Market Update: Wednesday, December 13, 2017

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Market Recap

  • Domestic indexes finished mixed; tax reform, Federal Reserve (Fed) meeting remained driving factors. S&P 500 Index +0.2%, Dow +0.5%, Nasdaq -0.2%.
  • Telecommunications, financials soundly led; utilities, energy lagged.
  • Negative breadth on NYSE (1.2:1), Nasdaq negative (1.2:1); slightly above-average volume (~102% of 30-day avg.).
  • 10-year Treasury yields higher; +1 basis point (0.01%) to 2.40%.
  • Commodities: WTI crude oil -1.3% to $57.26/bbl., COMEX gold near flat at $1246/oz., industrial metals broadly higher.

Overnight & This Morning

  • U.S. indexes open higher as markets continue to hold, pending central bank rate decision this afternoon.
  • European indexes mostly lower midday; Brexit negotiation developments remain a focal point. STOXX Europe 600 -0.2%, DAX -0.2%, CAC 40 -0.4%, FTSE 100 +0.6%.
  • Asian markets mostly higher at close; though Nikkei -0.5% despite positive Japanese machinery orders data. Hang Seng +1.5%, Shanghai Composite +0.7%.
  • Treasury yields dip; 10-yr. note -2 basis points (-0.02%) to 2.38%.
  • Commodities: Oil up but off early highs (+0.1% to $57.19/bbl.), gold higher at $1247/oz., industrial metals higher.
  • Economic data: Federal Open Market Committee (FOMC) meeting announcement and forecasts headline today’s docket, consumer inflation data indicated 0.4% month-over-month increase in November.

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Macro Notes

  • More signs of compromise on the tax bill. The latest reports from the congressional conference of the House and Senate tax bills indicate that the corporate rate will be increased from 20% to 21% in the final deal, with implementation delayed until January 1, 2019, moves that help pay for other compromises. Latest reports suggest the following for the final bill: 1) a $750K cap on the mortgage interest deduction (rather than $500K in the House plan or $1 million in the Senate plan), 2) a top individual rate of 37% (compared with 39.6% in both plans), 3) restoring the $10K state and local tax deduction (SALT) that was eliminated in the Senate plan, and 4) a higher deduction for pass-through entities (consistent with the Senate plan). Note that Democrat Doug Jones’ victory over Roy Moore in the Alabama senate election is not expected to have an impact on next week’s tax reform vote, although it may make it tougher for the Trump Administration to achieve other parts of its agenda in 2018 and may put the Senate majority more at risk in the midterm elections in 2018.
  • Headline inflation meets expectations, but core misses. The headline figure for the consumer price index (CPI) rose 0.4% month over month for November, meeting expectations and improving on October’s 0.1% reading. On an annualized basis, prices increased 2.2%, marking the third month in a row we’ve seen levels above the Fed’s 2% target. However, when food and energy are striped out, prices rose just 0.1% month over month, with the year-over-year gain of 1.7% falling short of October’s 1.8% and matching 2017 lows. Despite the mixed readings, the data is not likely to sway the Fed from raising its target for the federal funds rate when it wraps up its two-day policy meeting this afternoon.
  • Fed rate hike expected. The FOMC will release the statement of its latest monetary policy meeting at 2 p.m. ET today. We expect that the announcement will include a 0.25% hike in the fed funds rate. The Fed will also be providing updated economic projections and dot plots (which show the Fed’s expected future path of interest rates), in addition to Fed Chair Janet Yellen holding what will likely be her last press conference as Fed chair at 2:30 p.m. ET. Look for more details after the meeting on the LPL Research blog.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • MBA Mortgage Applications (Dec 8)
  • CPI (Nov)
  • Core CPI (Nov)
  • Real Avg Weekly & Hourly Earnings (Nov)
  • FOMC Rate Decision
  • Yellen (Dove)
  • Germany: CPI (Nov)
  • Germany: Wholesale Price Index (Nov)
  • Italy: Industrial Production (Oct)
  • UK: Jobless Claims Change (Nov)
  • Eurozone: Industrial Production (Oct)
  • Eurozone: Employment (Q3)
  • Japan: Nikkei Japan Mfg PMI (Dec)
  • Japan: Industrial Production & Capacity Utilization (Oct)
  • China: Retail Sales (Nov)
  • China: Industrial Production (Nov)

Thursday

  • Weekly Jobless Claims (Dec 9)
  • Import & Export Price Indexes (Nov)
  • Retail Sales (Nov)
  • Markit Mfg & Svs PMI (Dec)
  • Business Inventories (Oct)
  • France: CPI (Nov)
  • France: Markit France Mfg PMI (Dec)
  • Germany: Markit Germany Mfg & Svs PMI (Dec)
  • Italy: CPI (Nov)
  • Eurozone: Markit Eurozone Mfg & Svs PMI (Dec)
  • UK: Retail Sales (Nov)
  • BOE: Bank Rate
  • ECB: Main Refinancing Rate
  • ECB: Draghi
  • Bank of Canada: Poloz
  • Bank of Mexico: Overnight Rate
  • Japan: Tankan Survey (Q4)
  • China: Foreign Direct Investment (Nov)

Friday

  • Empire Manufacturing Index (Dec)
  • Industrial Production & Capacity Utilization (Nov)
  • Manufacturing Production (Nov)
  • Total Net Treasury Int’l Capital Flows (Oct)
  • Eurozone: Trade Balance (Oct)
  • ECB: Nowotny
  • Bank of Russia: Key Rate

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