MMRecap for Feb.17th

Posted by Joel pate in Uncategorized. Tagged:

The financial markets have been poster children for volatility lately, but they calmed down last Monday due to lack of information. No reports were scheduled, so stocks and bonds held close to the previous Friday’s close — except for the irrepressible Nasdaq, which just keeps on climbing.
When the closing bell rang, the 10-year Treasury yield, which moves inversely to price, held at 2.68%. The Dow added 7.71 points, or 0.05%, while the S&P 500 edged up 2.82 points, or 0.16%. The Nasdaq climbed 22.31 points, or 0.54%.
Last Tuesday, stocks showed their overwhelming support for the new FOMC Chairwoman Janet Yellen. When she said that monetary policy is on a steady course and will not likely change much in the future, stocks applauded her in the only way they know how — each of the major indices rose by more than 1.0%.
The Fed has cut $20 billion from its bond buying program so far, but the job picture remains murky, which could make investors edgy when the minutes from the January 29 meeting are released. The initial reaction was overwhelmingly positive, so it should be well-received. The only economic release, wholesale inventories for December, is almost never a factor, and it wasn’t on Tuesday. Inventories rose 3.0% versus the previous 5.0% increase but were far below estimates of 6.0%.
When the markets closed, stocks had posted big gains. The Dow added 192.98 points, or 1.22%. The Nasdaq rose 42.88 points, or 1.03%, and the S&P 500 was up 19.91 points, or 1.11%. The yield on the 10-year note also rose, closing at 2.72% — up four basis points from Friday.
Wednesday was another “no news” day, and the markets knew it. Stocks opened up, but slid during trading hours, while Treasury yields continued to rise.
The only newsworthy event was President Obama’s announcement that businesses with new or renewed government contracts must raise their employees’ minimum wage to $10.10 an hour. He added that the minimum wage for workers relying on tips as part of their salaries will increase to $4.90, up from the present $2.13 an hour.
Stocks rose at opening, but edged down as the day went on. The Dow closed down 30.83 points, or -0.19%, while the S&P 500 edged down 0.49 points, or -0.03%. The Nasdaq added 10.24 points, or 0.24%. The 10-year yield climbed again, jumping to 2.76% from 2.72%.
Everyone was waiting for Thursday, but the data disappointed. Initial jobless claims for the week ended Feb. 8 rose by 8,000, although continuing claims, those receiving a second or more weeks of benefits, was close to unchanged.
The other influential report, January retail sales, bombed. December numbers were lowered from the original 0.02% gain to -0.1%. January sales fell -0.4%, which was far below expectations. Excluding auto sales, retail sales posted double goose eggs — 0.0%. The final report, business inventories for December, rose 0.5%, but it was ignored by the markets.
There wasn’t much love shown in Friday’s Valentine’s Day releases. Export prices in January were up 0.2% but far from December’s revised 0.5%. Import prices fell -0.3% from the previous 0.3% mark. Industrial production also dipped -0.3% versus the previous 0.3% increase. Capacity utilization edged down to 78.5% from 78.9%. The final report, the University of Michigan’s preliminary consumer sentiment report for February, held at 81.2, but that was better than expected.
When the markets closed, the 10-year yield had added two points, rising to 2.75%. The Dow was the most-loved index, climbing 127 points, or 0.79%. The Nasdaq struggled but closed up 3.36 points, or 0.08%. The S&P500 gained 8.80 points, or 0.48%.
The Mortgage Bankers Association reported that during the week ended February 7 mortgage loan applications fell 0.2% from the previous week. Refis were down 0.2% and the purchase index fell 5% from the previous week. The contract rate for a 30-year conforming loan dipped to 4.40% from 4.42%.
Even though this week is shortened due to the Presidents’ Day closing, a number of noteworthy reports will be released beginning on Tuesday. February’s NY Empire State index on manufacturing leads off, but it is expected to fall to 11.0 from 12.3 in January. The National Association of Home Builders will also release its confidence report, which should hold at a respectable 56.0.
Wednesday features data on applications for housing starts and building permits in January. It goes without saying, but we’ll say it anyway: The weather in a large part of the U.S. has negatively affected many aspects of businesses in a number of ways. In January, the annual number of housing starts fell to 963,000 from 999,000 in December. Likewise, applications for building permits dwindled to 986,000. That could boost Treasury yields, but the numbers were probably weather-related.
That will be followed by the PPI, or producer price index, which checks inflation at the wholesale level. In January it rose 0.1%, down from 0.4% the previous month. The decline shows a lack of demand. The core rate, which eliminates food and energy prices, was up 0.2% versus 0.3% the previous month.
In addition, the minutes of the FOMC meeting on January 29 will be released. Stocks rose in approval after that meeting. Whether they revisit the surge is questionable, but it could happen and Treasuries would likely suffer if it does.
Thursday begins with initial jobless claims for the week ended February 15 and continued claims (those receiving benefits for the previous week or weeks). This will be followed by the consumer price index for January, which looks for price changes at the retail level. The CPI is expected to increase by 0.1% — a significant decline from the previous 0.3%. But the core rate should rise to 0.2% versus 0.1%.the previous month.
The Philly Fed index on manufacturing conditions in the Mid-Atlantic States could edge up to 10 from 9.4, but that shouldn’t affect the markets. Neither should Leading Economic Indicators for January, which attempt to predict the direction of the economy over the next six to nine months. They rose 0.1% in December, but no predictions are available for January.
There is only one report due Friday, but it’s important — existing home sales in January. Analysts believe sales will plummet to an annual rate of 4.69 million units from the previous rate of 4.87 million. The holidays and bad weather will likely factor into the decline.

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