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Weekly jobless claims drop to lowest level since 1973

The stock explosion yesterday was on the belief President Trump will be able to achieve his goals. The thinking now is he will be more amenable to discussions and convince his adversaries to work through them with cooperation. Republicans more optimistic that his new tone. Likely he will tone down his attitude toward the media. It isn’t just his speech; as we noted yesterday there has been a big increase recently that the Fed will move on the 15th of this month; investors enthused that the Fed is now believing the US economy will grow this year; and Buffett’s remarks Monday that at current levels he doesn’t believe valuations are too high as long as interest rates remain relatively low.

Early this morning in the stock indexes in the futures trade were slightly better; the 10 yr yield at 8:00 2.48% +2 bps. MBS prices at 8:00 am -9 bps. Weekly jobless claims at 8:30 were expected to be generally unchanged, as reported claims declined 19K back to 233K; the 4-week average is down 6,250 to 234,250 in a confirmation of strength. And like the week’s 223,000 headline level, the average marks a new low for the economic cycle, lows for both going back to the early 1970s.

More ‘confirmation’ that the Fed will act in two weeks; Lael Brainard, a member of the Fed’s board of governors and one of the strong doves at the Fed saying “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path”. A Fed dove is advocating a move in the near future, adding to the conviction that the Fed will do the deed. By the time the meeting occurs markets will have mostly discounted the increase.

Nothing left today; no economic releases.

There should be no argument now about the Fed increasing rates in two weeks. Trading at the CME (Chicago Mercantile Exchange) in the FF futures market is at 78% and Bloomberg data at a 90% probability. Markets are now telling the Fed, go ahead, we expect it. The Fed always worries about not roiling markets with surprises, now they have the green light. A move now will increase the probability of three increases this year as some Fed officials have suggested. Of course, the Fed will still be data dependent. Currently the optimism of economic growth this year is very high; but if Trump’s tax cuts, healthcare reform, fiscal spending and the border tax drag on some of the optimism will diminish rapidly. Next Friday the February employment data is the final hurdle for the Fed; if the employment data is weak on job growth or the unemployment rate moves up then markets would rethink an increase; that said we don’t expect the data to be soft enough to keep the Fed from acting. Markets are set up for the increase, any waffling now by the Fed will not sit well in the stock markets.

On this Saturday all Fed officials will be on lockdown in terms of speeches and comments. In the meantime, key Fed officials will be out with speeches; Tomorrow we have Fed Chair Yellen, Fed Vice Chair Fischer, Fed Governor Powell, and Chicago Fed President Evans all speaking.

All technical readings (price action in the rate markets) are bearish; respect the tape regardless of any fundamental events or speakers. The only key economic release this week is the Feb ISM services index tomorrow,

Source: TBWS

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