Banks and phone companies pushed stocks higher as the dollar is at the highest level versus the euro since 2003. Financials are the direct beneficiary of a more hawkish Fed. As most are aware, the central bank is now projecting three interest rate hikes in 2017 versus two as was projected in September.
As widely known, for the past five years the FOMC’s “central tendency” was three interest rate hikes for the given year. This outlook did not even come close to materializing as there was only one 0.25% increase in 2015 and one in 2016. Will 2017 be the opposite of years’ past where the Fed is more aggressive than expected?
To write the obvious, it depends upon the data.
Treasuries continued their unrelenting selloff. The 10-year is at its highest yield since September 2014 but I must write it ended 2015 at 2.27%. Yesterday yields rose to 2.60%, levels that are still about half of what it was in the summer of 2007.
All can write volumes about the possible ramifications if yields continue to rise especially relating to the debt which is now $20 trillion, a debt that has doubled during the past eight years. As noted several times, today’s debt service coverage is nominally lower than it was in 1996 when the national debt was 25% of today’s level.
What will happen today?
Last night the foreign markets were up. London was up 0.16%, Paris up 0.39%, and Frankfurt up 0.32%. China was up 0.17%, Japan up 0.66% and Hang Sang down 01.8%.
The Dow should open quiet. The 10-year is up 7/32 to yield 2.57%.
Chief Economic Strategist Managing Director
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