June 8, 2017

Stocks opened mixed this morning (Dow +32 pts; SPX flat). Banks, semiconductors and retailers are in the green, but the more interest rate sensitive sectors (utilities, real estate) are lower. The VIX Index is down around 10. The dollar is up about .4% today, partly because the Euro is weaker after the European Central Bank policy meeting. WTI crude oil is down modestly to trade around $45.70/barrel. Bonds are selling off a bit as yields head higher. The 5- and 10-year Treasury yields are up to 1.77% and 2.20%, respectively. 

The European Central Bank’s (ECB) meeting yielded mostly status quo. The accompanying statement dropped any reference to further interest rate cuts, which is probably helpful because short-term ECB interest rates are at zero already. The ECB’s policy committee noted rates will “remain at present levels for an extended period of time.” The ECB noted it will extend its quantitative easing program if necessary. But it is clear that Eurozone economic growth and inflation are rising. But Bloomberg reported recently that ECB officials have shifted their economic outlook to reduce inflation expectations. The report said Eurozone consumer price inflation is now seen rising 1.5% over the next three years vs. the official forecast of 1.6-1.7%. The bottom line is that this ended up being a non-event.

Former FBI Director James Comey is testifying before the US Senate today regarding his interactions with President Trump. As expected, Mr. Comey said Mr. Trump pressured him to drop investigations that reflected poorly on the White House. Presumably, Mr. Comey was fired because of these investigations. So far, the testimony hasn’t yielded any surprises that will ding the stock market. 

JP Morgan CEO Jamie Dimon spoke at a meeting of the Business Roundtable yesterday. He said “three really bad facts” are holding back the US economy. First, about 70% of young men are ineligible for military service “because of education or health.” Second, “half of kids in inner city schools don’t graduate” and many of those who do graduate are not prepared to “work a proper job.” Third, the labor force participation rate among men ages 25-54 has fallen to 88% from 96% back in 1970.  These factors, he says, are restraining economic growth. Mr. Dimon also pointed out that rapid proliferation of government regulations on business is holding us back. He cited declining business formation and limited access to mortgage loans. “I could go on and on and make a list of the things that have slowed us down and held us back and affected jobs and wages.”

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