Markets rebound led by tech shares

Dow rose 155 (near the highs), advancers over decliners 3-2 & NAZ shot up 117.  The MLP index was up 4+ to the 247s & the REIT index fell 1+ to the 338.  Junk bond funds did little & Treasuries were flattish.  Oil was up 1+ to go over 52 & gold lost 1 to 1289.

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The Federal Reserve likely will need to pause before implementing further rate hikes as it assesses the economy’s direction & the impact of its previous policy moves, Kansas City Fed Pres Esther George said.  “A pause in the normalization process would give us time to assess if the economy is responding as expected with a slowing of growth to a pace that is sustainable over the longer run,” George said in prepared remarks.  “Failure to recognize these lags could lead to an overtightening of policy, a downturn in economic growth and an undershooting of our inflation objective.”  Echoing recent comments from several other Fed officials, George said policymakers have the time now to be patient in assessing whether further rate hikes are necessary.  Since beginning the current round of rate normalization in 2015, the FOMC, of which George is a voting member, has approved 8 increases, the most recent of which came last month.  Her stance is something of a departure from her longstanding reputation as one of the committee's more hawkish members as she has pushed in the past for the Fed to unwind its historically accommodative policy moves.  Markets have been nervous that the Fed, in its determination to get a neutral rate that is neither restrictive nor stimulative, may be on the way to making a policy mistake.  George said she’s not sure how near the Fed is to neutral, saying only that “we’re getting close.”  The comment contradicts a market-rattling statement from Chairman Jerome Powell in Oct that the Fed is a “long way from” neutral.  Powell has since walked back that statement, in recent weeks saying that the current target rate of 2.25-2.5% is around the lower end of the range of neutral estimates on the FOMC & more recently also adopting the stance that the Fed can be patient ahead.  “It is possible that some additional rate increases will be appropriate,” George said.  “But making that judgment is not urgent and should depend on a careful look at the data and gathering additional insight into where our destination is, how much further we need to go to reach it and how quickly we should get there.”  The economy, George said, is doing well & she in fact expressed concern that the low unemployment rate, currently at 3.9%, could be an inflation signal. George said inflation will be a metric she will watch closely ahead in determining the future policy path.  However, she also noted the lagging impact of Fed policy.  In particular, she added it's unclear how much of an effect decreasing the Fed's balance sheet is having on financial & economic conditions.  The Fed is allowing a capped level of up to $50B a month in proceeds from its holdings of Treasuries & mortgage-backed securities to run off.  “It is unclear whether, or how much, this roll off is further removing accommodation,”  George said.  “Again, this suggests it might be a good time to pause our interest rate normalization, study the incoming evidence and data, and verify our current location.”  George noted that in her district, the farming & energy sectors have both taken a beating.  Overall, though, she said the outlook for the economy is “favorable.”

The Fed's Esther George indicates it's time for a pause from rate hikes

US producer prices fell by the most in more than 2 years in Dec amid declines in the costs of energy products & trade services, adding to signs of tame inflation that could allow the Federal Reserve to be patient about raising interest rates this year.  The Labor Dept said its producer price index for final demand dropped 0.2% last month after edging up 0.1% in Nov, the first decline since Feb 2017 & the largest decrease since Aug 2016.  In the 12 months thru Dec, the PPI increased 2.5%, matching Nov's gain.  The forecast called for the PPI to slip 0.1% in Dec & gain 2.5% on a year-on-year basis.  A key gauge of underlying producer price pressures that excludes food, energy & trade services was unchanged last month.  The PPI increased 0.3% in Nov & in the 12 months thru Dec, the core PPI increased 2.8% following a similar rise in Nov.  Data last week showed the consumer price index falling 0.1% in Dec, the first drop in 9 months, amid cheaper gasoline, airline fares, used trucks & motor vehicles as well as motor vehicle insurance.  The CPI was unchanged in Nov.  Inflation remains tame despite a tightening labor market that is starting to push up wage growth, which backs up recent statements by Fed officials pledging patience in raising rates this year.  The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food & energy is hovering just below the central bank's 2% target.  The Fed has forecast 2 rate hikes this year, but several policymakers, including Chairman Jerome Powell, have said they would be cautious about tightening monetary policy.  The core PCE price index increased 1.9% on a year-on-year basis in Nov after rising 1.8% in Oct.  It hit 2% in Mar for the first time since 2012.  Core PCE data for Dec is scheduled for release later this month, but it is likely to be delayed because of an ongoing partial shutdown of the federal gov.  Overall, the cost of wholesale goods fell 0.4% after declining by the same margin in Nov.  Core goods edged up 0.1% last month after rising 0.3% in Nov.  A strong $ & cheaper oil are likely keeping the cost of goods in check.  The cost of services fell 0.1% in Dec, pulled down by a 0.3% drop in the index for trade services, which measures changes in margins received by wholesalers and retailers.  Services increased 0.3% in Nov.

