Market Update as of December 14, 2018

Federal Reserve might not raise rates in March 
The week has been all about economic data and treasury auctions, as Fed officials have entered the quiet period before next week’s rate announcement. While nobody needs to guess what will happen next week (the Fed is expected to hike rates again), the odds of a Fed rate hike in March are now down to less than 50% as they shift to a data dependent stance on interest rate policy.

Recession Time?
If you were worried about rates going too high, be careful what you wish for. A definitive breakdown in yields is not the best case scenario here. Flattening before a resumption higher would actually be preferable to prolong the cycle. Speaking of cycles, the economic team at Bank of America says the risk of recession in the next six months is probably being overstated on Wall Street and in the media. They’ve introduced a new big data model that shows less than a 10% chance that the US economy falls into recession in the first half of 2019.

Retail Sales On Fire
U.S. consumer spending appeared to gather momentum in November as house- holds bought furniture, electronics and a range of other goods, which could further allay fears of a significant slow- down in the economy. The Commerce Department said on Friday retail sales excluding auto- mobiles, gasoline, building materials and food services surged 0.9 percent last month after an upwardly revised 0.7 percent increase in October. These so-called core retail sales, which correspond most closely with the consumer spending component of gross domestic product, were previously reported to have gained 0.3 percent in October. Economists polled by Reuters had forecast core retail sales rising 0.4 percent last month. November's increase in core retail sales suggested a brisk pace of consumer spending in the fourth quarter.

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