Author: Tim McPartland

Well yesterday we got some consumer price index (CPI) numbers that we hotter than forecast – markets reacted strongly – for about 90 minutes and then yawned. The S&P500 fell a bit–but nothing of significance, while the 10 year treasury fell 5 basis points to close at 3.98%. Right now equity futures are falling with the S&P500 off by about 1/3%.

Today we have the producer price index (PPI)–forecasts are for numbers that are up .1%. Is there a reason to think markets will react strongly – nope. In fact after the release of CPI yesterday the odds of a rate cut by the Fed in March rose to 70% – hope springs eternal I guess.

Maybe a bigger issue to markets at this moment is the U.S. and UK airstrikes in Yemen last night which has served to drive up crude oil prices by $2-3/barrel. The escalation of issues in the Middle East could easily drive oil prices up by $10-$20/barrel–or more. Let’s hope this situation settles down-for lots of reasons, but certainly for economic reasons–i.e. shut down of the Suez canal.

Last night Eagle Point Credit (ECC) priced a new issue of term preferred at 8%. This is a monthly payer and will trade under ticker ECCF. Egan-Jones has the issue at BBB. The pricing term sheet is here.

I did nothing yesterday–no buying or selling. Accounts are sitting just below record levels–daily movements have been minimal–movements are primarily around dividend and interest payment dates. I have very large maturities of CDs in February and March–I have concerns that I will be able to deploy these funds in a timely and responsible fashion, but given that I can earn 5.3% in a money market fund I have a little grace period to figure it out.

So let’s get this day rolling!!

Well the big number of the week will be released in about 20 minutes–the consumer price index (CPI). This report coupled with the same report next two months will be huge factors in deciding if the Fed Funds rate gets lowered at the FOMC meeting in March. Of course we have a FOMC meeting the end of January, but it is generally agreed there will be no rate action at this meeting. The CME FedWatch Tool shows a 97% chance of no change in rates in January. The odds of a rate cut in March now stands at 65%–it had been 70% until last weeks employment report and then fell to 55%–now creeping back higher.

Both equity and interest rates are quiet right now–the S&P500 is up the smallest of amounts and interest rates are off a few basis points from yesterdays close with the 10 year treasury at 3.99%. We could see equities and interest rates move dramatically after the release of the CPI. The headline number is forecast to rise to 3.2% from 3.1% last month–while the core number is forecast to to fall a bit to 3.8% from 4% last month. Variations from these forecast could cause dramatic moves in markets.

Right now I have no plans to do any buying or selling today–sit back and watch the day play out. Yesterday I did SELL another portion of my Bridgewater Bancorporation 5.875% preferred (BWBBP). I had a good til cancelled sell order in and a portion of it executed at $19.65–a gain in this account of about 26% (I hold it in 2 accounts)–no dividends received on this tranche. So 2/3rds of this position has now been sold.

So let’s sit back and see if we have fireworks–or if it is a non-event. I hope it is a non-event, but the potential for crazy action is sure out there.