Daily Market Color

Treasurys Edge Lower Following Trade Data as Central Bank Meetings Approach

As per a report from the Commerce Department, the US trade gap widened to its largest mark in nearly five years during the month of January.  The trade deficit rose 9.6% from the month prior to a seasonally adjusted $48.49 billion, as a combination of rising energy prices and greater demand for crude oil elevated import levels.  Increased demand for other capital goods, namely cellphones and autos, also contributed to January’s 2.3% jump in imports which outsized the 0.6% monthly rise in exports.  Looking at specific trading partners, the trade gap with China widened 12.8%, while the deficit with Germany (-8%) and Mexico (-10.1%) decreased.  Overall, the headline figure was on par with median forecasts, confirming that the US trade deficit remains a significant obstacle for economic growth in 2017.

Abroad, GDP growth in the euro-area was reported at 0.4% for the final quarter of 2016, corresponding with previous estimates as household consumption (+0.2%) provided the largest boost to the economy.  Year-over-year, seasonally-adjusted GDP grew by 1.7% in the fourth quarter.  The greatest GDP advances were recorded in Estonia (+1.9%), Poland (+1.7%), and Lithuania (+1.4%), while the lone decrease among Member States was Greece (-1.2%).  Combined with surging investor confidence and rising inflation figures, today’s GDP statistics present a valid case for a potential tightening of monetary policy by the European Central Bank at this Thursday’s meeting.

All three major US stock indices finished 0.15%-0.30% lower on the day, weighed down by pharmaceutical stocks whose values declined following a tweet from President Trump which stated that his administration is developing a “new system where there will be competition in the drug industry.”  Trump has repeatedly voiced his perspective that pharma companies are “getting away with murder” given existing drug prices, and today’s comment reaffirms his commitment to reshaping the sector.  Treasurys are trading a touch lower for the session, with yields/swap rates increasing 1-2 bps across the curve.  The US dollar is relatively unchanged as views towards the Fed decision next week have held steady.  Fed funds futures contracts currently indicate a 96% probability of an FOMC hike next week.  

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