Last week was relatively flat in the equity markets while long term bond yields rose. Market momentum over the past month has clearly turned sideways which may reflect a growing realization, even in an all-GOP Washington, that getting things done may be more challenging than previously thought. It’s also clear that the Fed rate hike on December 14th seems to have been an inflection point where risk markets began to reassess forward growth prospects.

Your Weekly Anecdotes:

  • It’s pretty clear that DJT’s policies and ‘management style’ will provide a continuous stream of domestic and foreign policy markers. We will do our best to sift through the noise and hyperboles to focus on issues we feel have clear financial market implications and work to monitor them closely. Applying that filter leads us to four primary areas – deregulation, tax reform, trade policy, and potential corporate retribution from the U.S. Government.
  • Financial Times noted an interesting mirror image (one of many) between the Trump administration and the Obama administration – Trump and his executive team have 55 years of government experience but 83 years in business. Obama’s comparable team had 117 years in government but only five years in business.
  • U.S. equity market is in an extraordinary period of low volatility. Noted blogger, Charlie Bilello, pointed out that over the past month, the Dow has traded in a range (high to low) of 1.07% … the lowest in history (back to 1896). Bespoke Investment Group notes that, last week saw a 67th consecutive day without a 1% drop in the U.S. stock market, the longest such streak since 2006.
  • In terms of Presidential election cycle and the stock market, Bespoke notes that of the four years, the only year that really stands out is year three where the S&P 500 has averaged a gain of 12.8% with positive returns over 80% of the time. Outside of year three, the three remaining years are all within one percentage point of each other in terms of performance.
  • China’s holdings of U.S. Treasuries declined $66.4 billion in November, a sixth straight month of declines, as they use their foreign-exchange reserves to support the yuan. Bianco Research notes that November’s decline was the largest non-adjustment-related decline in China’s history.
  • The U.S. oil rig count increased in 10 of the past 11 weeks, according to Baker Hughes. The rig count has increased from 404 on 5/27 to 659 on 1/13 – the count was 1,920 on 12/5/14. The EIA also reported that U.S. crude output rose to the highest level since April in the week ended Jan. 6 at 8.95mbpd (8.38mbps on 6/29/16). Current inventory level is the highest January level ever.
  • It was reported that OPEC (1.2mbpd) and non-OPEC (558,000) production cuts were being soaked up by competing producers stepping into the breach, as higher oil prices boost investment in their fields.
  • Real yields have dropped to a recent 0.38% from 0.74% at their mid-December post-election peak. Their tumble, which began on December 16 (the day the Fed hiked), is a warning signal that market growth consensus may not be as robust as once thought.
  • The dollar tumbled to its lowest level in a month after DJT told The Wall Street Journal he favored a weaker dollar. The index has now given back nearly half of its post-election rally, which drove the currency to its highest level in more than 14 years.

Your Weekly Economic Updates:

  • A series of Fed speakers have sent up trial balloons in recent days talking of the possibility of reducing the size of the central bank’s $4.5tn balance sheet.
  • The BLS reported higher headline (2.1%) and core (2.2%) inflation figures (CPI) due to an increase in energy prices (+5.4%) over the past year.
  • The OECD reported leading indicators for U.K., Japan, U.S., Canada, Spain, Germany, Italy, France, China, Brazil, S. Africa, Mexico and Russia trending up, supportive of stronger growth in the new year.