Today’s data: Jan. CPI plunges by -0.7%, Durable Goods pop up +2.8% and Weekly Claims higher.
In order as above, headline Consumer Price Index (CPI) fell by a wide margin as was expected thanks to the really big drop in energy prices. All the details behind the headline were close to expectations as well; the market reaction to the release was rather muted. On to the Durable Goods report, we who follow the flow of economic data each week understand that this data input is overwhelmed each month (good or bad) by what happens to Boeing and their level of new airplane orders. With that knowledge in mind we look at the orders after we extract the Boeing influence; this month the level of orders performed as expected (OK, not great). As with the first report, this second one really didn’t move the markets either. That leaves us with Weekly Jobless Claims, it tracks the number of new folks who filed for unemployment benefits, and this brought the only surprise of the day. The increase in new claims took the count quite a bit higher, to 313,000. This was well over the expected and yet, all in all, the markets are taking in the data and they are really quite quiet — so far. We have the seven-year auction to complete and then the news of the day will be all in.
The Big Picture: Yellen’s semi-annual Congressional testimony (torture) is finished.
We mentioned in this journal earlier in the week that the markets had very high hopes that it would gain more clarity about the Fed and its state of mind from the two days of the meetings. I think that most who care would say that we did gain a bit of insight as hoped. We also came to see that Ms. Yellen does not suffer fools lightly. She refused, very clearly, to allow elected officials to incorrectly quote comments she has made in the past; when she corrected the offending politico she refused to cut her remarks short in deference to the offender. We have a Fed Chair who fights well above her weight and at times, there was no doubt who was playing the fool. More importantly, Ms. Yellen was steadfast in her prepared remarks and in her Q&A session. Some have opined she was very effective at being Greenspan-like, use a lot of words and say very little. Our new insight goes to a comment she made about inflation; the Fed as a body will not initiate a series of rate hikes until they feel relatively comfortable that inflation has started to move towards its 2.00% minimum threshold. She was more concise about that aspect than at any time over the period of her tenure as head of the Fed. Thank You Madam Chair.
Investment Portfolio: The auctions; two’s did well, five’s did well and seven’s are next.
Demand for bonds is high; it is coming from all sorts of buyers and it has a bit of a relentless feel to it. We know that Central Banks are big buyers, we know that Pension Plans are too and we know that Funds and ETF’s and Insurance Companies are too. We can’t forget Commercial or Investment Banks nor can we overlook Hedge Funds and Private Equity buyers. Need I go on? I read this morning (Rosie at Gluskin) that roughly thirty percent of all outstanding sovereign debt issued by the EU nations now trades at negative yields. Thirty-percent. Let me put that into my perspective for you — only very recently have I EVER seen bonds at negative yields. Yes it has become commonplace now, familiar now and their shock value has gone away, but please know this — this is a sign of huge imbalance in many things important and one word says it all. RISK.
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 >>0.48mm
- Thursday: 2/26
Weekly Claims expected at 290k >> 313k Jan. CPI expected at -0.6% >> -0.7% Jan. Durable Goods Orders expected at +1.6% >> +2.8%
- 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.
Past performance is not a guarantee or a reliable indicator of possible future results. Investing in the bond markets is subject to certain risks including credit (worthiness of the issuer), market (interest rate changes), inflation uncertainties over time and the possibility that investments may be worth more or less than the purchase cost when they are redeemed. U.S. Treasury Bills, Notes and Bonds are backed by the full faith and credit of the Government, certain U.S Agencies are also backed in a similar manner and certain other Agency Issuers are backed solely by the Issuing Agency itself. Portfolios that invest in those securities are not guaranteed and they will fluctuate in value with time. High-yield low rated securities involve greater risks than higher-rated securities and portfolios that invest in lower-rated issues will incur more risks than portfolios of higher-rated only securities.
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