Daily Market Color November 17, 2016Stocks Rally, Bonds Tumble Following Economic Data, Yellen Commentary Jeff Davenport Robust Economic Data Presents Upbeat Outlook Investors received a bevy of encouraging data today that painted a positive picture for the US economy as the end of 2016 draws near. Consumer prices gained 0.4% in the month of October, matching expectations at a level which was one of the two highest readings for this inflation measure since 2013. Rising gasoline and rent costs served as major contributors to the headline figure, while healthcare prices showed some softness. While core inflation rose less than predicted at just under 0.15%, housing prices, which comprise more than 40% of core inflation, showed steady growth at +0.36%. Adding to the bright outlook, the number of housing starts from last month were reported at an annualized pace of 1.32 million units, up 25.5% from September and eclipsing median forecasts of 1.17 million units. The MoM change stands as the largest increase since 1982, with multi-family starts surging 68.8% and reversing the 38% plunge recorded in the previous month. A third key report released today, the Labor Department’s weekly jobless claims, provided further evidence that the economy may be approaching full employment. Coming in better than forecast at 235,000 (vs. exp. 257,000), initial jobless claims touched their lowest level in more than four decades. The four-week moving average shifted down to 253,500 after the weekly filings reported a sub-300,000 reading for the 89th consecutive week. Yellen Confirms Path Towards Rate Hike Speaking at a Congressional testimony hearing today, Fed Chair Janet Yellen advised that the results of the US Presidential election will not directly impact any future decisions at FOMC meetings. Yellen went on to state that should the economy continue to show strength, an increase in borrowing rates would be appropriate “relatively soon.” The market-implied probability for a December rate hike currently resides at over 95%. She further explained that a “gradual” pace of rate increases is the current expectation of Fed officials and has not wavered from recent projections. Although it is well documented that President-elect Donald Trump has been critical of past Fed decisions (often publicly calling for Yellen to be replaced), today the Fed Chair announced her plan to carry out the remainder of her tenure. “I was confirmed by the Senate to a four-year term, which ends at the end of January of 2018, and it is fully my intention to serve out that term,” she said. Stocks, US Dollar Climb as Bonds Fall with Data, Yellen Comments Today’s economic data and commentary from Janet Yellen were well received by equity investors, prompting the S&P 500 to near a record high (2,186, +0.4%) while the DJIA added to yesterday’s historical level as financial shares continued their post-election rally. The US dollar also held on to its highest level in nine months against major currencies today, gaining an additional 0.4% against the Japanese yen following the enactment of the BoJ’s bond buying program last night which drew no interest. Japanese Prime Minister Shinzo Abe is also scheduled to meet with Donald Trump this afternoon in New York. Bond prices experienced losses on the day following the strong data and Yellen’s hawkish comments, with Treasury yields/swap rates adding 2-8bps across curve. The yield on the 10-year Treasury is up 6 basis points on the day to 2.285%. Crude oil prices also fell today, as WTI shed 1.1% to $45.05/barrel and Brent dropped 0.95% to $46.20/barrel.