US MARKET WRAP: USD hit despite core CPI rise, stocks climb to fresh record highs

US MARKET WRAP: USD hit despite core CPI rise, stocks climb to fresh record highs

FEDSPEAK: Non-voters Kashkari and Harker do not reveal any new information

Fed’s Harker (non-voter) was again on the wires on Friday, and said little new information of note. However, he did repeat his view that the Fed should lift rates two times in 2018 (the Fed’s dots look for three hikes).  

Fed’s Kashkari (non-voter) spoke once again on Friday, focusing on inflation data; the Minneapolis Fed President is gopeful that inflation is moving to target, but wants to see more evidence.

US CPI: Core inflation rises more than expected

US CPI YY, NSA (Dec) 2.1% vs. Exp. 2.1% (Prev. 2.2%)
US CPI MM, SA (Dec) 0.1% vs. Exp. 0.2% (Prev. 0.4%)
US Core CPI YY, NSA (Dec) 1.8% vs. Exp. 1.7% (Prev. 1.7%)
US Core CPI MM, SA (Dec) 0.3% vs. Exp. 0.2% (Prev. 0.1%)
US Real Weekly Earnings MM (Dec) 0.2% vs. Exp. 0.1% (Prev. 0.1%)

Traders focused on the core CPI measure, which rose to 1.8% in December, the latest monthly increase in almost a year.

EQUITIES: SPX +0.66% at 2786, DJI +0.88% at 25800, NDX +0.75% at 6758
Top performers: Consumer cyclicals +1.0%, Energy +0.8%, Industrials +0.7%
Bottom sectors: Utilities -0.4%, Consumer non-cyclicals +0.1%, Materials +0.1%

The equities rally continues, with major US bourses printing fresh record highs at the end of the week, as Q4 earnings season gets underway.

Banks began reporting their numbers, with JPMorgan reporting a top and bottom-line beat; Wells Fargo, however, could only beat on the Adj EPS front, with revenues falling slightly short of expectations. The former’s trading revenues were glum, as expected, with fixed income trading off by over 30%, while equities trading revenues were flat.

Consumer discretionary led the gains after retail sales increased. Energy was also higher, tracking crude prices. On the other end of the scale, utilities were the laggard, once again.

TREASURIES: US 10-Year T-Note Futures settle 6 ticks lower at 122-30

Although Treasury yields were slightly higher on the day (with the exception of 30s, which were unchanged), major curves flattened; most notably, the 2s30s curve, by c.3.6bps.

2s yields rose by around 3bps on the day following a decent core CPI data print, which has nudged the probability of three Fed hikes in 2018 slightly higher.

Corporate supply has been healthy this week, with high-grade raising $32bln, according to Reuters. Next week, high grade issuers are forecast to raise between $25 and $30bln.

FOREX: USD lower despite healthy core CPI

The Greenback found strength after core CPI data rose more than analysts had expected. However, the buck found is difficult to cling onto gains, and continued to ease gradually in wake of the release, and as yields gave back some of their gains.

The EUR was supported by positive news from Germany, where parties have reached an ‘accord’ to form a government, possibly by the end of February, driving the currency to the highest levels since 2014, now flirting with 1.22.

Later in the day, the weaker dollar was helping the single EUR saw some small downticks in late European trade, after ECB member Jens Weidmann suggested that the prospects of an imminent rate hike from the ECB were small.

The yen was pushed to beneath 111.0 in wake of the US CPI data, though is consolidating around the figure as we head into the weekend. The Swissy also gained, breaching the 0.97 figure against the USD; as did gold, rising towards the $1340 mark.

Sterling took advantage of USD weakness, pushing above 1.37. There were reports in the afternoon suggesting that Spain and the Netherlands were amenable to a soft-Brexit, providing some impetus for Sterling bulls.

CAD continues to be subject to NAFTA headline risk, though worries have eased slightly on a US-led deadline extension, remaining beneath 1.25 heading into the weekend.

CRUDE: WTI futures settle 50 cents higher at USD 64.30 per barrel; Brent futures settle 61 cents higher at USD 69.87 per barrel

Crude prices rose on Friday, though Brent couldn’t settle above $70 per barrel. Comments from the Russian energy minister supported the crude complex, after he said that markets were not balanced yet. The comments were said to undermined the argument that OPEC/Non-OPEC were edging towards unwinding their deal to curb output.

Baker Hughes reported that active oil rigs rose by 10 in the week to 752, the largest weekly increase since June.

Finally, oil specs raised net longs by around 46k to 501k in the week.

12 Jan 2018 - 21:00- Research Sheet- Source: RANsquawk

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