Stocks Resume Climb, Treasurys Muted on Political Transparency, Mixed Economic Data

Trump Trade Resurfaces  US stocks continued to climb to new record highs today following further political progress, which included President Donald Trump’s productive call with Chinese President Xi Jinping last night and in-person meeting Japanese Prime Minister Shinzo Abe this afternoon.  Trump’s conversation with President Xi Jinping was described as “extremely cordial”, highlighted by Trump’s honoring of the “One China” policy, a long-standing critical Chinese policy stance which Trump had cast some doubt on, based on some of his prior commentary and actions.  Additionally, talks during the first day of a weekend long meeting between Trump and PM Abe were said to have concluded with an agreed upon new outline for economic communications.  Bank stocks were the top performers again today, perhaps reacting in part to today’s resignation of the Fed’s top regulatory official, Daniel Tarullo, which leaves the door open for a new Trump nominee to fill that role.  US Treasurys declined for the majority of the trading session before rallying back to finish close to unchanged on the day, with the yield on the 10-year note ending the week near 2.41%.  The dollar gained for the second consecutive day, possibly boosted by comments from Trump that the currencies of the US, China, and Japan would soon all be on “a level playing field.”

Labor, Consumer Data Highlight Economic Releases
Import prices reported a 0.4% rise during the month of January, which was greater than expectations of +0.3% and a shade lower than the previous month’s revised +0.5% level.  Compared to a year earlier, import prices increased 3.7%, influenced mainly by a spike in petroleum prices (+61%) during that time span.  Excluding petroleum, import prices were flat last month and up 0.3% YoY, largely tempered by a strong dollar.  Export prices increased 2.3% YoY, the highest mark in five years.  Overall, rises in both import and export levels continue to create inflationary pressure as the economy approaches the Fed’s 2% target.

In a separate report, the University of Michigan’s preliminary index of consumer sentiment displayed a 95.7 reading for February, 2.8 points lower than the previous month’s 13-year high and below median forecasts of 98.0.  Still, the figure remains notably higher than pre-election levels, with the largest drop-off detailed in consumer expectations (-5 points).  Inflation expectations for the current year rose to 2.8% in February, up front 2.6% in January, although the long-term inflation outlook edged lower to 2.5%.  As one might expect, Republicans’ expectations were reported near record highs while Democrats’ forward looking responses fell close to historic lows.   

Oil Surges on Compliance with Output Cuts
Today the International Energy Agency reported that OPEC members have achieved a record 92% compliance with the production-cutting deal that took effect last month.  By comparison, the 2009 OPEC agreement to curb supply delivered an initial 60% compliance.  Last month a few OPEC members, led by Saudi Arabia, were even recorded as cutting more than initially promised on their way to a group reduction of over 1 million bpd.  Coupled with the IEA’s increased projection for global demand, the adherence to the agreement by both OPEC and non-OPEC member alike prompted a 1.75% rise in crude oil prices today.  WTI crude rebounded to over $54.10/barrel during today’s session to finish the week back near even while Brent crude rallied to just above $56.85/barrel.    

Have a great weekend.