Today's Economic Data Less Than Robust, But Not Concerning

WednesdayMarch 14, 2018, 11:12 AM, EST

  • NASDAQ Composite -0.01% Dow -0.39% S&P 500 -0.12% Russell 2000 -0.16%
  • NASDAQ Advancers: 863 Decliners: 1271
  • Today's Volume (100 day avg) -5.8%

The market opened a little firmer this morning but is already drifting off the highs. Today's economic data was less than robust but at the same time not concerning. Possible tariffs on China prevents trade war worries from fading, and overall the market is lacking a catalyst. Industrial data from China and Japan beat expectations but Asian markets were modestly lower; European markets are mixed to modestly higher following comments from ECB chief Mario Draghi indicating QE will not ending until their 2% inflation target is met. Back in the US, Treasuries are mixed with yield of the 10yr at 2.83%, the dollar is firmer but gold is soft, and crude oil is off 0.3% follow another inventory build.

  • The tale of the market in recent weeks has been about whether inflation would pick up in the U.S., potentially dinging both stocks and bonds. After yesterday's CPI data came in less hot than feared, treasuries rose, as did stocks initially. But what if inflation (and interest rates) pick up? According to StreetAccount Bloomberg reported that many economists and strategists argue that corporate and household balance sheets are healthy enough to offset higher borrowing costs. Economic momentum, the lowest unemployment in 18 years, and the fastest-expansion of the manufacturing sector in 14 years make it less likely higher bond yields will derail the expansion. Also total household spending on debt servicing as a percent of GDP is around 10%, near a 40-year low, despite a recent increase in credit card delinquencies.
  • Retail sales softened for a third month in February , coming in at -0.1% and missing estimates. January was revised higher but still shows a -0.1% drop. Ex-autos was still a miss even with a +0.2% advance and declines hit furnishings, electronics, appliances, and food among other categories. However building material stores saw gains.
  • Although yesterday's CPI was largely in line, today's Producer Price Index rose 0.2% in February, slightly more than expected, and YoY holds steady at +2.8%. Taken together, the CPI and PPI data show inflation is firmingas desired but at the same time there are no indications of a looming surge higher.
  • Another potential positive for equities is that CEOs are optimistic . The latest Business Roundtable CEO Economic Outlook Index rose to 118.6 in Q1 2018 from 96.8 in Q4 2017, the highest level since the survey began in Q4 2002.

Technical Take:

Today's core PPI figure (YoY)came in slightly below expectations (see above summary) and thus marked the third data point this week showing consumer inflation is not accelerating at speeds that would warrant an increased pace of rate hikes out of the FOMC. Markets are anticipating three rate hikes in 2018, the first of which is likely to be announced at next week's FOMC meeting. The tamer inflation data is putting a bid under the long end of the curve while the short end is today drifting higher. The diverging price action between long and short yields is leading to a flattening curve with the 10yr-2yr spread currently down at 56bps after reaching a high of 78bps in mid-February. The February high stalled right at a prior support range which thus was expected to act as resistance. The spread made multi-years lows in early January at 50bps which is now a key level pundits are focusing on, below which could raise concerns about a slowing economy and risk for inversion.


Nasdaq's Market Intelligence Desk (MID) Team includes:

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Annie O'Callaghan is Director on the Market Intelligence Desk (MID) at Nasdaq. Annie has worked for NASDAQ in a variety of roles including support of Nasdaq C-level management in client retention and customer service. Annie also served as a Sales Director in Nasdaq's Transactions Services business. Prior to joining Nasdaq, Annie worked at AX Trading, managing accounts for its Alternative Trading System and served on Credit Suisse's trading desk as an Electronic & Algorithmic Sales Trading Analyst.

Brian Joyce, CMT is a Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq's Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.