Daily Market Color

Risk Assets Gain on Positive Data

US financial markets held within a tight range today as trading volumes remained thin during the holiday shortened week.  Treasurys reversed a portion of yesterday’s rally, and yields/swap rates are currently 1-3 bps higher across the curve.  The yield on the 10-year note is currently hovering near 2.43% heading into tomorrow’s early market close trading session.  All three major US stock indices edged higher for a second consecutive session as the DJIA closed at a new record high, driven by gains in the utilities and communications sectors.  The dollar slipped 0.4% against major currencies on its way to a new three-week low.  In commodities, WTI crude climbed 0.5% to just under $60/barrel, while copper rose for a 16th consecutive day to its highest level in four years.



Data Remains Robust

Key economic data releases on the day began with the Commerce Department’s report on the US goods trade deficit.  Influenced by imports rising 2.7% to a record high of $203.4 billion, the trade gap widened to $69.7 billion during November ($67.9 billion deficit expected).  Exports of US-made goods also increased significantly, up 3% to a three-year high of $133.7b as demand for automobiles and consumer products climbed.  A separate report this morning provided the advance readings for retail and wholesale inventories for November.  Growth in wholesale inventories recovered last month, accelerating to +0.7% MOM (vs -0.4% previous month), while retail inventories edged 0.1% higher last month (vs -0.1% in October).



Other key economic data points released today included a report from the Labor Department which showed the number of new jobless claims for the week ended December 23rd holding steady at a seasonally adjusted 245,000 (240,000 expected).  The four-week moving average of claims rose slightly by 1,750 to 237,750, much better than the 300,000 threshold typically associated with a healthy labor market.  Also detailed in the report, the number of continuing claims rose by 7,000 to 1.943 million for the week ended December 16th.



Italian Election on the Horizon

In Europe, Italian President Sergio Mattarella captured headlines earlier today after he dissolved parliament and announced his plan to hold national elections in the beginning of March.  As the euro zone’s third-largest economy, Italy now faces the potential for a “hung parliament”, with votes expected to be split between the anti-establishment 5 Star Movement, Prime Minister Paolo Gentiloni’s Democratic Party and the center-right coalition led by Forza Italia.  The news was not welcomed by Italian investors, as the nation’s economy remains the only G-7 country having not returned to its pre-2008 financial crisis market level.  10-year Italian government bond yields rose 4 basis points to 1.96% following the news, representing the highest 10-year country debt yield in the euro zone, with the exception of Greece.       


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