Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.
The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.
Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.
The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.
Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.
Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.
Following this morning’s soaring inflationary and retail sales data, and following Yellen’s hawkish tone yesterday, March rate-hike odds have soared from below 25% to over 40%. The Dollar Index is extending its recent winning streak on this move – now up 11 days in a row, the longest streak since May 2012.
Rate hike odds are ripping higher as The Fed gets its way of pricing in a March rate hike…
And The Dollar Index continues to rise…
This is the longest USD win streak since May 2012.
July 1975 – 11 days in a row
Sept 1975 – 11 days in a row
May 2012 – 14 days in a row
Feb 2017 – 11 days in a row
And notably, if extends to 12 days tomorrow, will be the second longest winning streak in dollar history.
With two months left until the French election, analysts and political experts find themselves in a quandary: on one hand, political polls show that while National Front’s Marine Le Pen will likely win the first round, she is virtually assured a loss in the runoff round against either Fillon, or more recently Macron, having between 20 and 30% of the vote; on the other, all those same analysts and political experts were dead wrong with their forecasts about both Brexit and Trump, and are desperate to avoid a trifecta as being wrong 3 out of 3 just may be result in losing one’s job.
Meanwhile, markets are taking Le Pen’s rise in the polls in stride, and French spreads over Germany are moving in lockstep with Le Pen’s rising odds. In fact, as noted earlier in the week, French debt is now the riskiest it has been relative to German in four years.
With President Donald Trump’s litany of executive orders grabbing the limelight, investors turn their attention back to central banks and economic data next week.
Here’s what to watch in the coming days.
The minutes of the Federal Reserve’s December monetary policy meeting showed that the central bank could be forced to lift rates higher than expected if Congress passes Donald Trump’s economy-boosting tax cuts. So, when the Fed meets next week investors will be watching the Federal Open Market Committee’s statement for the Fed’s view on the US economy and inflation.
Economists widely expect the central bank will leave interest rates unchanged, noting that the absence of a press conference with Fed chair Janet Yellen leaves little room for major shifts in policy. “The February FOMC meeting should come and go with little market implications,” Tom Porcelli, economist at RBC Capital Markets, said. “The Fed is likely to continue to strike a positive tone on the economy and they may upgrade their inflation characterization toward a slightly more hawkish slant in the wake of headline CPI now breaching 2%.”
Meanwhile, the Bank of Japan’s meeting next week marks the one-year anniversary of its adoption of negative interest rate policy. The central bank is not expected to change its policy but it will provide updates on economic growth and inflation.
“Next week’s BoJ meeting should reveal a resolute central bank in its yield curve control framework,” Mazen Issa at TD Securities, said. “We expect the BoJ to be side-lined on all fronts. Speculative ‘taper talk’ is premature though we think this dynamic will need to be reassessed in the coming months.”
Elsewhere, the Bank of England is also expected to leave policy unchanged and update its forecasts as it unveils the inflation report. Economists expect the BoE to maintain a neutral stance on policy.
A new report from Standard Chartered estimates capital flows out of China totalled almost $730bn in 2016, a near-record level.
Analysts Shuang Ding and Lan Shen estimated outflows had moderated in December to $66bn, down from November’s $75bn.
Beneath the headline figure foreign direct investment flows turned positive for the first time in eight months with a $3bn inflow, while non-FDI outflows remained unchanged from the previous month at $69bn.
The analysts estimated December’s outflows brought the annual total for 2016 to $728bn, close to the previous year’s record high of $744bn.
They also estimated China’s foreign exchange reserves had fallen $41bn last month to end the year at $3.01tn as depreciation of the euro, yen and pound against the greenback. That reduced the dollar value of China’s holdings in those currencies by about $13bn.
Stocks ended mixed Thursday as retailers dominated the news with Macy’s and Kohl’s both plunging following weak holiday-season reports that led the chains to cut their profit forecasts.
Still, the Nasdaq composite’s modest gain of 11 points, or 0.2%, was enough to notch a new all-time high. Settling at at 5487.94, it topped the old record by half a point.
