Daily Market Color

Treasurys, Stocks Decline Amid Strong Data, ECB Decision

Housing, Jobs Data Beat Expectations  Beginning with US homebuilding activity, data released today provided a robust outlook for the economy.  Housing starts in December rose 11.3% to an annualized pace of 1.23 million, beating median forecasts of 1.19 million.  Detailed in the Commerce Department’s report, starts for single-family homes fell 4%, but were more than countered by a 57% rise in multi-family units.  The increase in new homebuilding presents a steady outlook in the housing market entering into the new year, despite the jump in mortgage rates to over 4% in the past few months.  Also presented in the report, building permits for future construction fell 0.2% last month, weighed down by a 9% decline in multi-family approvals.

The number of initial jobless claims unexpectedly fell to a seasonally-adjusted 234,000 last week (252,000 was projected), a 15,000 decrease from the previous week’s revised figure.  The reading is near its lowest level since the 1970’s, as job data continues to build in support of a healthy labor market.  For the week ended January 7th, the number of continuing claims similarly declined, falling 47,000 to a total 2.05 million, below expectations of 2.08 million.

In regulatory news, CFTC Commissioner Christopher Giancarlo stated  at a NY derivatives conference that the CFTC will “take steps to ease” the variation margin requirements set to go into effect on March 1st. Mr. Giancarlo will become the acting head of the CFTC after January 20th.  We expect to hear more news in the coming weeks as the March 1st deadline approaches and will keep you abreast of any changes.
All three major US stock indices declined on the day despite the positive data, shedding 0.25%-0.40% on the eve of Inauguration Day.  Treasuries similarly fell, with yields/swap rates adding 1-6 bps across the curve.  The yield on the 10-year note is currently above 2.47%, its highest level since beginning the new year.  Prices of crude oil hovered above flat on the day, adding roughly 0.5% as WTI crude approached $51.45/barrel and Brent crude neared $54.20/barrel.

ECB Holds Policy Steady
The European Central Bank concluded its meeting today, leaving benchmark borrowing rates at their current levels and keeping the existing 2.3 trillion euro asset purchases in place until the end of the year as expected.  Addressing the public afterwards, ECB President Mario Draghi left open the possibility for amendments to the policy in the future, pending any adverse changes to the region’s economic outlook.  Mentioned specifically as risks in the short term were the possibility for increased protectionist policies by the Donald Trump administration and the constantly negotiated structure of the U.K.’s departure from the EU.  While Draghi did acknowledge the recent jump in inflation last month to 3-year highs, he went on to explain that the level was still much below the central bank’s target of two percent, and a considerable amount of the increase may be tied to the rise in oil prices, stating “there are no convincing signs yet of an upward trend in underlying inflation.”  In response to the publicized requests by economists and politicians in Germany to reduce the stimulus, he commented “The important thing to explain is the recovery of the whole of the euro zone is in the interest of German citizens,” and asked that the nation “just be patient.”  The euro declined as much as 0.5% following the announcement, touching as low as $1.06 per euro, with investors not content over the divergence between the Federal Reserve’s and ECB’s rate policies.

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