Stocks push higher and rates relatively flat

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Published Date 2/12/2018

We’re starting out the week with a feeble smile — not a confident one in terms of what to expect. While stock indexes traded higher prior to 9:30 am EST, and the 10-yr note opened slightly higher, and interest rate markets traded in a more orderly fashion, two weeks of very high levels of volatility in stocks have us watching the markets like a hawk. The consensus now is for more equity market volatility in the US and global equity markets. Hard to find many bulls to offer us a more positive, wider outlook. We’re hearing most guest experts on the three financial networks continuing their fears and expecting stocks may decline even more. And while we are a little more optimistic, we still have to expect more investors are suffering PTSD from the recent decline, even though it was inevitable and professional traders and investors should have known better. History is rife with examples of excess froth as well as the reaction when it ends.

Last week markets didn’t have much economic data. This week a lot of key reports are due: CPI, PPI, retail sales, Philly Fed, industrial production, NAHB housing market index, and January housing starts and permits. Last week the Treasury auctioned $66B of notes and bonds but found little demand; this week there is no Treasury borrowing expected, but markets will get the January Treasury budget.

Pres. Trump is expected to lay out his infrastructure plans today. According to news, he proposes to spend $200B over the next 10 years for bridges, roads, airports, and rail, expecting the spending to spark hundreds of billions more from local governments and private investors to pay for the upgrades, resulting in $1.5 trillion in new investment. The infrastructure plan is part of the 2019 budget (one of those oxymorons that define Washington politics). The administration said it will also request higher outlays for the military, border security and veterans medical care.

The last two weeks the focus has been on equity markets. Not a lot of headline news about cryptocurrencies; they are still out there, but their combined value has been cut in half, from $800B to $400B as global regulators are sharpening their focus on the air currencies. A Ponzi scheme, a tax dodge and an environmental disaster — and that is merely a fraction of the criticism that regulators have thrown at cryptocurrencies in the past week alone.

It’s all about watching the stock market again today. Interest rates are headed higher over the wider perspective, but last week and likely this week rate markets, as well as the bond and mortgage markets, should remain within recent ranges. The Fed is expected to increase the Federal Funds rate at least three times this year with the first increase at the March FOMC meeting on the 21st of March. Inflation worries have gained momentum with stocks falling; so far though the inflation rate is below the Fed’s 2.0% target. Wednesday and Thursday, Jan CPI and PPI, as well as Jan export and import prices, will be reported.

This Week’s Calendar:

Monday

2:00 PM Jan Treasury budget (-$51B)

Tuesday,

6:00 am Jan NFIB small business optimism index (105.8 frm 104.9 in Dec)

Wednesday,

7:00 am weekly MBS mortgage applications

8:30 am Jan CPI (+0.3%, yr/yr +2.0%; ex food and energy +0.2%, yr/yr +1.7%)

Jan retail sales (+0.3%, ex auto sales +0.5%)

10:00 am Dec business inventories (+0.2%)

Thursday,

8:30 weekly jobless claims (+8K to 229K)

Jan PPI (+0.4%, ex-food and energy +0.2%)
Feb NY Empire Sate manufacturing index (17.5 from 17.7 in Jan)
Feb Philadelphia Fed business index (21.5 from 22.2 in Jan)

9:15 am Jan industrial production and factory use (production +0.2%, factory use 78.0%)

10:00 am Feb NAHB housing market index (72, unch from Jan)

Friday,

8:30 am Jan housing starts and permits (starts 1230K +3.10%, permits 1300K +0.2%)

Jan import and export prices (imports +0.6%, exports +0.3%)

10:00 am Feb mid-month U. of Michigan consumer sentiment index (95.5 from 95.7 in Jan)

Source: TBWS

All information furnished has been forwarded to you and is provided by thetbwsgroup only for informational purposes. Forecasting shall be considered as events which may be expected but not guaranteed. Neither the forwarding party and/or company nor thetbwsgroup assume any responsibility to any person who relies on information or forecasting contained in this report and disclaims all liability in respect to decisions or actions, or lack thereof based on any or all of the contents of this report.