Robust Manufacturing Data Leads US Dollar Higher as Oil Retreats

Global Growth Seen in Manufacturing Data  The Institute for Supply Management (ISM) released its monthly report today, and the index was up more-than-expected to a reading of 54.7 for December, the highest level in two years.  The increase marks the fourth straight monthly rise, fueled principally by a surge in new orders, which jumped to 60.2 from a November mark of 53.0.  The overall new orders level was the strongest print since November 2014, with export orders rising to 56 in December from 52 the previous month.  Manufacturing employment similarly rose, increasing 0.9 points MoM, as a brighter outlook in the sector prompted additional hiring at plants.  Strengthening consumer confidence in the second half of 2016 was cited as a catalyst, however an appreciating dollar may negatively impact export orders going forward, and offset some of that enthusiasm.  Boosted by the robust ISM data, the US dollar rose as much as 0.7% on the day to a new 14 year high.  The dollar gained 0.6% against the Japanese yen to 118.19 JPY/$, a two-week high, and added 0.4% against the euro ($1.0411/euro).  

Oil Finishes Down After Hitting 18-Month High  
Crude oil prices began the session trading above $55/barrel as news of output reduction in Kuwait spurred the commodity to its highest contract price since July 2015.  The 130,000 barrel per day announced cut by Kuwait provided optimism in the deal amongst oil-producing nations that officially took effect January 1st.  Also contributing to the positive sentiment, non-OPEC producer Oman released a statement that the country would reduce its production volume by five percent beginning in March.  However, the price of crude oil retreated following concerns over increased production from nations not participating in the agreement, such as Libya and the United States.  Libya recently reported an 85,000 bpd increase during December to a total of 685,000 bpd, while rigs used for crude oil in the US rose to the highest level in nearly a year.  The rising US dollar also contributed to today’s 2.5% decline in crude oil, pushing down WTI crude to $52.25/barrel and Brent crude to $55.40/barrel.  

All three major US stock indices are currently up 0.25% to 0.50% in 2017’s first trading session.  US Treasurys have fluctuated throughout the day, with a 2-5 bps sell-off across the curve to begin the day, giving way to a rally in longer term maturities as we approach the close.  The yield on the 10-year Treasury has settled back down to near even for the day at 2.44% after trading above 2.50% earlier.