The Market Today

TODAY’S CALENDAR

Manufacturing Output – Have the PMIs Overblown the Weakness: At 8:15 a.m. CT, the December Industrial Production report is expected to show manufacturing output increased 0.3% MoM in December.  With the domestic and global manufacturing PMIs showing weakness, of late, an increase in actual output would allay growing fears that trade negotiations are hurting real activity more than anticipated.

 

Consumer Confidence – Can Sentiment Endure Recent Market Volatility and Government Shutdown: At 9:00 a.m., the University of Michigan’s January report on Consumer Confidence will show just how much the 20% drop in stock prices damaged consumer sentiment.  According to the December report, confidence actually ticked higher.  However, the extent of the damage wasn’t fully realized until Christmas Eve.

 

Fedspeak: NY Fed President Williams is currently speaking on the outlook for the economy and monetary policy and Philadelphia Fed Bank President Harker is scheduled to speak at 10:00 a.m.

 

TRADING ACTIVITY

Yesterday – Conflicting Trade Headlines Break Up Boring Day for the Markets: A single headline sent stocks and Treasury yields surging Thursday, shaking up what was until then a rather boring day of trading. A headline rolled across traders’ Bloomberg screens just after 1:30 CT that the U.S. was considering lifting the tariffs currently in place on Chinese imports to ease pressure on markets and give China more reason to work with the U.S. on striking a deal. In a matter of minutes, the Dow went from unchanged on the day to up more than 1%. Treasury yields added to their pre-existing, modest increases that came on better-than-expected results in the Philadelphia Fed’s latest business survey and weekly jobless claims. However, as quickly as the gains came, they were cut in half. Shortly after the report surface, Treasury released a statement that “Neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation with China. This is ongoing process with the Chinese that is nowhere near completion.” Nonetheless, the WSJ stuck by its claim that the White House was “debating ratcheting back tariffs on Chinese imports,” and stocks still finished the day with healthy gains. The S&P 500 closed with a 0.8% gain and the trade-sensitive materials and industrials sectors in the first and second spots. Higher Treasury yields also stuck as the 2-year rose 2.3 bps to 2.56% and the 10-year yield added 2.9 bps to 2.75%.

 

Overnight – Talk of the White House Taking Tariffs Down Lifts Spirits Friday: Equities across Asia and Europe posted strong gains to kick-off Friday’s global session after reports Thursday indicating the White House was considering removing tariffs on Chinese goods boosted stocks stateside in the afternoon. China’s CSI 300 rose 1.8% Friday to lead a positive day across the Asian-Pacific and close at its highest level since December 13. The Stoxx Europe 600 rose 1.4% on similar gains for most national indices. The improvement halfway through Friday’s session put the index on pace for its best close since December 4. The factors behind Friday’s equity strength were also affecting other markets. U.S. crude was up 1% overnight to $52.70, on pace for its third consecutive weekly gain (longest run since early October), and at its highest level since mid-December. Core global sovereign yields were also on the rise, with the 10-year yields in France and Germany around 1.5 bps higher while Treasury yields were up around 1 bp. The 2.76% 10-year Treasury yield marked a three-week high. The 2-year yield was 1.3 bp higher at 2.58%. U.S. equity futures were caught up in the global improvement with the major indices stronger by 0.5%.

 

NOTEWORTHY NEWS

Evans Said Fed “Can Easily Be Patient”: Chicago Fed President Evans again said Fed Policy is in a position that allows officials to be patient and watch how incoming data evolves before determining if more interest rate increases are needed. He said economic fundamentals remain solid, but he does expect some deceleration in jobs growth and economic activity back toward the expected longer run trend. He also isn’t concerned about inflation getting out of hand, and therefore the Fed is “at a good point for pausing” rate normalization. He addressed the median expectation for two rate increases this year (and said his forecast is for three this year and none in 2010,) and while he acknowledged that it could turn out to be less than that, he wouldn’t be surprised to have at least one before the year is up.