Daily Market Color January 25, 2018Markets Move on Talk in Davos US Dollar’s Shifting Perspectives The US dollar (USD) fell to its lowest level in 3 years against the euro early in today’s trading session as markets reacted to commentary from ECB President Mario Draghi in the press conference following the central bank’s policy meeting. Draghi was relatively dovish in his statements regarding rate hike expectations for 2018, directly referencing the uncertain future performance of the euro, especially given its recent rise “in part because of endogenous reasons, namely the improvement in the economy,” in addition to “exogenous reasons that have to do with communication, not by the ECB but by someone else.” The latter portion of the text was a direct response to U.S. Treasury Secretary Steven Mnuchin’s recent comments in support of a weaker USD and the benefits of export-led growth. However, the downturn didn’t last long. Later in the day, President Trump spoke about the USD and clarified that he felt Secretary Mnuchin’s commends were taken out of context. He further clarified that he was in support of hands off approach and he had hoped that with a stronger US economy the USD would also be stronger. “The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar,” Trump said in an interview from Davos. At the time this post was released the USD had erased all of the day’s early losses and was up modestly. New Home Sales Cool Off Key economic data releases on the day were headlined by new home sales for December, where a 9.3% MoM decline to a seasonally adjusted 625,000 pace was reported. The figure fell below median forecasts of a 675,000 rate, as purchases tumbled in all US regions, with the Midwest (-10%) and the South (-9.8%) recording the steepest dropoffs. New homes available climbed to 295,000 in December (283,000 prior month), and the outstanding inventory rose to a 5.7-month supply (4.6-month prior). Also detailed in the data, the median new home sales price increased to $335,400, a 2.6% YoY gain. OCC Looks to Initiate Volcker Amendments In regulatory news, the OCC is seeking to move forward with changes to the Volcker Rule and took the lead by circulating a proposal to the other regulators. The proposal would ease the trading restrictions imposed by the current rule on banks, enabling them to have more flexibility in making markets. In order for the regulation to be changed, all five regulatory agencies (OCC, Federal Reserve, SEC, FDIC and CFTC) would all have to agree on the revisions. While it appears that some of the trading restrictions will ultimately be eased, it will likely be a long process. Per Fed Vice Chairman Randal Quarles, the agencies have not come to a consensus and “it will naturally take a bit of work for the agencies to congeal around a thoughtful revision of Volcker. Another Record Close for the Dow Equity markets closed little changed, with the Dow having the best day. The Dow was up (+0.54%) driven by earnings and a strong forecast from 3M (MMM). The S&P (+0.06%) and NASDAQ (-0.05%) ended the day mostly unchanged. With the wild ride of the dollar, crude touched a new 2 ½ year high, before retreating and ending the day down (-0.6%) at a price of $65.21 per barrel. Gold ended the day down (-0.8%). The 10yr US Treasury rallied in the latter half of the day, closing at a yield of 2.62%, down 3 bps.
