April 11, 2018

Stocks opened lower this morning but quickly pared losses. The Dow and SPX are currently down 113 pts and .47%, respectively. Telecoms are down 1.4%, materials are down 1% and financials are down 1%. The energy sector, however, is up nearly 1%. The VIX Index is down a bit to 20.2. European markets are poised to close down modestly. The dollar is a bit weaker today and commodities are trading higher. WTI crude oil is up around $65.96/barrel, the highest in over three years. That’s because President Trump is threatening more missile strikes in Syria. Bonds are trading slightly higher on the day. The 5-year Treasury yields ticked down to 2.61% and the 10-year yield is trading at 2.78%. 

Facebook (FB) CEO Mark Zuckerberg is answering questions before a congressional committee for the second day. Why—beyond the need for political grandstanding—anyone would feel the need for a second day of this “testimony” is beyond me. Thus far, he has comported himself well, causing FB stock to rise 4.5% yesterday. This morning, he has already repeated much of what he said yesterday, and fielded accusations of systemic racism on the Facebook platform as well as targeted surveillance reminiscent of J. Edgar Hoover. Hyperbole is the order of the day among congressmen and women. As an example, one lamented that the “damage done to our democracy” is “incalculable.” 

The Consumer Price Index (CPI) accelerated to 2.4% in March from year-ago levels. That’s the highest rate of retail inflation in a year. This isn’t alarming; economists were anticipating the gain. But it confirms—along with Real Average Weekly Earnings rising .9% y/y—that inflation is gradually rising throughout the economy. Many economists also look at “core” inflation, which excludes food and energy prices. On that basis, Core CPI accelerated to 2.1% from 1.8%. One should remember that the Federal Reserve’s inflation target has been 2%. So the bottom line on this report is that the Fed will say, “I told you so” and continue raising short-term interest rates according to plan. The only real problem with that is a flattening of the yield curve. That is, short rates are rising at a faster pace than long rates. The difference between the 2-year and 10-year Treasury yields is down to 47 basis points, the lowest since September 2007. If that spread continues to fall this year, plenty of economists will begin worrying about recession. 

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