The Market Today

This Week’s Focus: Retail Sales, CPI, and Taxes

by Craig Dismuke, Dudley Carter

This Week’s Calendar – Retail Sales and Consumer Price Inflation Take Stage Along with Tax Reform:  This week’s economic calendar will bring a few more reports than last week’s unusually quiet week.  Of primary importance will be Wednesday’s Retail Sales and Consumer Price Index reports for the month of October.  Inflation is expected to hold at 1.7% YoY while retail sales are expected to show a reasonably strong month of spending.  Heading into the final two months of the year, the retail sales data will be key as 1) the consumer is driving U.S. economic activity and 2) the leading indicators point to a strong year for holiday sales.  There is also a healthy dose of Fedspeak with speeches from Evans, Yellen, Bostic, Mester, Kaplan, Brainard, and Williams.  However, with a December hike almost a fait accompli, it would take quite a surprising comment from a Fed official to elicit a market response. Finally, investors will continue to pay close attention to anything tax-reform related.


As for today’s calendar, October’s Month Budget Statement from Treasury is expected to show a $58 billion deficit for the month.


Overnight Activity – Slow Start to the Week As Equities Continue Recent Stumble: There was an element of unease to Monday’s overnight trading, with global equities trading lower and safe haven assets improving. Outside of moderate gains for Chinese equities, every other major national stock index was weaker. Japan’s Nikkei 225 led Monday’s declines with a 1.32% daily drop, its largest since April. That index has declined in four consecutive sessions after reaching a 25-year peak last Tuesday. The soft start for global shares followed another negative finish for most U.S. companies on Friday. Early morning futures activity points to a continuation of that negativity when U.S. trading opens. As equities stumbled, the price of gold improved with the Japanese Yen and sovereign debt prices. Gold prices were up 0.20% and the Yen was a top performer overnight. Sovereign yield curves across Europe gave up some of last week’s late-week rise. The 10-year yields in Germany and France were 0.6 bps lower with Spain’s 10-year yield down 2.3 bps. U.S. Treasury yields were also mostly lower. Shorter maturities were essentially unchanged while the 10-year yield fell back 2.0 bps after rising 5.7 bps on Friday. Relative to its three most heavily-weighted counter currencies, the Dollar is weaker against the Yen and Euro but up against the British pound. Renewed uncertainty around Brexit negotiations and PM May’s supported has weighed on the British Pound on Monday.


ICYMI – November 10, 2017 Weekly Market Recap: Longer yields spent the first four days of last week bouncing around within one of their narrowest ranges in almost 20 years. The 10-year Treasury yield drifted lower in the first two days of trading and the spread between the 2-year and 10-year notes fell to 68.2 bps by Tuesday’s close. That was smallest premium for holding the longer maturity since 67.2 bps ten years ago on November 6, 2007. The market’s focus shifted to Washington on Thursday and Friday and to the latest developments on the push for tax reform. Details of the Senate’s tax plan began to filter out early Thursday before the full plan was released later in the afternoon. While there were several key differences between the House and Senate plans, the delay in cutting the corporate rate to 20% until 2019 was one of the most heavily talked about. Also, on Thursday the House Ways and Means Committee approved its plan which will now go before the full House for a vote. Yields rose as the tax talk ramped up Thursday and broke the week’s quiet trend on Friday with a nearly 6 bps rise. Although the timing of the yield increase was aligned with the developments on the tax front, the decline in equities and the Dollar indicated the higher yields were unlikely a positive response to the tax news. Instead, the mid-week pivot in yields was more likely tied to a similar shift in European yields. Yields in Europe reversed higher last week after rallying sharply in the two week’s following the ECB’s latest decision on October 26. Click here to view the full recap.

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