The Dow Jones industrial average finished down 43 points, a 0.2% decline to 19,899.29. Losing 0.1% was the S&P 500, which settled at 2269 even.
nvestors were also focusing on upcoming U.S. jobs data following the publication of the minutes to the Federal Reserve’s last board meeting.
Private U.S. companies added 153,000 jobs in December, according to payroll processor ADP. That total was a bit lower than analysts expected and slightly slower than the pace of hiring for the rest of 2016. The government will issue its own hiring report on Friday.
Stocks climbed Wednesday as Wall Street posted a second straight day of gains in the new year and the Dow once again approached the 20,000 milestone.
The Dow Jones industrial average ended up 60 points, or 0.3%, to 19,942.16. The blue-chip index rose has come close to topping 20,000 several times in recent weeks but each time it gets near has pulled back. The Standard & Poor’s 500 index rose 0.6% and the Nasdaq composite index gained 0.9%. Both the S&P 500 and Nasdaq are near their record closing highs.
Stocks maintained their gains following the release of the minutes from the latest Federal Reserve meeting that provided clues to why policymakers raised interest rates in December for only the second time since 2006 and forecast three rate hikes in 2017 instead of the two moves previously anticipated.
Fed officials said they might have to raise interest rates faster than anticipated to prevent rapidly falling unemployment and President-elect Donald Trump’s proposed fiscal stimulus from fueling excessive inflation, according to minutes of the Fed’s December 13-14 meeting.
Benchmark U.S. crude was up 1.8% to $53.24 a barrel in New York. It lost $1.39 on Tuesday.
The FOMC Minutes are due today at 2 pm ET (1900 GMT)
The economic calendar is light today so it’s all about flows to start the year and the FOMC Minutes later in the day.
In general, the Minutes are a release that always gets more attention than deserved. It’s rare the report moves the market and the initial move is often reversed.
But that might not be the case this time because the FOMC hiked rates at the December meeting and left the timing on subsequent rate moves ambiguous. The big market driver was the change in the dot plot.
Here is September compared to December:
Meanwhile, in the press conference Yellen emphasized that the thinking at the Fed hadn’t changed much.
“The shifts that you see here are really very tiny,” she said about the dot plot.
The jolly chaps and chapesses at Danske Bank have the euro all mapped out for next year
Danske see EURUSD bottoming at 1.0200 in their 1 month forecast.
“In the short term, on the one hand there will be downward pressure on the US monetary base from the higher federal funds target and from the impact of new banking regulation with US banks set to be required to have an LCR of 100% by 1 January 2017. On the other hand, deposits on the US treasury account may fall at the beginning of next year after a resuspension of the debt ceiling, which will tend to increase the monetary base. Overall, this is likely to be marginally positive for USD and weigh on USD FX forward points vis- à-vis EUR and the Scandinavian currencies on top of the impact of the repricing of the path of Federal Reserve rate hikes, e.g. keeping the 3M EUR/USD basis spread around the present 70-80bp, and thus maintaining a significant negative carry on short USD positions.”
Mainland China has lost its status as the largest overseas holder of the US debt to Japan as the recent decline in the renminbi’s FX rate and the strengthening yen have affected the value of the two nations’ respective Treasury note portfolios.
The yen’s status as safe haven asset as fiscal stimulus effort have attracted investment capital to Japan, resulting in stronger yen, whilst China, struggling with low factory-gate inflation and weak international demand for manufactured goods, had to decrease its holdings of the US debt. Japan, now the biggest foreign holder of US Treasury debt, held $1.13 trln worth of US bonds in October, whilst China’s holdings shrank to their six-year lowest at $1.12 trln, according to the data from the US Department of the Treasury. Beijing has been selling US bonds in order to alleviate the downward pressure on the renminbi’s FX rate stemming from lingering economic turmoil. Mainland China uses the dollars obtained from selling the Treasuries to buyback the renminbi, currently at its 8-year lowest in offshore trading.
Japan, however, had been selling Treasuries in early autumn, too, due to the uncertainty surrounding the US presidential election. The subsequent developments in the form of the election of Donald Trump and the plunge in Treasury bond value accompanied by the rising benchmark 10-year yield have proven selling Treasuries the right move, but the yen’s ongoing appreciation has made Japan the largest international US bond holder.