TradeTheNews.com Weekly Market Update: Fed Speak Moves Hike Expectations to March; Dow Tips 21,000
Fri, 03 Mar 2017 16:16 PM EST
The stock markets started the week on hold as investors slowed down the pace and strength of the recent bull run. Markets were muted at the beginning of the week, awaiting President Trump's speech to Congress on Tuesday evening. Investors were looking for some concrete details on economic policy including tax reform, which the speech failed to deliver. Trump did, however, strike what many considered a much more presidential tone while promising a $1 trillion infrastructure spending spree. Global stock markets received the comments extremely well sending the Dow up above the 21,000 mark for the first time. For the week, the DJIA gained 0.9%, the S&P500 rose 0.7%, and the Nasdaq added 0.4%.
Reflation trade flows picked up again helped by NY Fed president Dudley's comments on Tuesday clearly hinting at a likely rate at the March FOMC meeting. That foreshadowed what would be the narrative by a chorus of fed speakers through the week’s end, culminating Friday with Chair Yellen . The probability of a rate hike, determined by Fed Fund futures prices, jumped Monday from 35% to 50%, on the back of continued strong economic data. By Wednesday that probability had jumped to above 80% after a spate of hawkish commentary from Fed officials supporting the notion of a ‘live’ FOMC meeting on March 14-15.
The 10-Year Treasury Yield started the week at 2.35% and continued to rise, closing Friday at 2.51%. A stronger sell off in the shorter end of the curve caused the yield curve to flatten with the 10-year/30-year spread decreasing from 62bps to 59bps, and the 5-year/30-year curve decreasing 6bps to 106bps. The US dollar continued to rally as a March rate hike was priced in with the British Pound losing 1% over the week, the dollar index up 1.1%. By Friday gold prices dropped back towards the 90 day moving average for the first time in nearly a month.
The UK Brexit bill experienced a minor setback this week as the upper house endorsed an amendment to safeguard the rights of EU citizens in the country. PM May has stated her invocation of Article 50 remains on track for this month and she has asked the House of Commons to throw out the amendment when they debate the bill again March 13 and 14. In France the far-right anti EU candidate, Marine Le Pen, has begun to fall behind in the polls to the independent candidate Macron, who enjoys a more than 20 point lead in polling for the May run-off election. However, EGBs were subdued and core bonds continued to fall in price as inflation data for Germany was higher than expected.
As earnings season winds down, some key retailers reported this week and continued to paint a worrying picture for the sector. Best Buy’s Q4 earnings came in above estimates, but revenue lagged, driven by weakness in gaming, tablets, wearables and phone sales. Target shares plunged after missing profit estimates amid unexpected softness in stores, and the retailer guided a decline in SSS for next year, warning its investment into lower gross margins may present headwinds to short-term performance. Costco underperformed on the top and bottom line, and announced it would increase membership fees for the first time in six years. On the positive side, Lowe's shares surged on continued strong results and outlook. Snap Inc’s long-awaited Wall Street IPO finally debuted, and despite cautious comments from analysts, shares of the social media/tech firm were up 61% by the end of the week.
SUN 2/26
GSK.UK Has conducted the world's first drug trial under "real world" conditions, as the company looks to to prove the value of its medicines in a cost conscious health system - FT
MON 2/27
*(EU) EURO ZONE JAN M3 MONEY SUPPLY Y/Y: 4.9% V 4.8%E
*(EU) EURO ZONE FEB BUSINESS CLIMATE INDICATOR: 0.82 V 0.79E; CONSUMER CONFIDENCE (FINAL): -6.2 V -6.2E
*(US) JAN PRELIMINARY DURABLE GOODS ORDERS: 1.8% V 1.7%E; DURABLES EX-TRANSPORTATION: -0.2% V +0.5%E
