Weekly Market Update – 20 February 2017 BMO

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February 19, 2017

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Another week, another round of gains for the major averages. The S&P 500 climbed 1.5% to record its fourth consecutive weekly advance. The benchmark index has now posted gains in five of the first seven weeks of 2017, rising 5.0%.

The past week was highlighted by Fed Chair Janet Yellen’s semiannual testimony to Congress, which took place on Tuesday and Wednesday. The market handled the testimony well even though Chair Yellen’s comments showed the Fed may need to adjust its rate hike outlook as the year goes on. Specifically, Senator Pat Toomey asked Ms. Yellen why the Fed didn’t really bump up its growth projections at all at the December meeting when many other bodies, like the IMF, have bumped up their 2017 growth prospects based on a belief that the implementation of fiscal stimulus in the U.S. will have a positive effect on growth.

Ms. Yellen said most of her colleagues refrained from doing so because they wanted greater clarity on the time, scope, and composition of any fiscal changes before making assumptions on the growth outlook. In sum, the comments showed that the Fed will be required to raise rates faster than it currently expects if fiscal measures end up boosting economic growth—a notion that has been bought fully by the stock market.

The market also saw continued support stemming from President Donald Trump’s announcement that a “phenomenal” tax reform package was going to be announced in the next couple weeks.

The visions of tax reform and nothing but good things on the fiscal front kept a bid under the stock market, even though the latest round of inflation data showed hotter than expected PPI (+0.6%; Briefing.com consensus 0.3%) and CPI (+0.6%; Briefing.com consensus 0.3%) in January.

Last week’s steady rise in the stock market took place even though rate hike expectations were pulled forward, briefly showing a 50.0%+ likelihood of a rate hike in May. By the end of the week, the implied likelihood of a May hike was down to 44.1% while the probability of a June hike ended the week at 69.9%, up slightly from last Friday’s 68.3%.

(Excerpts from Briefing.com)

Bonds saw an about-face this week as its curve steepen after the previous week’s flight-to-safety.

Commodities closed mostly lower except for Precious .

Agriculture Closing Prices

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Screen Shot 2017-02-19 at 10.23.28 AMTHE WEEK AHEAD

Tuesday 21 to Friday 24 February (Week 08)

The eighth week of 2017 (wk8) is bullish for the SPY and DIA over the last 5 years with more than 80% reliability. However, the stats over the last 10 and 15 years are flat-to-bearish with less than 60% reliability.

The 2017 Stock Trader’s Almanac’s averages for the DOW are bullish on Tuesday and Wednesday at 52% and bearish on Thursday (62%) and Friday (52%). S&P500 is bullish on Wednesday at 57% and bearish on Tuesday (52%), Thursday (57%) and Friday (52%).

Key Economic Dates

Mon 20 Feb
• Australia Monetary Policy Meeting Minutes

Tue 21 Feb
• UK Inflation Report Hearings

Wed 22 Feb
• EU – European Flash Manufacturing PMI and Flash Services PMI, Final CPI y/y, French Flash Manufacturing PMI, French Flash Services PMI, German Flash Manufacturing PMI, German Flash Services PMI, German Ifo Business Climate,
• US Existing Home Sales, FOMC Meeting Minutes
• Australia Private Capital Expenditure q/q

Thu 23 Feb
• Australia Second Estimate GDP q/q, Prelim Business Investment q/q
• US Housing Starts

Fri 24 Feb
• EU German Prelim CPI m/m, Spanish Flash CPI y/y
• US New Home Sales, Revised UoM Consumer Sentiment

SUMMARY

12.3% Growth. Seriously?

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I must be way behind the economy or must’ve missed something huge to not see or know that our economy hit double-figure growth. This is the best return in six years since Q1 2011 … wait a minute … the economy today is no where near the kind of health it had in the last six years. With so many jobs lost, empty shops, vacant properties and fewer jobs available than there are candidates, how does a spike in manufacturing boost the overall GDP by that much?

Or are the manipulators of this statistics setting Singapore up for a major downside next quarter when we find out that this number is not sustainable. Or perhaps they’ll have downward “revisions” before the next reading to quell the enthusiasm.

This is beyond me. It was already questionable when the estimate was 9.1%. This is really something for the number-crunchers to mull over.

Happy Hunting.

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