The Market Today

Trump Still Pushing for Healthcare First, Then Taxes

by Craig Dismuke, Dudley Carter

Today’s Calendar – Mortgage Applications Tick up; Import Prices See relief from Oil Stabilization:  Mortgage applications for the week ending April 7 rose 1.5% on a 2.9% increase in purchase apps and unchanged refinance apps.  Looking at the 4-week moving averages (see Chart of the Day), purchase apps have settled into a range that is improved from the 2013 drop but have struggled to break higher over the past year. Applications for refinance continue to remain very low.  Also released this morning, import prices for the month of March fell 0.2% which brought the YoY rate down from 4.8% to 4.2%.  The impact of oil prices stabilizing should begin to show up in the data now with February price reports being the last to incorporate such a large YoY rate of change in oil prices.  Treasury’s Monthly Budget Statement will be released at 1:00 p.m. CT.  Dallas Fed Bank President Kaplan is on the tape this morning at 9:00 a.m. although he has been on the tape enough lately that we do not expect to hear anything new.  Secretary of State Tillerson travels to Italy and Moscow today for what could be interesting discussions with Russian President Putin.


Overnight Activity – Risk-Off Eases as Oil Continues to Climb: Yesterday’s bid for safety relented somewhat in the overnight session in the face of ongoing geopolitical uneasiness. Gold prices and the Yen both pulled back from yesterday’s five-month highs. Sovereign yields in Europe are mixed with the German bund curve largely unchanged and peripheral yields slightly higher. Treasury yields continue to move lower with the 10-year down 1 bp at 2.29%, its lowest yield of the year. Equities have traded unevenly across both Asia and Europe but the pan-European Stoxx Europe 600 is 0.2% higher and at a more-than-16-month high. U.S. equity futures depict less positivity with S&P contracts off 0.2%. First quarter earnings season is underway and will add another layer of complexity for traders and investors. Oil prices continued to rise on yesterday’s bullish U.S. inventory indications and speculation Saudi Arabia will support a six-month extension of the current production cuts. Crude is up more than 12% since extension rumors began in earnest back on March 27.


Yesterday’s Trading Activity – Stocks Trim Mornings Losses but Risk-Off Rules: The geopolitically-driven risk-off pressure on U.S. stocks eased after an early morning drop but bond bulls had a heyday pushing Treasury yields back to the low end of recent trading ranges. The situation in North Korea grew more tense after the country’s state-run newspaper warned of a nuclear response to any aggression from the U.S. and President Trump tweeted America would go it alone in handling North Korea should China decide not to step up to the plate. The 2-year yield fell 4 bps to 1.23% as the 5-year yield shed 6.9 bps to 1.83% and the 10-year dropped 7.0 bps to 2.30%; each representing the biggest daily declines since the Fed raised rates on March 15 but disappointed expectations with an unchanged Dot Plot. Tuesday’s flight to quality flattened the curve for a third day with the premium for 10s over 2s falling 3 bps to 1.06%, the smallest since the election. Risk-off was also evident elsewhere. The Yen climbed to its strongest level against the Dollar since mid-November and gold surged to a five-month high. A weaker Dollar added a boost to a positive trade in oil that pushed the commodity to a five-week high. Industry data predicted official data will show a drawdown of U.S. inventories of crude, gasoline, and distillates.


White House Meeting with Business Executives on Government Shutdown, Healthcare Legislation, Tax Reform from Politico Interview with Participant (from Morning Money): “The White House is very confident they will get a continuing resolution at the end of the month avoiding a shutdown on Trump’s 100th day in office. They are disappointed they won’t be able to enact their budget agenda as part of the CR but know they can’t risk an embarrassing shutdown. ‘It’s a fight they know they can’t have and can’t win,’ one participant said. They are a long way off from having a tax plan.”


Trump Wants Healthcare then Tax Reform According to Interview with Fox Business’ Bartiroma: “’We’re going to have a phenomenal tax reform, but I have to do health care first … I want to do it first to really do it right … health care’s gonna happen at some point … Now, if [healthcare] doesn’t happen fast enough, I’ll start the taxes … But the tax reform and the tax cuts are better if I can do health care first.”


JOLTS Report Steady in February: The February JOLTS report, released yesterday, continued to signal stability in the U.S. labor market. Job openings improved for a second month to their highest level in the last seven. Readings on hiring and quits, both positive indicators of labor market strength, both moderated in the second month of the year. The hiring rate dropped to 3.6% and the quits rate fell to 2.1%, both representing 0.1% decline. Layoffs data remained solid, consistent with steady jobless claims data, drifting to a five-month low. Overall, the JOLTS report does little to change the overall synopsis of a steadily improving U.S. labor market.

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