An unexpected increase in inflation during December was at first a weakness on stocks, providing fuel for Central Bank conviction on multiple rate hikes this year which could depress growth but strong retail sales during the holiday season added to optimism for the economy. German political leaders moved closer on Friday to form a new government as Social Democratic Leaders endorsed talks with Chancellor Merkel. Talks between North Korea and South Korea have resumed for the first time in two years with Pyongyang agreeing to participate in the Winter Olympics hosted in the South. After some concern this week, Chinese officials denied they recommended to slow or halt purchase of U.S. Treasuries.
Treasury yields rose on the inflation news and added to losses seen so far in 2018 with the 2-year note briefly touching a 2% yield but stocks continued their unstoppable rein with each of the major domestic large cap indices reaching record highs this week. The S&P 500 index has risen over 3.5% during the first two weeks of 2018 which is the best rise of this time since 1987. Earnings season kicked off this week with expectation of another quarter of double digit year over year growth. The U.S. dollar weakened sending the Euro to a 3-year high and the British Pound to its highest level in a year and a half.
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