The backdrop for US equities, as we begin the week, is decidedly upbeat despite all the political friction that has surfaced in recent weeks. It appears as though investors are not paying much heed to what appears to be a bitterly divided public.
Crude WTI remains range bound – longer term trend – higher
US 10-year yield remains range bound – longer term trend – higher
Last week’s interest rate and equity market landscapes were most directly impacted by two data points: Chair Yellen’s Humphrey Hawkins semi-annual monetary policy testimony before the Senate Banking Committee and the unexpectedly large jump in the Consumer Price Index for the month of January.
January’s Consumer Price Index (CPI) data, released on Wednesday, did take traders by surprise in that it came in at 0.6% versus Bloomberg consensus that was calling for 0.3%, matching December. On a year-over-year basis the index has risen 2.5%. Naturally, less food and energy, the reading was a more tame 0.3% for January. If the CPI continues to rise above recent trend, the likelihood of the FOMC moving in Q2 is nearly assured. Continued robust employment growth, as measured by the monthly employment report, near record low weekly unemployment claims and the likelihood of rising crude prices with driving season around the corner will cement that.