FEBRUARY 13, 2017
Stock Indexes at New Records – and most of the week’s gains occurred after President Trump announced a “phenomenal” corporate tax announcement to be made in the next couple of weeks. The president seems to be borrowing a page from ECB president Mario Draghi, whose undated profession to do “whatever it takes,” without actually doing anything immediately, helped the European markets in the lead up to its QE program.
The expected tax cuts and fiscal spending are driving stock and US$ values, while putting a cap on any Treasury gains. Fulfilling these initiatives falls to Congress, not Presidential decree, and there is a question as to how long this will take.
In the meantime, the Greek debt crisis has returned to form, a hard Brexit is yet to be defined, a possible Frexit is of concern if Marine Le Pen is victorious, and though there was good indirect bidding for last week’s $62 billion of Treasury debt, foreign investors are holding a smaller total amount of U.S. Treasuries. As evidenced by the Bloomberg chart below, this is not a new trend but did accelerate during the presidential election year and has continued into 2017.
Also, it was mentioned last week that the Fed has policy options other than just raising rates, e.g. reduce the reinvestment of maturing bonds and P&I payments from its mortgage backed securities, something that James Bullard, President of the St. Louis Fed, mentioned in a Thursday speech. Taken together, these items identify global caution about buying U.S. government debt due to political uncertainty. At $5.64 trillion that amount is formidable but its 43% of outstanding supply is down from a 56% share in 2008.
The Week in Review – saw rates improve, though not as much as stocks. 2017-20B was priced at 2.82%, vs. a 12-month average of 2.35%.
The Week Ahead – we’ll see some economic data like Producer Price Index and Retail Sales, but scheduled appearances by Janet Yellen before Congress will be of most interest. On Tuesday, she speaks before the Senate Banking Committee and then Wednesday’s appearance is before the House Financial Services Committee.
Note: The original posting for this information can be found here: https://www.eaglecompliance504.com/weekly-market-commentary.html.