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June 1, 2016

Domestic Manufacturing Data Helps Investors Look Past Gloomy OECD Report

US stocks are paring early losses while Treasuries rallied in the early morning and are now selling off after strong US factory data overshadowed mediocre manufacturing reports abroad and a fall in oil prices.  We walked in this morning to pressure on risk assets after overnight readings on manufacturing in China and the euro area showed mediocre expansion.  China’s official factory activity gauge showed only tepid growth, while the Caixin Manufacturing PMI slid deeper into contraction with its weakest reading since February.  During the European session, Germany, Spain, and Italy all...

May 31, 2016

All Eyes on Incoming Data After Friday's Comments from Yellen

After opening slightly positive, US stocks are trading under pressure while Treasurys opened lower and are now rallying marginally as investors react to Friday’s comments from Fed Chair Yellen and a variety of new economic releases.  In an appearance at Harvard during Friday’s holiday-shortened trading day, Yellen said that if the economy continues to improve as she expects, a rate hike would be appropriate “in the coming months”.  Yellen’s comments echo several of her colleagues who have advocated for a rate hike in recent weeks, suggesting a hike in June or July is very much on the table...

May 27, 2016

Quiet Trading Ahead of Yellen and Holiday Weekend

To the surprise of no one, both US stock and bond markets are trading sluggishly ahead of the early close and holiday weekend.  Fed Chair Yellen’s question and answer session with renowned Harvard economist Greg Mankiw this afternoon is the wildcard, with some market participants pushing back vacation plans in order to hear what she has to say and gauge market impact.  Yellen may not provide any new information about monetary policy, but the mere prospect is enough to warrant attention.  The discussion is set to begin at 1:15pm EST, with a hard stop at 2:00pm.  Yellen’s comments come one...

May 26, 2016

Investors Brace for Yellen's Speech Ahead of Holiday Weekend

US stocks are struggling for direction while Treasuries are rallying across the curve after a variety of new data releases and ahead of tomorrow’s speech from Fed Chair Yellen.  Some market pundits have interpreted Yellen’s recent silence as support of her colleagues’ talk of an impending rate hike.  She will receive the prestigious Radcliffe award at Harvard, and will also be interviewed by renowned Harvard professor Greg Mankiw.  Markets expectations have shifted in recent weeks after hawkish rhetoric from several regional Fed presidents, but it’s important to keep in mind that many of...

May 25, 2016

Growing Comfort With Prospect of Fed Tightening Boosts Risk Assets

US stocks are following emerging market stocks higher while Treasuries are trading flat as investors get used to the idea of another interest rate hike this summer.  Strong recent economic data and upbeat comments from Fed officials have raised expectations for a rate hike in June or July, much sooner than previously factored in market trading level.  The combination of a weaker dollar, rising commodity prices, a new debt deal for Greece, and growing UK voter support for the UK remaining in the EU, have provided stability to financial markets and created a more optimistic backdrop that the...

May 24, 2016

Markets optimistic as global equities and dollar climb on Fed bets

It's a feel good market today.  European stocks rallied overnight, the dollar is firmer against the Euro and Yen, energy and ag prices are firmer, US stocks are higher and the economic data is positive.  The most eye-popping news this morning was the US New Home Sales for April, which rose 16.9% to 619,000 annualized run rate vs. expectations of 523,000.  This gap up was the largest monthly increase in over 24 years, and brought new home sales activity up to the highest absolute level since the financial crisis.  Median new home sales price was up and the inventory of new homes available...

May 18, 2016

Risk On Sentiment Ahead of April FOMC Minutes

US stocks are trading higher while Treasuries are selling off across the curve ahead of this afternoon’s release of the April FOMC minutes.  A recent string of stronger-than-expected economic data and hawkish comments from Fed officials have caused investors to reconsider their outlook for near term future Fed policy.  Following Friday’s upbeat retail sales report and yesterday’s jump in CPI, Dallas Fed President Kaplan said he may advocate for a rate hike in June or July, and two other regional Fed presidents said they expect 2-3 rate increases this year.  Further fueling the reassessment...

May 17, 2016

Robust US Economic Data Puts Fed in Focus

US stocks are paring some of yesterday’s gains while the Treasury curve is flattening after a series of robust US economic releases boosted Fed tightening speculation.  The primary driver was April CPI, which showed consumer prices increased the most in over three years last month.  Rising rents and an 8.1% surge in gasoline prices were the main contributors to the largest gain in CPI since February 2013.  Headline CPI has now increased 1.1% over the last 12 months, up from 0.9% in March, while core prices have risen 2.1% y-o-y.  Separate reports showed new housing starts rose more than...

May 16, 2016

Rally in Oil Prices Boosts Investor Sentiment

US stocks are opening the week higher while Treasuries rates are moving up across the curve as higher oil prices has boosted investor appetite for risk assets.  Both WTI and Brent crude rallied close to 3% (up over 80% from Feb lows) off the back of continued supply disruptions in Nigeria and a bullish report on the commodity from Goldman Sachs.  Goldman, which had previously been bearish on oil supply/demand fundamentals, said “the physical rebalancing of the oil market has finally started”.  Goldman believes the market shifted into a deficit in May, driven by “sustained strong demand as...

May 13, 2016

Robust Retail Sales Spark Fed Speculation

US stocks and Treasuries both bounced as investors weighed the implications of the better-than-expected retail sales report.  The Commerce Department said retail sales surged 1.3% in April, the biggest gain since March 2015, and easily exceeding the 0.8% increase economists were forecasting.  The strength was broad-based, with 11 out of 13 major retail categories experiencing increases last month.  The data suggests the US economy may be gaining traction after a sluggish start to the year for the consumer, which could have implications for Fed policy.  The strong data followed yesterday’s...

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