Daily Market Color

Despite Geopolitical Tension, Risk On!

Retail Sales Beat Estimates

For the first time in four months retail sales (MoM) reported higher than forecast – with the 0.6% increase in retail sales exceeding the median estimate of 0.4%.  In the prior month, retail sales had decreased 0.1%.  While auto sales were a leading driver of this increase, there were meaningful increases in sales of electronics, furniture and at health stores.  These gains seem to support the Fed’s view that the weakness last month was transitory.  In addition this could be a harbinger of stronger future consumer behavior given the tax changes passed last year. 


Risk On, Despite Geopolitical Risk

Major US stock indices posted gains as the market focuses on earnings, in spite of the growing geopolitical tensions over Syria.  The DJIA led the way with a 0.9% gain, +0.8% for the S&P 500 and a Nasdaq gain of 0.7%.  US Treasurys were mostly unchanged, as yields/swap rates were up 0-1bp across the curve.  The 10-year note yield was also largely unchanged closing at a yield of 2.83%.  The US Dollar was down against both the Euro (EUR) and the Pound (GBP), down 0.4% and 0.7% respectively.  Crude Oil Futures fell today again on easing concerns over conflict in Syria, falling to $63.39 – down 1.5%.


NY Fed President Dudley Speaks to CNBC

William Dudley, the NY Fed President, who is set to retire in June and is due to be replaced by current SF Fed President John Williams, gave CNBC an exclusive interview on Monday morning.  While Dudley wouldn’t commit to a set number of rate hikes coming this year, he did confirm the general market view that a range of 3 – 4 hikes for the year, including the rate hike at the March meeting, seems most likely.  Dudley alluded to the possible need to diverge from the gradual approach if the 2% inflation target was significantly breeched. “As long as inflation is relatively low, the Fed is going to be gradual. Now, if inflation were to go above 2 percent by an appreciable margin, then I think the gradual path might have to be altered.” 

Volcker Rule Update Passes the House

On the regulatory front, the U.S. House of Representatives paved the way to name the Federal Reserve as the primary regulator for the Volcker Rule by a vote of 300-104 on Friday. Having all of the prudential regulators oversee this activity has caused a great deal of confusion and the goal is to streamline the oversight and enforcement process. Having the Federal Reserve as the primary regulator would give them the sole authority to enforce this law without input from the other regulators. The bill had a great deal of bipartisan support and there is hope that it may get included in the larger financial bill circulating in Congress. In order for the Federal Reserve to officially be appointed the primary regulator, the bill must be approved by the Senate and signed by President Trump.  

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