Market Update: Friday, February 10, 2017


  • Stocks look to end week at record highs. (9:53am ET) The Dow, S&P 500, and Nasdaq all closed at record highs Thursday, and will look to do so again today as markets move up in early trading. All three indexes gained 0.6% yesterday, as the heavily-weighted financials sector (+1.4%) tracked higher with Treasury yields; small caps also outperformed with the Russell 2000 advancing 1.4% as well.  Overnight in Asia, Japan’s Nikkei jumped 2.5% as the Bank of Japan (BOJ) increased its bond purchases; other indexes in the region were modestly higher. European stocks are near their flat lines in the afternoon session (STOXX Europe 600, +0.1%), with the exception of Italy’s MIB, which is down 0.6%. Finally, Treasury yields are moving higher again, with the yield on the 10-year note up 2 basis points (0.02%) to 2.42%, WTI crude oil (+1.6%) is pushing towards $54/barrel and COMEX gold ($1230/oz.) is down 0.6%.


  • Chinese trade expands. Data released this morning show expansion in both imports and exports when measured in both yuan and U.S. dollars; all figures were much larger than expected. The increase in exports suggests that the weaker yuan (4% decline in fourth quarter 2016) boosted exports. Although the data suggest an improving Chinese and global economy, data this time of year (given the importance of the New Year’s Holiday) can be very erratic and need further confirmation.
  • They said it couldn’t be done. For some very legitimate reasons, many oil market participants have questioned whether OPEC members would adhere to the production cuts agreed to at the November 30, 2016 meeting. OPEC members have a history of cheating. However, there has been a high degree of compliance with cuts several months into the latest agreement. Some countries, notably Saudi Arabia (still the most important country in OPEC), have actually reduced output more than they had agreed upon. This reduction has kept oil prices stable even as U.S. production has increased. This may make negotiations easier when the deal comes up for renegotiation this spring.
  • Tax reform takes center stage. One of the bigger challenges with the Trump agenda has been predicting how his administration will prioritize policy efforts. Of particular interest are the competing priorities of healthcare overhaul and tax reform. President Trump said yesterday that he will announce something “phenomenal” on taxes over the next two to three weeks, while his spokesman Sean Spicer, to the surprise of many, indicated personal tax reform will be included. The news gave stocks a lift yesterday and, although disappointment is possible, increases the likelihood that comprehensive tax reform is completed by year end, contrary to recent speculation that healthcare efforts would push tax reform into 2018.
  • Busy calendar next week includes Yellen testimony. Fed Chair Yellen’s semiannual monetary policy testimony to Congress highlights next week’s very busy economic and event calendar. In addition to Yellen, a half dozen other Fed officials are on the docket next week, as markets gauge whether or not the Fed will raise rates at its March 2017 meeting. The data due out next week on January CPI, retail sales, leading indicators, housing starts and industrial production, along with February reports on Empire State and Philadelphia Fed manufacturing and housing market sentiment, will weigh on the Fed’s decision. Overseas, Q4 GDP reports are due out in Japan, the Eurozone, Poland, and Malaysia, along with the always timely ZEW report (February) in Germany. There are no major central bank meetings next week.


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