U.S. stocks bounced last week, particularly small cap names, and regained some of the soft losses experienced in the prior week. Small caps and energy stocks both gained well over 2% while defensive sectors such as utilities, telecoms, and consumer staples lost ground. Interest rates moved sideways. The flattening yield curve year to date is clear with 2-year Treasury yields rising 0.07% and 10-year falling 0.05% through the end of the first quarter.

Your Weekly Anecdotes:

  • The Euro area grew faster than the U.S. in 2016. This is the first time this has happened since 2008. Euro area inflation reached 2% in February but largely driven by higher food and energy prices.
  • Bespoke notes that the annualized pace of durable goods price increases in the past 3 months has been the highest since 2011 and is largely responsible for the move higher in PCE, a trend unlikely to continue.
  • The U.S. dollar touched its lowest level since November but finished the week modestly higher.
  • U.K. Prime Minister formally commenced the Brexit process last week by triggering Article 50 of the Treaty of Lisbon. Triggering Article 50 initiates a two year period in which the U.K. will negotiate terms of the exit. Prior to the Treaty being signed in 2007, there was no legal way for a country to exit the EU.
  • The February PCE, the Fed’s preferred inflation gauge, registered 2.1%. This is the first time in five years it has come in higher than the Fed’s formal 2% target rate of inflation. The core rate remained below 2%, at 1.8%.
  • Betting markets are currently assigning a one-in-three chance that Le Pen, the populist candidate in the French Presidential election, will become President – close to the same odds given Donald Trump before his stunning victory.
  • Citigroup global economic and inflation surprise indices have surged and now stand at their highest combined level in the 14-year history of the series.
  • The 21.8 TTM P/E ratio is sits comfortably above the 30yr average (19.2) and median (18.2), but has been higher than 21.8 approximately 25% of the time over the past three decades.
  • U.S. crude oil production peaked at 9.61mbpd, and then dropped to 8.48mbpd last summer. Last week registered 9.15mbpd, having bounced back along with higher oil prices.

Your Weekly Economic Updates:

  • Economic data came in largely better than expected last week with 10 of 17 reports beating, 5 missing, and 2 meeting consensus expectations.
  • The final 4Q GDP estimate registered a respectable 2.1% growth rate.
  • Weekly jobless claims have come in below 300k for 108 consecutive weeks. However, claims have come in higher than expected each of the past four weeks.
  • The Conference Board’s Consumer Confidence spiked to 125.6, well over the 114.0 level expected to its highest level since December 2000 – 16 years.
  • Nominal consumer spending (0.1% m/m) has weakened materially over the past three months while core (1.8% y/y) and headline (2.1% y/y) PCE Price Indexes (the Fed’s preferred inflation gauge) have moved sharply higher. The result is that real consumer spending has fallen to its lowest 3m rate of change since 2012.
  • Year over year Case Shiller home prices registered a 5.7% gain.