Daily Market Color

Treasury Yields Rise to Three-Year Highs

Income Up, Savings Down

The Commerce Department’s report on personal income and consumer spending for December kicked off a busy week for economic data.  Detailed in the report, consumer spending, which accounts for more than two-thirds of US economic activity, rose a steady 0.4% last month (+0.8% in December), while personal income growth outpaced median forecasts at +0.4% MoM (+0.3%e). During the same time period, Americans’ personal saving rate declined to a 12-year low of 2.4%.  Inflation data in the report showed just a slight increase as the PCE index, the Fed’s preferred measure of inflation, increased 0.1% in December, yielding a 1.7% annualized rate.  The core PCE index managed a 0.2% rise MoM and 1.5% YoY.  Weak inflation growth continues to be a key measure weighing on the Fed’s policy decisions, as it has remained stubbornly below the 2% target level.

 

 

Stocks Sink, Treasury Yields Surge

All three major US stock indices suffered losses to open the week, and other assets didn’t fare much better.  Equities fell from record highs as the Dow and S&P 500 dropped 0.7% while the Nasdaq decreased 0.5% — the largest decline of the year (thus far).  The yield on the 10yr Treasury climbed to its highest level since April 2014, rising to 2.725% before rallying later in the session to its current level of 2.695%.  Across the curve, yields/swap rates rose 1-4bps in a bear steepening pattern.  The US dollar, reversing the general trend of being down for seven consecutive weeks, was up 0.3% against most major currencies  (+0.4% vs. EUR, +0.7% vs. GBP, +0.4% vs. JPY).  WTI crude oil futures fell 1.1% on the day to $65.40/barrel on the back of the dollar gains, the biggest drop for oil in ten days.  

 

 

Some of this Week’s Remaining Key Events/Releases

President Trump’s State of the Union Address–  Scheduled for 9pm ET Tuesday night, financial markets will focus on whether Trump signals a more united, bipartisan, supportive tone similar to his speech at Davos last week or reverts back to his campaign-style rhetoric which looked to lay blame and caused division.

Janet Yellen’s Last Stand– the FOMC’s January policy meeting will conclude on Wednesday, marking the end of Janet Yellen’s tenure as Fed Chair.  It is widely expected that the committee will leave the existing policy in place, however the statement released afterwards will be analyzed closely for any indication of future policy changes.