Fed and Flynn

February 15, 2017

Markets are trading on two themes primarily:

  • How quickly¬†will the Fed raise interest rates again? Yellen’s testimony yesterday and separate remarks by Fed District Presidents Kaplan and Lacker suggest a third increase is coming pretty soon and need not be delayed pending clarification of fiscal and other policy changes. Yellen reprises her testimony before the House Financial Services Committee today, and U.S. consumer price data today are expected to show further acceleration in inflation. The ten-year Treasury yield is at a 2-week high, and commodity-sensitive currencies are trading firmly.
  • On whose instructions did former National Security Advisor Flynn contact the Russians prior to Trump’s inauguration? What is more disturbing — the fact that such overtures were leaked, or the fact that the Kremlin with perhaps the Trump campaign’s complicity tried to influence the 2016 U.S. election, or why the new U.S. administration is so enamored with what Reagan called the evil empire? The lack of a coherent U.S. foreign policy team is a big source of market uncertainty.

Sterling continues to slip, touching a 4-week low, as the dollar gained another 0.4%. The dollar also has risen 0.3% against the euro and peso and by 0.2% relative to the yen, Swissie and yuan. But commodity-sensitive currencies such as the New Zealand and Australian dollars but especially the South African rand rose even more than the U.S. dollar.

Comex gold firmed 0.2%, and industrial metal prices are higher. But West Texax Intermediate crude oil slipped 0.6% to $52.87 per barrel. Weekly U.S. oil inventories will be reported today.

Ten-year sovereign debt yields edged down a basis point in Japan, the U.K., France and Italy.

Japan’s Nikkei closed up 1.0%, and the Hang Seng index advanced 1.4%. In Europe, stocks have thus far risen 0.6% in Switzerland, 0.5% in France and Spain, 0.4% in Britain and Italy and 0.3% in Germany.

Although the Swedish Riksbank didn’t change its negative 0.50% repo rate, the latest Executive Board meeting agreed that a rate cut in the near term is likelier than a hike. Officials will continue quantitative stimulus and intervention to limit krona strength.

Euroland recorded a EUR 273.9 billion merchandise trade surplus in 2016, up from EUR 238.7 billion in 2015. Exports rose 0.3%, while imports fell 1.6%. The seasonally adjusted surplus in December of EUR 24.5 billion was the largest since April. Exports advanced 2.8% on month and 5.9% on year in December.

British unemployment claims plunged 42.4K in January. Analysts had expected a tiny rise. Total wage earnings were 2.6% greater in the fourth quarter than a year earlier. The ILO-basis unemployment rate was 4.8% last quarter.

Australian consumer confidence jumped 2.3% this month according to the Westpac measure. Aussie motor vehicle sales rose 0.6% on month but fell 0.9% on year in January.

South Korean unemployment stayed at 3.5% last month. On-year growth of 0.4% in Singaporean retail sales in December was less than forecast.

After plunging 1.8% in November, Mexico’s index of leading economic indicators steadied with a rebound of 0.2%.

Spanish CPI inflation doubled to 3.0% in January. Danish producer prices posted a higher 4.1% on-year rise that month.

Lots of U.S. data get released today, led by the CPI but also including retail sales, industrial production, existing home sales, the National Association of Home Builders index, Treasury-compiled capital flows (known as TIC data), and the Empire State manufacturing index. Canada’s monthly survey of manufacturing sales, inventories and orders arrives as well.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

 

 

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