Treasuries rallied during the overnight session in Asia on concerns that results of the Alabama Senatorial election might negatively impact tax reform, but that trade was unwound in the London session, pushing Treasury prices slightly lower to start the morning session. However, bond prices are moving higher again following the release of another tepid inflation report. The Republican loss in Alabama doesn’t derail the tax reform effort, but it gives Republicans no margin for error with just a 1-seat majority in the Senate. As such, there isn’t much of a negative reaction in equity markets this morning (S&P 500 futures +3 points). Today’s FOMC official statement will be released at 2pm ET, followed by the updated Summary of Economic Projections (SEP) and Janet Yellen press conference.

Headline CPI rose 0.4% in November (as expected) due primarily to a 3.9% increase in energy prices. Excluding food and energy, core prices were up just 0.1% versus expectations of a 0.2% gain. On a year-over-year basis, headline inflation rose as expected to 2.2%, but core CPI fell to 1.7%. Given the recent improvements in the inflation and overall economic growth trend, today’s CPI report is a disappointment, particularly after the weak wage growth data in the November jobs report. It will be interesting to see/hear the Fed’s perspective on the inflation trend later today.

Jason Haley
Managing Director, Investment Management Group

12/11JOLTS Job Openings6135599660936177
12/12NFIB Small Business Optimism104107.5103.8
12/12PPI Final Demand MoM0.30%0.40%0.40%
12/12PPI Ex Food and Energy MoM0.20%0.30%0.40%
12/12PPI Ex Food, Energy, Trade MoM0.20%0.40%0.20%
12/12PPI Final Demand YoY2.90%3.10%2.80%
12/12PPI Ex Food and Energy YoY2.40%2.40%2.40%
12/12PPI Ex Food, Energy, Trade YoY2.40%2.30%
12/12Monthly Budget Statement-$134.5b-$138.5b-$136.7b
12/13MBA Mortgage Applications-2.30%4.70%
12/13CPI MoM0.40%0.40%0.10%
12/13CPI Ex Food and Energy MoM0.20%0.10%0.20%
12/13CPI YoY2.20%2.20%2.00%
12/13CPI Ex Food and Energy YoY1.80%1.70%1.80%
12/13CPI Core Index SA253.932253.724253.428
12/13CPI Index NSA246.816246.669246.663
12/13Real Avg Weekly Earnings YoY0.80%0.40%0.30%
12/13Real Avg Hourly Earning YoY0.20%0.40%0.20%
12/13FOMC Rate Decision (Upper Bound)1.50%1.25%
12/13FOMC Rate Decision (Lower Bound)1.25%1.00%
12/14Initial Jobless Claims236k236k
12/14Continuing Claims1900k1908k
12/14Retail Sales Advance MoM0.30%0.20%
12/14Retail Sales Ex Auto MoM0.60%0.10%
12/14Retail Sales Ex Auto and Gas0.40%0.30%
12/14Retail Sales Control Group0.40%0.30%
12/14Import Price Index MoM0.70%0.20%
12/14Import Price Index ex Petroleum MoM0.10%0.10%
12/14Import Price Index YoY3.20%2.50%
12/14Export Price Index MoM0.30%0.00%
12/14Export Price Index YoY2.70%
12/14Markit US Manufacturing PMI53.953.9
12/14Markit US Services PMI54.754.5
12/14Markit US Composite PMI54.5
12/14Bloomberg Consumer Comfort52.3
12/14Business Inventories-0.10%0.00%
12/15Empire Manufacturing18.819.4
12/15Bloomberg Dec. United States Economic Survey
12/15Industrial Production MoM0.30%0.90%
12/15Capacity Utilization77.20%77.00%
12/15Manufacturing (SIC) Production0.30%1.30%
12/15Total Net TIC Flows-$51.3b
12/15Net Long-term TIC Flows$80.9b