TUE 2/28
(FR) FRANCE FEB PRELIMINARY CPI M/M: 0.1% V 0.4%E; Y/Y: 1.2% V 1.5%E
(FR) FRANCE Q4 PRELIMINARY GDP Q/Q: 0.4% V 0.4%E; Y/Y: 1.2% V 1.1%E
TGT Reports Q4 $1.45 v $1.50e, R$20.7B v $20.7Be; Will invest in lower gross margins
JPM Guides FY17 core loan growth +10% y/y - ahead of analyst day
- Guides Q1 trading rev up modestly y/y; Q1 invest banking largely flat q/q; FY17 NII $11B v $10B y/y
VRX Reports Q4 $1.26 v $1.24e, R$2.40B v $2.35Be
(IN) India Q4 GDP Y/Y: 7.0% v 6.1%e; GVA Y/Y: 6.6% v 6.0%e
*(US) Q4 PRELIMINARY GDP ANNUALIZED Q/Q: 1.9% V 2.1%E; PERSONAL CONSUMPTION: 3.0% V 2.6%E
(US) Q4 PRELIMINARY GDP PRICE INDEX: 2.0% V 2.1%E; CORE PCE Q/Q: 1.2% V 1.3%E
(US) Feb Chicago Purchasing Manager: 57.4 v 53.5e (highest since Dec 2014)
(US) FEB RICHMOND FED MANUFACTURING INDEX: 17 V 10E
(US) FEB CONSUMER CONFIDENCE: 114.8 V 111.0E (highest since 2001)
(US) Fed's Williams (moderate, non-voter): sees March hike getting serious consideration - comments in Santa Cruz
CRM Reports Q4 $0.28 v $0.25e, R$2.29B v $2.27Be
(AU) AUSTRALIA Q4 GDP Q/Q: 1.1% V 0.8%E; Y/Y: 2.4% V 2.0%E
(CN) CHINA FEB MANUFACTURING PMI (govt official): 51.6 V 51.2E
(CN) CHINA FEB CAIXIN MANUFACTURING PMI: 51.7 V 50.8E (8th consecutive expansion)
(HK) Macau Feb Gaming Rev MOP22.99B v MOP21.5Be; y/y: 17.8% v +10%e
WEDS 3/1
(DE) GERMANY FEB FINAL MANUFACTURING PMI: 56.8 V 57.0E
*(UK) FEB MANUFACTURING PMI: 54.6 V 55.8E (7th month of expansion)
BBY Reports Q4 $1.95 v $1.66e, R$13.5B v $13.6Be; raises dividend 21% to $0.34 from $0.28 (indicated yield 3.22%)
(DE) GERMANY FEB PRELIMINARY CPI M/M: 0.6% V 0.6%E; Y/Y: 2.2% V 2.1%E
(US) JAN PCE CORE M/M: 0.3% V 0.3%E; Y/Y: 1.7% V 1.7%E
(US) JAN PERSONAL INCOME: 0.4% V 0.3%E; PERSONAL SPENDING: 0.2% V 0.3%E
(US) JAN PCE DEFLATOR M/M: 0.4% V 0.5%E; Y/Y: 1.9% V 2.0%E
*(US) FEB ISM MANUFACTURING: 57.7 V 56.2E; PRICES PAID: 68.0 V 68.0E (Manufacturing Activity highest since Aug 2014)
(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS EXPECTED
(US) Atlanta Fed cuts Q1 GDP forecast to 1.8% from 2.5% on 2/27
AVGO Reports Q1 $3.63 v $3.48e, R$4.14B v $4.06Be
(KR) White House reportedly considering options against North Korea, including possible use of force, as part of strategy review - press
(AU) AUSTRALIA JAN TRADE BALANCE (A$): +1.3B V +3.8BE; 3rd straight surplus
THURS 3/2
DTE.DE Reports Q4 adj Net €973M v €959M y/y, adj EBITA €5.3B v €5.1B y/y, Rev €19.5B v €19.0Be; Takes €2.2B writedown ; proposes 9% dividend increase to €0.60/shr
ABI.BE Reports Q4 $0.43 v $0.98e, EBITDA $5.25B v $5.64Be, Rev $14.2B v $13.8Be
*(EU) EURO ZONE FEB ADVANCE CPI ESTIMATE Y/Y: 2.0% V 2.0%E (highest level since Feb 2013); CPI CORE Y/Y: 0.9% V 0.9%E
*(EU) EURO ZONE JAN UNEMPLOYMENT RATE: 9.6% V 9.6%E (matches its lowest level since May 2009)
(US) INITIAL JOBLESS CLAIMS: 223K V 245KE (lowest since Mar 1973); CONTINUING CLAIMS: 2.07M V 2.06ME
(US) Fed's Powell (moderate, voter): Rate hike in March is on table for discussion; we're certainly getting very close to 2% inflation goal - CNBC interview
SNAP IPO opens for trade at $24.00
(US) Attorney General Sessions: To recuse himself from any investigations related to the Trump campaign
COST Reports Q2 $1.17 v $1.35e, R$29.1B v $30.0Be; To increase membership fees by $5-10/year (+8.3-9.1%)
(HK) HONG KONG FEB COMPOSITE PMI:49.6 V 49.9 PRIOR; 2nd month of contraction
FRI 3/3
(US) FEB FINAL MARKIT SERVICES PMI: 53.8 V 54.0E
GM Peugeot board reportedly met today and approved Opel acquisition; to announce the deal on Monday – press
(US) Fed Chair Yellen: Raising interest rates at March meeting would probably be appropriate if economy evolves as expected - comments in Chicago
DBK.DE Confirms undertaking preparatory work for a potential €8B capital increase and further strategic measures including reintegration of Postbank
(US) US Trump administration to announce it will reopen 2022-2025 vehicle emissions standards for review next week - press
