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Treasurys Rise as Investors Remain Cautious After Mixed Economic Data, Political Worries

“Trump Fade” Resumes  The risk-off trade continued during today’s session as a combination of mixed US economic data, sub-par corporate earnings, and political drama weighed on investor sentiment.  The day began with positive data, as the S&P CoreLogic Case-Shiller composite index of home prices nationwide displayed 5.6% YoY rise for November, up 0.1% from October’s level, as the acceleration in home values persisted despite rising mortgage rates.  Housing markets in the northwest region contributed the most to the headline figure, with Seattle (+10.4%), Portland (+10.1%), and Denver (+8.7%) reporting the 3 largest annualized increases.  Overall consumer outlook however was dampened by the Conference Board’s index of consumer confidence, which dropped 1.5 points MoM to 111.8 in January.  Americans’ reflected less optimism for business conditions, jobs and consumer income in the report.  The Chicago PMI was also released, recording a 50.3 reading for the month of January, a full 5 points below market consensus, indicating relatively little change from the prior month.  Both new orders and the orders backlog contracted for the month, foreshadowing a grim outlook for production and employment in the near term.

Equity markets declined again today as the post-election euphoria continues to weaken with renewed concerns over the recent spate of actions taken by the Trump administration.  Also weighing on equity indexes were earnings misses from a number of large corporations including UPS, FedEx, Under Armour, and Harley-Davidson. The DJIA ended the session down 0.5% while the S&P 500 (-.1%) and Nasdaq (+.02%) were able to recover the majority of the downturn from earlier today.  Investor caution pushed both Treasury prices and gold futures higher on the day.  Treasury yields/swap rates declined 1-4 bps across the curve as the yield on the 10-year note approaches 2.45%.  Gold futures jumped 1.6% to $1,215/ounce in its second consecutive bull session.  The US dollar concluded its worst month since March 2016, with the broad dollar index falling 2.7% in January.                

Bank of Japan Leaves Policy Unchanged
The BOJ concluded its meeting today with the decision to keep its current monetary policy in place as expected, which includes the ultra-accommodative measures of a -0.1% deposit rate for commercial banks and a 0% targeted yield on 10-year Japanese government bonds.  The central bank’s cautious outlook was also apparent in its inflation forecast for the year ending March 2018, remaining at 1.5% despite an uptick in expected economic growth over the same time period.  In a news conference following the BOJ meeting, Governor Haruhiko Kuroda discussed his views regarding the Trump administration as it relates to the future of trade, noting that while the pledged tax cuts and infrastructure spending could spark growth, “there are concerns that protectionist measures could cause international trade to shrink or global economic growth to decelerate.”  Kuroda also acknowledged that risks associated with the BOJ’s heightened growth outlook are “skewed to the downside,” with the US economy representing the greatest risk.  Decisions from two other central banks are scheduled for this week, including the Fed tomorrow and the Bank of England on Thursday.

 

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