Economic Data Ahead
This week we have a few interesting pieces of data on the economic docket. Monday, not much happening but foreign buying of T-bonds could make a bit of a splash. The yield curve has inverted, partially, on the short end of Treasury maturities, and has flattened out on the longer end, and foreign buying to T-bonds could indicate the pace of flattening from here on out, or if the yield curve will widely invert at all.
On Tuesday we have housing starts. (NYSEARCA:ITB) With data weakening slightly across the country, this number could be key for future forecasted trends in the housing market. Bearish calls are becoming more trendy, and a strong number could reestablish a bullish trend going forward.
On Wednesday we have the all-important Federal Funds Rate at the conclusion of the Federal Open Market Committee meeting, where almost all analysts are expecting a 25 basis-point rate hike. The lack of one would be huge for market in the very short term, but expect much more focus on the tone of the FOMC press statement rather than the hike itself, which is widely expected to happen and shouldn’t move markets much if it in fact does.
Meanwhile, the 30Y mortgage rate is also due on Wednesday.
On Friday, we have 5Y inflation expectations and the big Personal Consumption expenditure data, the Fed’s preferred measure of inflation that it for some reason thinks is more authoritative, which is being published earlier than usual this month due to the New Year.
Obamacare Now Unconstitutional, Years After SCOTUS Declares it Constitutional
A Federal Judge in Texas by the name of Reed O’Connor, sided with 20 states led by Republicans in challenging the Affordable Care Act. They had brought a lawsuit asserting the law is unconstitutional without a penalty for not buying insurance, which is technically slightly different legally from asserting the law is unconstitutional with a penalty for not buying insurance, which is the reason why the law could be challenged once again on opposite grounds, since it was given the stamp of approval by the US Supreme Court way back in 2012 on the grounds that the penalty is constitutional because Congress can charge whatever for anything and call it a tax. The bottom line is that few understand the legal grounds on which Obamacare was rejected by this judge, and the media is simply glossing over the reasoning rather than attempting to explain it. Given that SCOTUS has already approved the law 6 years ago, the whole thing is very confusing. Nevertheless, the fight will go on, regarding what exactly, only select constitutional lawyers understand. The implications for pharmaceutical stocks and biotechnology (NASDAQ:IBB) could be rather large, in the negative direction, given the current bearish conditions in the markets.
Johnson & Johnson in Deep Powdery Trouble
In an absolute bombshell report released by Reuters at the end of last week, it was detailed that Johnson & Johnson (NYSE:JNJ) apparently knew about asbestos in its baby powder products since the mid-1970’s. In something akin to sexual abuse stories finally coming out after decades and decades burying big names, JNJ is in serious trouble now if the report proves true. Reuters apparently uncovered internal JNJ documents that show that the company was aware of “rather high” levels of asbestos in its talc products. There is surely a big fight down the road about this and it doesn’t spell the end of JNJ by any stretch, but the fact that JNJ was down 10% in one day over this shows that the evidence is strong enough to make investors nervous about one of the biggest and most stable pharmaceutical stocks in the world. In a word, this could be a big problem for JNJ going forward, and it is likely that Hollywood will eventually make a movie about this, if JNJ ends up getting skewered.
Qatar to Invest $20B In US in Natural Gas Project
After leaving OPEC, Qatar has signaled its desire to invest $20B in US liquefied natural gas infrastructure, which could complicate things for the Saudi/US relationship even further. Qatar, a US ally, is still under embargo by the Saudis, and refuses to talk with them until the embargo is lifted. On the other hand, Qatar is a key US ally, does not like Saudi Arabia at all, and now the US will have to play a balancing game to placate both nations at odds with each other. (NYSEARCA:UNG)