Today’s data: CaseShiller for December rises as expected, the slowing continues.
Prices for home year over year continue to increase, the pace at which they are doing so is notably slowing; none of this new to the markets or the media. The Housing sector data continues to be uneventful and at the same time clearly lacking in momentum that would have a hearty additive effect to GDP. So, with news still evolving concerning Greece and with Yellen testifying to Congress the markets did little with this mornings’ data. That said, in the morning portion of the trading session and ahead of our two-year note auction we see bond prices in the green and equities enjoying higher prices also. Both sides of our capital markets are taking something from the Yellen moment to focus upon and trade higher as a result.
The Big Picture: Yellen offers up something for everyone in her testimony.
I have read Yellen’s testimony as have many others and everyone loves it because it confirms exactly what they have forecast! The guys who stand firm in their belief that June will be the month the Fed’s pull the trigger to raise rates have found ample proof that they are correct. But wait, there’s more, the folks who think June is too soon (and it will be later into the fall or even out to the end of 2015) are happy because–interestingly enough–there is ample proof in Yellen’s remarks that June is, in fact, too soon for the Feds to reach a decision. So then, is there also proof for the few who think it will be 2016 and not 2015? Yup, there is. Well, how can everyone be right with such differing outlooks? Obviously, they can’t all be correct. The markets are a good indicator of who is prevailing; if the June believers are the most active we will be seeing red rather than green across all our screens. The markets are pricing in a “not June” outlook very clearly. The USD is stronger as well which further substantiates a much later in the year move from the Fed. So really, the testimony has continued the Fed’s data dependency status quo. With that, the volatility that will swing the markets with each newly seen data point will continue.
Investment Portfolio: March arrives next week and with it will come the start of the ECB QE.
As I look at the pricing in the markets I can’t say with much confidence that I see any pricing in any of the buying program just ahead. The markets will always front-run an event to the extent it can, just as a portfolio manager will position his or her portfolio ahead of a well telegraphed rate change. But what makes the question interesting is the international nature of the pending central bank engagement. As the liquidity begins to flow into the global financial system we will see assets being purchased to keep capital at work. To what degree will US based assets get all caught up in this next phase of massive liquidity creation? We all seem to think that our rates are incredibly high when compared to rates elsewhere, but at the same time they are trading at record lows or very close to them.
So? So I don’t know nor does anyone else, but we are going to learn here pretty soon. When we look at a graph of prices of UST’s over the last 10 years, it is obvious that while QE was going on — rates moved higher — and upon the cessation of any particular QE phase, rates then fell to lower lows. So what’s it going to be?
Weekly Market Data
Current Market Levels from Bloomberg daily
- Monday: 2/23
Jan. Existing Home Sales expected at 4.95mm >> 4.82mm reported
- Tuesday: 2/24
CS 20 city home sales expected at +4.30% >> +4.46%
- Wednesday: 2/25
Jan. New Home Sales excepted at 0.47mm >>
- Thursday: 2/26
Weekly Claims expected at 290k >> Jan. CPI expected at -0.6% >> Jan. Durable Goods Orders expected at +1.6% >> Durable Goods Orders expected at +1.6% >>
- Friday: 2/27
4Q GDP expected at +2.0% >>
Data is taken from sources considered to be accurate, most often that of an agent of the US Government; no guarantee of accuracy is suggested.
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