Stocks moved higher mid-week following Fed Chair Janet Yellen’s testimony before the Senate Banking Committee. She seemed uncertain about the overall economy, saying the odds of growth or contraction were 50-50. Yellen is also unsure about when inflation will respond to strong employment, but she is sure that only temporary factors are holding down inflation. Yellen also expects one more rate hike this year and was less clear about when the balance sheet reduction would begin, observes Lance Gaitan, Dent Research, July 14, 2017. Time will tell if another double-digit earnings growth in the market is in the cards.
Thanks to Dent Research, provided here is our weekly information roundup ending the week of July 14, 2017. We start each subject with what you hear in the news and finish with what that information means to you. We hope this information will help you separate the noise from the news.
Federal Reserve Chair Janet Yellen Testified Before Congress... She answered questions about future rate hikes and the pace of asset sales.
What it means – The short version – the Fed remains data-driven. She basically told the politicians that the central bank intends to raise rates later this year as well as sell mortgage-backed bonds and U.S. Treasuries, but that the timing of both things were not decided. And even if they had a timetable, it could change. Because, you know, data happens.
She mentioned that the forces holding down inflation (lower energy costs, lower communication costs, etc.) are transitory, so she expects higher inflation later this year and next year. But then again, maybe not. Because data happens.
Consumer Prices Flat in June... With June unchanged, prices are 1.6% higher than this time last year. Excluding food and energy, prices rose 0.1% and are up 1.7% over last year.
What it means – Speaking of data that happens, it’s interesting that this report came on the heels of Chair Yellen’s testimony. According to the data, core prices just printed their weakest four-month run in 60 years. Housing prices increased only 0.1%, while apparel fell for the fourth month, and transportation, led by auto prices, dropped for a second month.
Expect the Fed to hold off on rate hikes until at least December, but they’ll probably take action to shrink their balance sheet starting in October.
June Retail Sales Drop 0.2%... Retail sales fell for the second month, and are flat for the quarter.
What it means – And yet another piece of data. With a slight gain in April and a 0.1% decline in May, we now have a quarter with zero growth in retail sales, which will hold down GDP growth. Most of the declines were in food and beverage as well as restaurant sales, but department stores also took a hit.
On a positive note, building materials were 0.5% higher. Overall, it feels like consumers are curbing their discretionary spending, which reflects modest wage growth. Unless we get more income, these numbers aren’t likely to move much higher.
Industrial Production Up 0.4% in June... Led higher by mining, industrial production rose as utilities remained flat and manufacturing inched up 0.2%.
What it means – Mining includes oil and gas exploration and recovery, which explains the strength. But don’t get used to it.
While I think energy will continue to move higher as frackers come back online, I still see auto production taking a hit this summer, which should pull down industrial production and also doing employment numbers.
U.S. Oil Inventory Below 500 Million Barrels... Inventory fell to 495.4 million barrels last week, but remains about 5 million above where it was a year ago.
What it means – Current inventory is an important snapshot, but the trend is more important. The trend in oil inventory over last several years is up and to the right on a chart, meaning we have more of it.
And while OPEC has made a lot of noise about cutting production, last month several members – including Saudi Arabia – actually pumped out more of it. And then Nigeria announced it will produce more, the Iranians are partnering with major oil companies to produce more, and Mexico just discovered more oil in shallow offshore fields.
Anyone banking on higher oil prices better has deep pockets.
State of Illinois Passes First Budget in Three Years... The Illinois state legislature overrode a gubernatorial veto to pass the budget.
What it means – The governor has refused to sign off on any budget that doesn’t significantly reform the state’s finances, particularly its woefully underfunded pension program.
The current budget doesn’t fix any issue, but the legislature finally had enough votes to pass it anyway. Illinois is the Greek state of the U.S. It will go bankrupt within the next decade, and probably within five years as its pension costs explode.
IRS Narrows Coinbase Information Request to Bitcoin Transactions Over $20,000...
The tax service had requested records on all transactions, but has since limited the scope.
What it means – Anyone thinking this takes small Bitcoin holders out of harm’s way is mistaken. The IRS simply said it wants to focus on the biggest likely tax cheats first. Remember, in the eyes of the U.S. tax code, Bitcoin is an asset, not a currency. So every transaction involves a gain or loss and must be reported as such on the owner’s taxes. If you don’t you’re at risk of receiving a very nasty tax bill from the IRS.
Repair Man Stuck Inside ATM... A contract worker in Corpus Christi, Texas, was trying to repair a lock on the building that housed the ATM when he inadvertently locked himself inside.
What it means – He left his cell phone in his truck, so he communicated by slipping notes to ATM users that basically said, “Help me! Call my boss!” Several ATM users thought it was a joke, but eventually someone did call the number, and his co-workers freed him from the money prison. While this doesn’t rank as a smart move, at least getting locked inside with the cash is better than leaving the back of the ATM unlocked, but that’s probably small consolation to a guy who will suffer a lot of ridicule in the weeks to come.
Next Week – The week of July 17 includes a report on housing starts, but otherwise should be very quiet on the economic front.
The proof is in the planning.
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