Daily Market Color

Stocks Rebound to New Record Highs Ahead of Corporate Earnings

Yesterday’s decline in US equities proved to be short-lived as stocks rallied back to new record highs, driven largely by gains in the energy sector.  Major US stock indices rose 0.8% during the trading session, with corporate earnings season set to commence tomorrow, headlined by JPMorgan and Wells Fargo.  Treasurys held within a tight range throughout the day, and the yield on the 10-year note finished the session near 2.54%.  In commodities, WTI crude oil jumped to an intraday high as $64.60/barrel before ultimately settling on the day near unchanged at $63.55/barrel.

 

 

Producer Inflation Data Softens 

Economic data news was highlighted by December’s producer-price index for final demand, which reported the first decline in wholesale prices since August 2016.  The -0.1% reading missed market estimates of +0.2% and was a steep fall from the previous month’s +0.4% level.  Much of the decline was attributed to a 0.2% slide in service prices, notably automotive fuel retailing (-10.7%). The core PPI similarly fell below median forecasts, and was reported at +0.1% MoM (+0.2.% expected).  Looking at producers’ inflation over the past year, overall producer prices have increased 2.6% while core prices have risen 2.3%.

 

 

Other key economic data points released today included a report from the Labor Department which showed post-holiday initial jobless claims rising to a three-month high.  The number of new claims for the week ended January 6th increased to a seasonally adjusted 261,000 (245,000 expected), up 11,000 from the previous week’s revised level.  The four-week moving average of claims rose by 9,000 to 250,750, albeit well-below the 300,000 threshold associated with a healthy labor market.  Also detailed in the report, the number of continuing claims declined by 35,000 to 1.867 million for the week ended December 30th.

 

ECB Minutes Hint at Expedited Tightening

The euro surged 0.8% against the dollar as German government bond yields rose in response to today’s release of the minutes from the ECB’s December meeting.  Contrary to ECB President Mario Draghi’s press conference following the meeting, the text revealed that officials had considered reducing its 2.5 trillion euro asset-purchasing program “early in the coming year”.  One official even noted that a gap  “appeared to be emerging between favorable economic conditions and a policy stance that remained in a crisis configuration.”  Additionally, the minutes recognized the need to begin updating guidance to investors and should do so “gradually over time to avoid sudden and unwarranted movements in financial conditions.”        

 

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