Market Update: Wednesday, February 14, 2018

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Market Recap

  • Domestic equities closed higher for third consecutive day; overall calm trading with focus shifting back towards corporate earnings and upcoming economic releases. S&P 500 Index +0.3%, Dow +0.2%, Nasdaq +0.5%, Russell 2000 +0.3%.
  • Consumer discretionary, REITs, financials led sector performances. Materials and energy, following oil over-supply concerns, lagged.
  • Treasuries reversed slide. 10-year yield -4 basis points (0.04%) to 2.82%.
  • NYSE breadth positive (1.3:1), trading volume was very light (80% of 30-day average).
  • Commodities: WTI crude oil dipped slightly (-0.2% to $59.19/bbl.), COMEX gold advanced +0.8% to $1331.20/oz., industrial metals closed mixed.
  • Economic data: Release calendar was light for the trading day. Recent infrastructure proposal meeting expected skepticism over potential deficit increase and possible cuts to funding for various government institutions.

Overnight & This Morning

  • U.S. equities higher; follows lower opening and this morning’s January inflation reading that came in above expectations (details below).
  • European stocks broadly higher. Positive performance follows in-line Eurozone gross domestic product (GDP) results (2.7% year over year) and strong revised industrial production growth figures (up from 3.7% to 5.2% year over year). FTSE 100 +0.7%, STOXX Europe 600 +0.7%, DAX +0.7%.
  • Asian markets closed mixed, Japanese market lagged after softer-than-expected Q4 GDP figures, appreciating yen. Nikkei -0.4%, Shanghai Composite +0.5%, Hang Seng +2.3%.
  • Treasury yields reacting to inflation data; 10-year yield +5 basis points to 2.87%.
  • Commodities: Oil prices resume slide -0.8% at $58.7/bbl.; gold strengthens +0.2% to ~$1333/oz.; industrial metals mostly higher; USD -0.4% against yen, softening against euro, pound.
  • Economic releases: January core inflation figures came in slightly above expectations (0.3% vs. 0.2%); indicates potential for further upward pressure on interest rates. U.S. retail sales month over month data fell short of consensus (-0.3% vs. +0.3%, details below).

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Macro Notes

  • Overseas GDP data. A series of Q4 GDP data released on Wednesday mostly met expectations (Eurozone +2.7%, Germany +2.3%, Italy +1.6%); France (+3.4% versus 3.2% consensus) and Portugal (+2.4% versus +2.2%) topped consensus, while Japan (+0.5%) came in softer than expected versus the prior quarter but was in line on a year-over-year basis. Though the figures are preliminary estimates, the data continue to indicate sustained-to-improving overall growth in developed economies.
  • Stocks reversed earlier losses and bond yields rose after consumer prices rose more than expected. The Consumer Price Index (CPI) rose 0.5% in January month over month, above the 0.3% consensus forecast, while core CPI, excluding food and energy, rose 0.3% versus 0.2% consensus. Year-over-year CPI and core CPI rose 2.1% and 1.8%, respectively, compared to consensus expectations of 1.9% and 1.7%. Gains were particularly strong in apparel (which could have to do with the winter weather). While the market has little tolerance for higher inflation after the recent correction, and the report does, on the margin, increase the likelihood that the Federal Reserve (Fed) hikes more than three times this year (we still expect three), keep in mind that: 1) higher prices are a symptom of a healthy economy, 2) the Fed’s preferred inflation measure (core Personal Consumption Expenditures Price Index) was 1.7% in December and has generally been lower, 3) inflation is historically low, with core CPI having spent virtually the entire decades of the 60s, 70s, 80s, and 90s above 3%, and 4) January data is ripe for distortion. For additional detail on inflation, see our post later today on the LPL Research blog.
  • Retail sales miss, weighs on markets this morning. Consumers spent less in January than economists were expecting, with retail sales falling 0.3% month over month, versus +0.3% consensus, while core sales (ex-autos) were flat. In addition, December figures were downwardly revised to flat from +0.4%. The decline was fairly broad based across categories, led down by a 2.4% monthly drop in weather-sensitive building supplies. This data suggests consumer spending may slow from the 3.8% annualized pace in the fourth quarter, though it is important to keep in mind weather-related distortions are common in January and on a year-over-year basis, retail sales are up more than 5%, with or without lumpy auto and gasoline sales.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • CPI (Jan)
  • Core CPI (Jan)
  • Retail Sales (Jan)
  • Business Inventories (Dec)
  • Eurozone: GDP (Q4)
  • Germany: GDP (Q4)
  • Italy: GDP (Q4)
  • Eurozone: Industrial Production (Dec)
  • Japan: Core Machine Orders (Dec)
  • Japan: Industrial Production and Capacity Utilization (Dec)

Thursday

  • Empire State Mfg. Report (Feb)
  • PPI (Jan)
  • Philadelphia Fed Mfg. Report (Feb)
  • National Association of Home Builders Housing Market Index (Feb)
  • Total Net TIC Flows (Dec)
  • Eurozone: Trade Balance (Dec)

Friday

  • Import & Export Price Index (Jan)
  • Housing Starts & Building Permits (Jan)
  • of Mich. Sentiment (Feb)
  • China: New Loan Growth and Money Supply (Jan)

 

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

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