The Market Today
The Sky Is the Limit – And the U.S. Economy Is Getting Close
by Craig Dismuke, Dudley Carter
2018 Economic Outlook Webinar: Vining Sparks will host our 2018 outlook webinar at 10:00 a.m. CT this morning. In the webinar, we will look at what has been driving the markets, what we expect from growth this year, the impact of tax reform on those growth projections, and our outlook for interest rates. The title of the presentation is “The Sky Is the Limit; And the U.S. Economy Is Getting Close.”
Today’s Calendar – Quiet Day for a Snow Storm: With snow blanketing much of the Southeast and what seems like entire states closed for business, it’s also a quiet day for the economic data. The only report of the day was this morning’s Empire Manufacturing index for the month of January. The index fell from 19.6 to 17.7, remaining well above its 30-year average of 8.2. Manufacturing metrics continue to shine and are likely to do so in the first half of 2018 at least. A confluence of improving global growth, decent domestic demand, and a declining Dollar are all helping the sector.
Overnight Activity – Equities Look for Strong to Start a Short Week, Longer Sovereign Yields Moved Lower Overnight: U.S. markets will reopen against a positive global backdrop as equities were mostly firmer overnight in Asia and Europe. The positive impact has already shown up in futures trading where Dow contracts are up more than 200 points or 0.8%. Contracts on the S&P are up a smaller 0.4% with those on the Nasdaq up 0.6%. Corporate earnings season will continue Monday and has started with a positive pre-market earnings release from Citi. Even with the positive equity backdrop, sovereign yields, which moved notably higher to start 2018, have pulled back overnight. Peripheral European yields are leading the drop with the Italian 10-year note down 5.5 bps. Germany’s 10-year yield slipped a smaller 2.5 bps. European yields jumped last week after the ECB’s December meeting Minutes stated the central bank could revisit their forward guidance early this year. Longer U.S. yields are lower as well with the 5-year yield down 1.2 bps and the 10-year yield down 1.6 bps. The 2-year yield, however, is up 0.4 bps, sticking above 2.00% for a second day; the 2-year yield closed above 2.00% on Friday for the first time since the financial crisis. The Dollar found some footing on Tuesday after dropping Monday to its lowest level since 2014.
ICYMI – January 12, 2018 Weekly Market Recap: There were an array of forces that pushed and pulled on Treasury yields last week, but the curve ultimately ended higher and slightly steeper. After two weeks of increases, the 10-year Treasury yield is now up more than 14 bps to start 2018. The biggest boost came on Tuesday after the Bank of Japan announced it was trimming its monthly purchases of Japanese Government Bonds and data showed the bank’s total balance sheet shrank for the first time in a month since 2012. Sticking with central banks, the ECB’s December Minutes were more hawkish than expected after mentioning the bank could revisit their forward guidance. In between, it was initially reported on Wednesday that China was reconsidering whether to continue buying U.S. Treasurys and yields rose. That report was later called “fake news” by Chinese officials and yields fell. Maybe the biggest intraday jump however, followed a stronger-than-expected set of economic reports in the U.S. on Friday morning. December’s retail sales report wrapped up a stellar quarter for the consumer thanks to positive revisions to October and November’s data. Core CPI for the same month was firmer than expected with the YoY rate drifting back up to 1.8% YoY on some firming in key categories. The combination of the two should keep the Fed on a road of gradual rate increases. Click here to see the full recap.