Friday this week coming off of a weak number last month.  The frigid weather is expected to impact the numbers again in the jobs data, but the consensus sees an add of 181,000 net jobs added in December after the 74k print in November, and the unemployment rate is expected to hold at 6.7%.  The advance reading for Q4 GDP was decent last week at 3.2% growth QoQ annualized after the 4.1% surge last quarter, while the price index rose 1.3% QoQ.  Unfortunately, apart from Chicago PMI (59.6 reading), most of the data whiffed to close out January, and in particular, durable goods orders fell 4.3% MoM and -1.6% ex-transportation, both of which were expected to be positive, new home sales slipped nearly 7% to a 414k annualized rate in December,  jobless claims rose back above the 4-week average to 348k, and the personal income and spending report showed no growth in the former and a 0.4% MoM rise in the latter.  The YoY figures now show income down 0.8%, spending up 3.6%, and core PCE prices up 1.2%, meaning credit reflation and tapped savings are fueling the consumer at the moment.  The Treasury’s initial floating rate note sale of 2-years worth $15 billion had nearly 6 bidders for every bond.
  • Futures are relatively flat after weak Chinese data sent Japanese equities into an official 10% correction overnight.  The ramp-up to the Friday jobs report includes a number of interesting data points, starting with ISM Manufacturing (56 expected) this morning.  followed by likely flat construction spending and slipping factory orders before ADP private payrolls are released on Wednesday, with 170k new jobs expected therein.  The ISM Services index should show improving growth at 53.9 from 53 last month, the trade report should reveal a -$36 billion deficit MoM, and unit productivity is expected to expand 2.6% QoQ annualized for Q4 even as unit labor costs likely slipped 0.6% in the same period.

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