The Market Today
Busy Week for U.S. News: Yellen, Earnings, Inflation, and Retail Sales
by Craig Dismuke, Dudley Carter
This Week’s Calendar – Yellen, Earnings, CPI, and Retail Sales Give Market’s Plenty to Watch: This week’s calendar is loaded with economic reports, including several important reports. Of primary focus will be Fed Chair Yellen’s testimony before the House and Senate on Wednesday and Thursday. The markets will be looking for any sign that she is becoming more concerned about the weak trend for inflation. The Fed has seemingly shifted its outlook from patient despite the data to tightening despite the data. This is likely to reverse, at some point, if the paralysis in Washington persists and/or inflation continues trending below the FOMC’s 2% target. In addition to her comments on inflation and future policy, the politico expect this to be an audition, of sorts, for retaining her position for a second term. One challenge President Trump will have if he pursues a more hawkish Fed Chair would be a likely correction in asset prices. He may not want to risk this, although his advisors tell insiders that it is unlikely he will ask her to remain.
Apart from Yellen’s comments, Williams, Brainard, Evans, George, and Kaplan are all on the calendar to speak this week. As for the economic releases, there are several reports of secondary importance early in the week, but Friday brings the most important reports. June’s Consumer Price Index is expected to show core CPI remain at 1.7% YoY while June’s retail Sales report is expected to show an uptick in consumer spending. July’s Consumer Confidence report from the University of Michigan will also be released Friday. Second quarter earnings season kicks into full gear this week with the banks beginning their reports on Friday, including JP Morgan, Wells Fargo, and Citi.
As for today’s calendar, San Francisco Fed Bank President Williams is scheduled to speak tonight. Williams has been a reasonable barometer of the center of the FOMC. June’s Labor Market Conditions index is scheduled for 9:00 a.m. CT and is expected to tick slightly higher. May’s Consumer Credit report is expected to show a $13.5 billion increase in outstanding credit.
Overnight Activity – Yield Rise Moderates on Monday as Equities Hold and Oil Falls: Sovereign yields have experienced a slight reversal of last week’s late-week upward trend with European sovereigns leading a global move lower Monday. Global stocks are mostly firmer despite oil retreating again and U.S. crude falling below $44 per barrel. The 10-year yield in the U.K., Germany, and France are all three to four basis points lower while those in Italy and Spain are down by roughly six basis points. The 10-year Treasury yield has shed just 1.1 bps with similar moves at notes maturing in less than 10 years. European equities remain positive but are near their lows of the day as crude has fallen more than 1%. Futures contracts on the Dow (down) and S&P (up) are mixed while a tech bounce has the Nasdaq up 0.3% early this morning. The equity space is gearing up to begin its second quarter earnings release calendar. The Dollar is stronger against almost every major currency.
ICYMI – Yields Rise for a Second Week on a Mix of U.S. and European Events: Sovereign yields rose before and after the Fourth of July holiday closure of U.S. markets. The pre-holiday yield increase came on the back of strong manufacturing data in the U.S. The post-holiday shift higher was driven by European yields responding to a weak auction of French government bonds and what was considered a hawkish line from the ECB’s latest meeting Minutes. A mixed jobs report of solid hiring and sluggish earnings did little to alter the yield path on Friday. Click here to see the full recap.
White House Targets Tax Reform by Year-End (AP): According to the AP, “Treasury Secretary Steven Mnuchin said Sunday the Trump administration isn’t considering a tax increase on wealthier Americans, knocking down a report that White House adviser Steve Bannon had floated the idea as a way to pay for tax cuts for middle-income taxpayers. ‘I have never heard Steve mention that,’ Mnuchin said. … The administration is aiming to release its full tax plan by September and have Congress approve it by the end of the year, Mnuchin said on ABC News’ This Week. So far, the administration has issued a one-page summary of broad principles for tax reform, but few details.”