The Market Today

Market Volatility Continues as Economic Data Just Too Good

by Craig Dismuke, Dudley Carter


Consumer Credit; CPI Revisions; and a Slight Up-Tick in Mortgage Apps:  Today’s quiet economic calendar continues with the December Consumer Credit report due out at 2:00 p.m. CT.  Additionally, the BLS’s annual revisions to the CPI data series is scheduled for release today which could alter the seasonally adjusted figures for 2017.  However, the overall pace of inflation for the full year should be unchanged.  Earlier this morning, the MBA’s mortgage applications report for the week ending February 2 showed a 0.7% increase in apps on unchanged purchase apps and a 0.9% increase in refi apps. Mortgage applications continue to point to very little refinance activity and a small, very small, increase in purchases.


Now Back to the Government Shutdown:  Lost in all of the market volatility over the past three trading days has been the looming deadline for Washington to extend its spending authority.  Yesterday evening, the House passed a bill to avoid a shutdown Thursday night, funding the government through March 23.  However, the Senate is expected to make meaningful changes to the bill, including lifting the budget caps on defense and non-defense spending and cutting back on higher defense spending proposed by the House bill.  Senate Leaders McConnell and Schumer have reportedly (Politico) discussed raising the defense and non-defense spending caps by $150 billion each over the next two years.  While this will supercharge growth in the short-term, combined with the $1.5 trillion tax cut (10-year horizon), Washington is digging the debt hole ever more profligately under Republican leadership.



Yesterday – Another Wild One as Markets Continued to Search for Footing and New Trading Ranges: Another wild day for U.S. equities saw an initial 564-point drop for the Dow turn into a 352-point gain in the first thirty minutes of trading and provide a glimpse into what was to come for the remainder of the session. If points were miles, the Dow’s intraday path (per minute tick) would have stretched from San Diego, California to Brunswick, Georgia 5.2 times. After whipsawing between positive and negative territory several times and notching a second straight day with a greater than 1,100-point trading range, the big blue-chip index finished up 567 points, or 2.3%. The S&P was equally as volatile and managed to convert a 2.1% drop at the open into a 1.7% daily gain, the largest since November 2016. Despite the net recovery on Tuesday, the prior two days’ turmoil was enough to leave the Dow and S&P down 4.9% and 4.5% from last Thursday’s close. For some longer perspective on the recent swings, however, both indices are still holding most of their post-election gains. Treasury yields were volatile as well, and after tracking stocks lower in yesterday’s historic equity sell-off, marched higher as stocks’ fortunes improved. The 2-year yield rose 8.1 bps to 2.11% after moving within a wide 16.6-bps range (1.94%-2.11%). The 5-year yield led with a 10.3 bps increase to 2.54%. The 10-year yield split those two, netting another 9.6 bps to 2.80%, after covering a 15.8-bps range intraday.


Overnight – U.S. Equity Futures Signal another Shaky Start: Global markets have had an uneven response to yesterday’s sharp final U.S. gains as a mixed finish in Asia preceded firmer trading trends in Europe. The Stoxx Europe 600 was trading up nearly 0.9%, with every sector in positive territory, and looking to avoid an eighth consecutive daily decline. European corporate earnings were given partial credit for the bounce and the index climbed earlier on a report that German Chancellor Merkel’s CDU party had reached a coalition agreement with the SPD. A grand coalition between the two parties would erase some uncertainty that has lingered over the EU’s largest economy since last September’s inconclusive general election. Despite the more upbeat activity in Europe, U.S. futures point to another negative open for the major indices (approximately down 250 for the DJIA as of 7:30 a.m. CT) and a potential continuation of this week’s excitement on Wall Street. In a similarly divergent fashion, U.S. Treasury yields have moved lower despite higher yields in Germany. The 2-year yield is down 1.6 bps to 2.09% (Germany 2-year +1.1 bps) and the 10-year yield has dropped 2.1 bps to 2.78% (Germany’s 10-year +3.4 bps).



Job Openings Fell in December to a Seven-Month Low in Mixed Report: The BLS JOLTS report showed a lower-than-expected level of openings in the final month of 2017. Total openings fell from 5.978MM in November (revised +99k) to 5.811MM in December which was enough to drop the openings rate from 3.9% to 3.8%; both were the lowest readings since May. While the trend for job openings softened some late last year, the 5.917MM average for 2017 was the best on records back to 2000. Total hires were essentially unchanged which left the hires rate at 3.7%, 0.1% below its cycle best. Total separations rose a net 26k on positive shifts in total quits (higher) and total layoffs (lower). The quits rate rebounded to 2.2% matching its highest level of the cycle and the layoffs rate fell back to a healthy 1.1%. Overall the report was another sign of the continued strength of the labor market.

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