Daily Market Color

Stocks, Treasurys Fluctuate on Muted Economic Data, Fed Policy Uncertainty

Highlighting today’s economic data, the US trade gap decreased more than expected in the final month of 2016 as reported by the Commerce Department.  December’s deficit totaled a seasonally-adjusted $44.3 billion, composed of a 2.7% increase in exports that was partially offset by a 1.5% rise in imports.  The jump in export growth was attributed to higher sales of commercial aircraft and industrial supplies, while purchases of vehicles elevated imports.  For all of 2016, the trade gap equaled $502.25 billion, a modest increase from 2015’s $500.36 billion level, as the US economy ran a $247.8 billion surplus for services and a $750.1 billion trade deficit for goods.  Annual trade deficit data broken down by trading partner showed a narrowing of the deficit with China ($347 billion), Canada ($11.2 billion) and the EU ($146.3 billion), while the deficit with Mexico expanded to $63.2 billion.  The overall trade gap in 2016 represents the widest it has been since 2012.

In a separate data release from the Labor Department, the number of available employment positions was reported as 5.501 million in December, marginally below the prior month’s 5.505 million revised level.  Industries displaying the largest number of openings included manufacturing, retail, finance and health care & social assistance.  Also detailed in the Job Openings and Labor Turnover Survey (JOLTS), hirings rose 0.8% last month to 5.252 million, bringing the gap between openings and hirings to 249,000 which is significantly lower than the 2016 high of 760,000 back in April.  The total count of workers who quit their jobs in December was 2.98 million, slightly below November’s 3.08 million figure.  In addition, the number of layoffs rose to 1.64 million last month, the highest mark since August.  Overall market reaction to the survey confirmed the view provided from last week’s payroll data, showing a generally healthy labor market hovering near full employment.      

After a rally at the onset of the day that saw the DJIA touch a record high, all three major US stock indices pared the majority of gains towards the end of the day.  Energy stocks weighed down the broad equity indices, as stock values were negatively impacted by today’s 1.5% decline in crude oil prices.  WTI crude oil is now trading at $52.15/barrel while Brent crude has fallen to $55.10/barrel as concerns over a US supply glut continue to linger.  Treasurys sold off to begin today’s session following Philadelphia Fed President Patrick Harker’s (voter) hawkish comments yesterday evening, which included “I still am supportive of three rate hikes this year, of course with a major caveat, depending on how the economy evolves and policy, fiscal policy, evolves.”  Harker also stated his openness to a March rate hike if he sees continued GDP expansion and the strengthening of labor markets, including advances of wage and income growth.  Treasury price losses were reversed during the course of the day, with yields/swap rates pushing down 1-3 bps across the curve, leaving the yield on the 10-year note below 2.40%.  The US dollar gained 0.3% against other major currencies while the price of gold dropped 0.4%.     

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