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January 12, 2018

Stocks, Treasury Yields Rise on Earnings & CPI Data

Core CPI Surprises to the Upside    

Today’s release of the December CPI report showed marginal gains in headline inflation while core prices rose more than expected.  Headline CPI printed at 0.1% MoM, while the YoY figure came in at 2.1%, directly in-line with Bloomberg estimates.  However, the core inflation numbers beat estimates by 0.1%, coming in at 0.3% MoM and 1.8% YoY.  Inflation remains a critical component of the Fed’s dual mandate, and the rise in pace of core CPI suggests that the Fed will continue to assume three ¼ hikes during 2018, beginning at the March FOMC meeting.  The 10yr swap rate ended the trading session near 2.55%, up more than 2 bps on the day.  Additionally, the yield on the 2-year Treasury note crossed over 2% for the first time since September 2008.

 

 

Retail Sales Remain Steady 

Sales at US retailers rose for a fourth consecutive month during December – capping the sector’s strongest year since 2014.  Overall retail sales increased a seasonally adjusted 0.4% (+0.5% expected) last month, driven by a 1.2% bump in nonstore (online) retailers.  A likely casualty of the increase in nonstore retailers - sales at department stores fell 1.1% during December. Core  Retail sales, which excludes autos, gasoline and construction materials, increased 0.3% MoM, in-line with expectations. 

 

 

Notable Quarterly Earnings Updates

Wells Fargo & Co. (-1.1%):  Earnings per share of $1.16 vs. $1.02 expected, overshadowed by an additional $3.25 billion litigation writedown (it’s biggest yet) as a result of the fake accounts scandal

JPMorgan Chase & Co. (+0.9%):  Earnings per share of  $1.76 vs. $1.69 expected, net income of $4.23 billion during Q4 ($6.73 billion Q4 2016), impacted by enactment of the new tax overhaul and lower trading revenue

BlackRock, Inc. (+2.9%):  Earnings per share of  $6.24 vs. $6.02 expected, assets under management rose 22% during Q4

 

 

Overall, all three major US stock indices gained on the day, up 0.6%-0.8% to new record highs for a second day in a row.  The top performing sectors were industrials and consumer discretionary, while financials (minus Wells Fargo) also posted steady gains.  The S&P 500 has recorded its best first 2 weeks start to a calendar year since 2003, up 4%.  The dollar was down over 1% against the Euro to a 3 year low. In commodities, WTI crude oil gained 0.83% on the day to $64.30/barrel, up nearly $3 from where it started the week.  Gold futures also advanced during the trading session, up 0.8% to $1,332/ounce – a four-month high.

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