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Consumer, Labor Data Prompt Decline in Treasurys as Stocks Rise

Highlighting today’s economic data, retail sales reported a 0.6% rise in December, just below median forecasts of a 0.7% increase and notably above November’s revised figure of +0.2%.  Auto sales, while generally not the main focus of the December retail sales report, represented a significant portion of the growth, as sales at dealerships rose at the fastest monthly pace since April at 2.4%.  Excluding auto sales, monthly purchases increased 0.2%, coming in below expectations of 0.5%, creating some doubt regarding the consumer spending outlook for 2017.

In a separate report released by the Bureau of Labor Statistics, producer prices came in +0.3% MoM growth in December, in-line with expectations and lifting the year-on-year increase to 1.6%.  The Producer Price Index has now risen for the second consecutive month and currently reflects the largest y-o-y gains in two years.  Monthly change in food (+0.7%) and energy (+2.6%) prices were the biggest contributors, while transport services (-0.4%) and construction prices (-0.1%) weighed down on the overall PPI figure. 

On the regulatory front, the Republicans are diligently working to follow through on their promise to reduce the regulatory burden on financial firms. The House passed legislation yesterday that would require both the CFTC and the SEC to perform a thorough cost benefit analysis prior to implementing new regulations to ensure that the benefits would outweigh the financial burden. Additionally, the bill prevents the CFTC from implanting commodity position limits, which has been a contested issue since the Dodd Frank Act went into effect. While the bill would dramatically slow the passing of new regulation, it also could impact the speed at which existing regulations could be modified or repealed.  It will now move to the Senate where it will face more opposition since support from some of the Democrats is needed.
 
All three major US stock indices were in the green throughout the majority of the day, with the S&P 500 and Nasdaq finishing up 0.2% and 0.5%, respectively, while the DJIA fell to just below flat before the close.  Treasury prices declined during the trading session as yields/swap rates added 2-4 bps across the curve, with the yield on the 10-year note rising just below 2.40%.  Oil prices halted their rally heading into the weekend.  A decline of roughly 0.75% on the day pushed WTI crude to $52.55/barrel and Brent crude to $55.60/barrel.
 
Most banks and the stock, bond and swap markets will be closed this Monday, in observance of the Martin Luther King holiday.
 
Have a good weekend. 

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