The Dow Jones industrial average erased its gain for the year on Thursday, part of a pullback for stock indexes as Treasury yields continued their upward march.
The Dow Jones industrial average fell 72 points, or 0.4%, to 19,732.40. That puts the Dow down about 32 points for the year and will makes this the fifth straight day of losses. The Standard & Poor’s 500 index fell 0.4% to 2,263.69. The Nasdaq composite fell 0.3% to 5,540.08.
Four stocks fell for every one that rose on the New York Stock Exchange.
Stocks have slowed in 2017 following an electrifying jump higher since Election Day. Investors are waiting to see what a Donald Trump presidency will really mean for stocks. They’ve already seen the optimistic case, as shown in the nearly 6% jump for the S&P 500 since Donald Trump’s surprise victory of the White House, propelled by expectations for lower taxes and less regulation on businesses.
But on the possible downside, increased tariffs or trade restrictions could mean drops in profits for big U.S. companies.
Bond yields continued their march higher, and the 10-year Treasury yield rose to 2.47% from 2.43% late Wednesday. Yields have generally been climbing since Election Day on expectations that President-elect Donald Trump’s policies will spur more inflation and economic growth. The 10-year yield is still below its perch above 2.60% that it reached in mid-December, but it’s well above the 2.09% yield it was at a year ago.
Reports have shown that the U.S. economy has been improving recently, and the latest on Thursday showed encouraging signs for the housing and labor markets. The fewest number of workers sought unemployment claims last week in 43 years, a sign that corporate layoffs are subsiding.
The USDJPY is trading at new session highs and in the process is testing a downward sloping trend line and a horizontal line of swing highs and low on the hourly chart. We are trying to move above that area now (above 115.195)
Be aware that if there is more momentum higher on the break, the 50% at 115.58 is the next target, followed by the 115.85 area. At that level is the 100 and 200 bar MA on the 4-hour chart both come in at that level. That combination should stall a rally.
US bond yields – unchanged at the start of the NY session – area higher. The 10 year yield is up 4 basis points. The US housing data was ok and the initial claims and Philly Fed index were also favorable. So the dollar bulls are more comfortable again.
Mario Draghi has refused to respond to Donald Trump’s claims on the EU’s disintegration, saying he was unwilling to talk about the president-elect’s stance that keeping the federalist project together will be “harder” than imagined.
At his latest press conference in Frankfurt, Mr Draghi said he would only respond to “policies rather than just statements”, ahead of Mr Trump’s inauguration as president tomorrow.
The Italian was however more vocal on German criticism of the ECB’s record low interest rates, telling savers in Europe’s largest economy to “be patient” in the wait for higher interest rates.
“The recovery of the whole of the eurozone is in the interest of everybody, including Germany”, said Mr Draghi.
“Real rates will go up” as the recovery regains momentum he said.
Mr Draghi’s broadly dovish tone on inflation has seen the euro weaken to its lowest in 10 days this afternoon. The ECB president said much of the recent spike in prices was down to higher energy prices with wage growth and other evidence of higher economic activity still low.
He also refused to make any comment on the looming bailout of one of Italy’s biggest banks and the implementation of new EU rules which will impose losses on junior bondholders.
The number of Americans applying for first-time unemployment benefits plunged to a 43- year low last week, reinforcing the picture painted by recent economic indicators of continued strength in the US labor market.
US jobless claims fell by 15,000 to 234,000 in the week ending January 14, according to the Labour Department — confounding market expectations for a rise to 252,000.
The figures would represent the lowest level of weekly claims since July 1973.
The agency cited no special factors impacting the latest figures. The lack of a surprise uptick in jobless claims further underscores the strength of the US labour market, one of the primary considerations weighed by the Federal Reserve as it readies to raise interest rates three more times this year.
With Yellen hell-bent on tightening into Trump’s fiscal stimulus, and inflationary impulses popping up all around the world, ECB president Mario Draghi better note some serious downside looming (after leaving rates/taper unchanged) that opens the door to his un-tapering or the stagflationary pressures building everywhere willcome back to bite his precious asset prices.
As we noted earlier, with the market not expecting any changes from the ECB this morning, so far that is precisely what it got, when moments ago the ECB announced that it kept all of its rates unchanged as expected, keeping the rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility at 0.00%, 0.25% and -0.40%, respectively.
In additional language relating to non-standard measures, the ECB also said that “it will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017 and that, from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary” and “in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim.“
It also said that “the net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP” and cautioned that “if the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.”
In other words, it may move QE up or down, depending on what happens with inflation, in line with the ECB’s December announcement.
Details of the ECB monetary policy meeting 19 January 2017
Deposit rate -0.40% vs -0.40% prior
Marginal lending rate 0.25% vs 0.25% prior
QE purchases €80bn per month
There’s nothing much in the accompanying statement.
Monetary policy decisions
19 January 2017
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, and well past the horizon of the net asset purchases.
Regarding non-standard monetary policy measures, the Governing Council confirms that it will continue to make purchases under the asset purchase programme (APP) at the current monthly pace of €80 billion until the end of March 2017 and that, from April 2017, the net asset purchases are intended to continue at a monthly pace of €60 billion until the end of December 2017, or beyond, if necessary, and in any case until the Governing Council sees a sustained adjustment in the path of inflation consistent with its inflation aim. The net purchases will be made alongside reinvestments of the principal payments from maturing securities purchased under the APP. If the outlook becomes less favourable, or if financial conditions become inconsistent with further progress towards a sustained adjustment in the path of inflation, the Governing Council stands ready to increase the programme in terms of size and/or duration.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
The euro did it’s usual 20 pip flip flop in the seconds into and over the release but is back around 1.0660.