Market Insights 12/6/2018

U.S. stocks clawed back from a sharp drop seen for most of the session, finishing mixed on the heels yesterday’s closure to honor President George H.W. Bush.

Crude oil prices saw heavy pressure amid concerns that OPEC crude oil cuts may be less than expected.

Treasury yields and the U.S. dollar moved lower, while gold was little changed.

The Markets….

The Dow Jones Industrial Average decreased 79 points (0.3%) to 24,948

The S&P 500 Index dipped 4 points (0.2%) to 2,696

The Nasdaq Composite rose 30 points (0.4%) to 7,188

In heavy volume, 1.3 billion shares were traded on the NYSE and 2.8 billion shares changed hands on the Nasdaq

WTI crude oil declined $1.40 to $51.49 per barrel and wholesale gasoline was $0.01 lower at $1.44 per gallon

The Bloomberg gold spot price ticked $0.67 higher to $1,237.96 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 96.76

Services growth remains solid, while employment, productivity, trade and jobs data mixed

The November Institute for Supply Management (ISM) non-Manufacturing Index unexpectedly improved to 60.7 from October’s 60.3 level, and versus the Bloomberg forecast of a dip to 59.0. A reading above 50 denotes expansion. This was the third-straight month north of 60 as new orders and business activity grew at faster rates, though employment growth decelerated and price growth increased. Non-manufacturing activity accounts for a large majority of U.S. economic output and the ISM said respondents remain positive about current business conditions and the direction of the economy, but concerns persist about employment resources and the impact of tariffs.

The final Markit U.S. Services PMI Index was revised slightly higher to 54.7 for November, compared to expectations to be unrevised at 54.4, and was higher than October’s 54.8 level. A reading above 50 denotes expansion. The release is independent and differs from ISM’s report, as it has less historic value and Markit weights its index components differently.

The ADP Employment Change Report showed private sector payrolls rose by 179,000 jobs in November, below the forecast of a 195,000 gain, while October’s increase of 227,000 jobs was revised to a 225,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader November non-farm payroll report, expected to show job growth of 198,000 for both headline and private sector employment.

Final Q3 non-farm productivity was revised to a 2.3% quarter-over-quarter increase on an annualized basis, from the preliminary report’s 2.2% rise, matching estimates. Q2 productivity was unrevised at a 3.0% gain. Unit labor costs were adjusted to a 0.9% gain, from the initial 1.2% rise, versus expectations of a 1.0% increase. Q2 labor costs were revised to a 2.8% decrease, from the initial 1.0% drop.

Weekly initial jobless claims decreased by 4,000 to 231,000, versus expectations calling for a decline to 225,000, with the prior week’s figure upwardly revised at 235,000. The four-week moving average increased by 4,250 to 228,000, while continuing claims declined by 74,000 to 1,631,000, south of estimates of 1,690,000.

Factory orders shrank 2.1% m/m in October, versus expectations of a 2.0% drop, and compared to September’s unfavorably-revised 0.2% increase. Stripping out the volatile transportation component, orders ticked 0.3% higher, after September’s downward-revised 0.1% gain. The final durable goods orders—reported two weeks ago—was revised to a 4.3% fall m/m for October, compared to the estimate of a 2.4% decline. Ex-transportation, orders were up 0.2% m/m, versus forecasts of a 0.1% rise. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, was unrevised at no change.

Yesterday afternoon the Federal Reserve released its Beige Book—an anecdotal report on the nation’s business activity used as a policy tool to prep for the next two-day meeting set to conclude on December 19th. The report showed that most of the Districts “saw modest to moderate” growth, though both Dallas and Philadelphia noted slower growth. Continued tight labor markets, narrowing margins, and consumer spending holding steady were also recorded. Concerns surrounding trade remained, as tariffs were reported to have, along with excessive rainfall, curbed the agricultural sector.

Treasuries were higher, with the yield on the 2-year note falling 4 basis points (bps) to 2.75%, the yield on the 10-year note declining 3 bps to 2.89%, and the 30-year bond rate decreasing 2 bps to 3.15%, after U.S. markets were closed yesterday amid a National Day of Mourning to honor our 41st President, President George H.W. Bush.

Other economic reports due out tomorrow include the preliminary December University of Michigan Consumer Sentiment Index and consumer credit.

Global markets lower with tech, Brexit, and trade uncertainty in view

European and Asian equities saw heavy pressure, with the U.S. markets extending Tuesday’s drop in early trading following yesterday U.S. closure for remembrance. Trade concerns that have flared back up to help contribute to the latest bout of selling pressure in the markets were exacerbated by the arrest of Chinese telecom giant Huawei’s Chief Financial Officer (CFO) reportedly in connection with alleged violation of Iran sanctions.

Financials, energy, technology and materials stocks led the broad-based global market drop as the news seemed to sap sentiment over a 90-day truce on trade struck between the U.S. and China on the day she was detained. Brexit uncertainty remained after setbacks for Prime Minister Theresa May’s party and divorce plan earlier this week, which the Parliament continues to debate ahead of next week’s vote.

Oil prices fell as the first day of OPEC meetings took place with comments by Saudi Arabia’s energy minister suggesting a smaller-than-expected cut in crude oil output.