US producer prices fall more than expected in December

UK Prime Minister Theresa May has overwhelmingly lost a crucial vote on her Brexit plans in the House of Commons.  May lost by 230 votes after lawmakers voted by 432 to 202 to reject the deal.  Politicians from different political parties rejected the proposed Withdrawal Agreement, currently the only deal agreed with the EU on how Britain should exit the bloc in Mar of this year.  It's reportedly the largest defeat for a sitting gov in UK political history.  Despite the result, & expressing a defiant tone, May told lawmakers that she wanted to show those who voted leave the EU that it was her “duty to deliver” on Brexit.  Meanwhile, the leader of the opposition Labour party, Jeremy Corbyn, said he would now table a motion of no confidence in the gov during parliamentary business tomorrow.  Ian Blackford, the leader of the Scottish National Party, the 3rd largest party in the parliament, confirmed that it would support Labour's motion.  May's deal with Europe is seen by some as a sell-out to the ideals of Brexit, reducing Britain's influence while staying within many of the EU’s rules.  And many of those who oppose Brexit didn't like the deal either.  They have argued that it will reduce Britain’s ease of trade with the world, repel global talent & increase the cost of living.  The result creates a political vacuum in the Brexit process, with no firm certainty as to what night happen next.  Potential outcomes range from a revised attempt by May to force her plan thru, a 2nd Brexit referendum or even a General Election.  May added on that she would now make a statement to the Commons on next Mon where she is due to present a “plan B” for the exit agreement.  May also confirmed that she would make time to debate Corbyn's no-confidence motion.  “We need to confirm whether the government enjoys the confidence of the house. I believe that it does but given the scale and importance of tonight’s result it is right that others have the right to test that question if they wish to do so,” she said.  Following the heavy defeat, the £ gyrated briefly below $1.27 before recovering.  Sterling had been sitting near session lows at $1.273 prior to the vote.

UK leader Theresa May suffers resounding defeat on her Brexit divorce d…

JPMorgan (JPM), a Dow stock, Q4 profit rose by 2/3 despite a volatile trading environment.  The bank reported EPS of $1.98 versus expected EPS of $2.20.  Before this qtr, JPMorgan had beat estimates in every period for nearly 4 years.  Trading revenues decreased 5.7% to $3.17B from $3.37B a year earlier.  Fixed-income trading revenue fell 16%, while its equities trading revenue rose 15%.  At a Dec conference, CEO James Dimon said trading revenues in Q4 were trending about the same as the year earlier period, though the market swung wildly in the final weeks of the year.  He added that a healthy US economy boosted the bank's business in Q4 but warned that a protracted gov shutdown could alter the outlook.  A lengthy shutdown "is not going to help the economy," Dimon said, relaying an estimate the a shutdown lasting thru Q1 could send economic growth to zero.  Meanwhile, bank results continue to be affected by what happens with interest rates.  Federal Reserve officials earlier this month laid the groundwork to pause raising short-term interest rates.  Though an increase in rates can help the profitability of big consumer lenders, they can crimp mortgage lending & force banks to pay more to depositors.  Return on equity, a key measure of profitability, was 12% in Q4 compared with 7% a year ago.  The stock rose 74¢.
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JPMorgan earnings fall short of estimates

May's defeat in the UK is stunning & unexpected, but the stock market did not pay attention.  Optimism on earnings season is keeping the bulls feeling good.  Buying in tech shares gave the NAZ a triple digit gain today.  The Dow is back over 24K.  However headwinds have not gone away.  There is zero, I repeat ZERO, negotiations on the gov shutdown & China talks are also going nowhere fast.  The Euro mess only makes matters worse.  Currently, traders think tomorrow will take care of itself.  I don't know about that.

Dow Jones Industrials