Market Insights 1/9/2019

U.S. stocks advanced for a fourth-straight session and look poised to extend a weekly winning streak to three, courtesy of growing trade optimism and further dovish commentary out of the Fed.

Stocks pared gains as lawmakers in Washington continued to dig in, suggesting the drawn out battle to end the partial government shutdown will likely continue.

Treasury yields were mixed and the U.S. dollar continued to fall to October lows, with the minutes from the Fed’s December meeting scrutinized.

Gold rose and crude oil prices extended a sharp recovery.

The Markets…

The Dow Jones Industrial Average moved 92 points higher (0.4%) to 23,879

The S&P 500 Index increased 11 points (0.4%) to 2,585

The Nasdaq Composite gained 60 points (0.9%) to 6,957

In moderately heavy volume, 941 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq

WTI crude oil traded $2.58 higher to $52.36 per barrel and wholesale gasoline was up $0.07 at $1.43 per gallon

The Bloomberg gold spot price rose $8.14 to $1,293.53 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.7% to 95.16

Mortgage applications surge

The MBA Mortgage Application Index rose 23.5%, following the prior week’s 8.5% decline. The increase came as a 35.3% rise in the Refinance Index combined with a 16.5% advance for the Purchase Index. The average 30-year mortgage rate decreased 10 basis points to 4.74%.

The markets paid some attention to the minutes from the Federal Open Market Committee’s (FOMC) December meeting, in which it decided to raise rates for the fourth time in 2018 and issued a statement that appeared to be less dovish than some had hoped. The details of the discussion seemed to be a bit more dovish than the statement led on, with the debate intensifying as the Fed grapples with maintaining its current path to normalization in the current global environment.

The report showed, “Participants expressed that recent developments, including volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier.” As such, since the meeting, comments from the Fed, notably Chairman Jerome Powell, have eased concerns of a potential policy mistake, helping support the recent rebound in stocks and bog down the U.S. dollar to lows not seen since October.

Treasuries were mixed, with the yield on the 2-year note declining 2 bps to 2.56% and the yield on the 10-year note dipping 1 bp to 2.72%, while the 30-year bond rate ticked 1 bp higher to 3.01%.

Tomorrow, with the partial government shutdown likely continuing to postpone a host of reports, the economic calendar will still bring the release of weekly initial jobless claims, projected to decline by 5,000 to 226,000.

Fed Chairman Jerome Powell is set to speak again, but his comments are not likely to differ significantly from last Friday where he helped boost the markets by highlighting patience and flexibility with rate hikes, while opening up the idea that it could tweak its debt-laden balance sheet and stressing that the Central Bank is data dependent.

Global markets rise on Fed and U.S./China trade talk optimism

European equities finished mostly higher, and Asian equities rose broadly, led by markets in China, Japan and South Korea as investor confidence in a trade deal between the world’s two largest economies appears to continue to rise. The unscheduled extension of trade discussions to a third day looked to give markets hope that progress on a deal could be announced soon.

Global sentiment also seemed to receive a boost and the U.S. markets extended a recent rebound as concerns that the Fed may be on the verge of a policy mistake continued to ease amid further dovish commentary from Central Bank officials. Technology and consumer discretionary stocks that have been hampered by trade uncertainty helped pace a widespread advance. Energy issues also contributed to the gains as crude oil prices continued to rally, while cyclically-sensitive sectors like materials and industrials lent support.

Economic data was mostly upbeat as the Eurozone unemployment rate fell to the lowest number in a decade, German exports slipped by a slightly smaller amount than expected and Japanese wage figures rose more than expected. However, Brexit tensions continued to simmer with the U.K. Parliament expected to vote on the Prime Minister’s divorce agreement on January 15.

The euro and British pound advanced versus the U.S. dollar, which extended a recent drop to lows not seen since October amid the continued dovish Fed commentary and increased trade optimism. The Japanese yen continued to pare a recent advance during the trading session.