Daily Market Color

US Markets Tepid Amid Mixed Economic Data, Political Tension

A plethora of economic data crossed the wire this morning, beginning with a report from the Commerce Department which announced a 3% rise in exports during the month of December compared to a 1.8% rise in imports, as the US trade deficit edged lower to $65 billion.  Exports in capital goods exhibited the greatest rise at 7.3% in the month while autos showed the largest increase on the import side at +5.4%.  In a separate report, new US home sales recorded a significant slowdown last month, falling 10.4% from November’s level to a 10-month low at a 536,000 annualized pace.  Median forecasts called for a 588,000 reading, suggesting that the impact from the post-election rise in mortgage rates is beginning to grow.  According to Freddie Mac, the average rate on a 30-year fixed mortgage climbed as high as 4.32% by the end of 2016.  On the positive side, the supply of new homes in the market rose by 10,000 to 259,000, a 10.2% increase from the previous year that brings the supply relative to sales to 5.8 months (prev. 5.0 months).        

By way of labor data, the number of initial jobless claims rose by 22,000 last week, reaching a four-week high of 259,000 that represents the 99th consecutive week below the 300,000 claim threshold associated with a healthy labor market.  Currently there is no clear trend upward in claims, as the four-week moving average declined to 245,500 last week, the lowest level since November 1973.  In the service sector, the PMI US Services Flash displayed its strongest rate of growth since November 2015 as it increased from 53.4 to 55.1, well above the breakeven mark set at 50.  Rises in new orders and business activity served as the main contributors to the figure while backlog orders remained flat.

All three major US stock indices fluctuated within a tight range throughout the day, with the largest movement coming from the DJIA (+0.15%).  Treasurys similarly finished near even during the session after a selloff at the onset, leaving the yield on the 10-year note near 2.5%.  In the commodity space, crude oil surged 2% on increased optimism surrounding the implementation of OPEC production cuts, while gold prices fell for the third straight day, finishing 0.7% lower. 
Peso Declines as Presidential Tension Builds
The US and Mexico took a step backwards in maintaining a productive trading relationship this morning when Mexican President Enrique Pena Nieto made the announcement that he would be cancelling next week’s meeting with Donald Trump.  The decision came one day after Trump signed a directive to put the wheels in motion for the construction of a wall along the US southern border and explained yet again that Mexico would be the eventual financier of the structure (20% border tax is the latest proposal).  Pena Nieto’s stance has held steady in stating that Mexico would not pay for the wall, leading both presidents to the conclusion that a gathering next Tuesday would be unconstructive.  Aside from the wall, Trump’s promise to renegotiate the NAFTA accord also remains a major hurdle for the two countries going forward.  The Mexican peso declined on the news, falling 1% on the day and erasing the bulk of yesterday’s surge.  Against major currencies, the US dollar gained 0.7% on the day.           

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