Market Insights 1/11/2019

U.S. equities finished modestly lower for the last session of the week, but notched the third–straight weekly advance.

Caution was also palpable ahead of the unofficial start of earnings season with major players in the banking sector reporting early next week.

Treasuries gained ground amid a consumer price inflation report that was in line with expectations, and the U.S. dollar ticked higher, while gold added to a recent move upward and crude oil pared back from its current run.

–The Markets–

The Dow Jones Industrial Average declined 6 points to 23,996

The S&P 500 Index was nearly unchanged at 2,596

The Nasdaq Composite fell 15 points (0.2%) to 6,971

In moderate volume, 802 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil lost $1.00 to $51.59 per barrel and wholesale gasoline was $0.03 lower at $1.40 per gallon

The Bloomberg gold spot price rose $1.05 to $1,287.70 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—inched 0.1% higher to 95.98

Markets were higher for the week, as the DJIA rose 2.3%, the S&P 500 Index grew 2.5%, and the Nasdaq Composite advanced 3.5%

Consumer price inflation matches forecasts

The Consumer Price Index (CPI) dipped 0.1% month-over-month (m/m) in December, in line with the Bloomberg estimate, and versus November’s unrevised flat reading. The core rate, which strips out food and energy, moved 0.2% higher m/m, in line with expectations calling for it to match November’s unadjusted increase. Y/Y, prices were 1.9% higher for the headline rate, in line with forecasts and coming in south of November’s unrevised 2.2% increase. The core rate was up 2.2% y/y, matching projections to remain at November’s increase.

Treasuries were higher, with the yields on the 2-year note and the 30-year bond dropped 3 basis points (bps) to 2.54% and 3.03%, respectively, while the yield on the 10-year note fell 4 bps to 2.70%.

Treasury yields have nudged higher and the U.S. dollar has seen some pressure as of late, while the stock markets have gained ground for five-Treasury yields have nudged higher and the U.S. dollar has seen some pressure as of late, while the stock markets have paused after gaining ground for five-consecutive sessions, with the Fed offering dovish commentary to help ease policy mistake concerns and amid signs that U.S.-China trade talks have progressed ahead of the March deadline for the 90-day tariff truce. However, Q4 earnings season looms and will kick into gear next week and the government remains partially shut down.

Europe and Asia mixed following week of gains

European equities finished mixed, but higher for a second-consecutive week, with a sundry of regional uncertainties and economic data taking some of the luster off of a rally in global markets on eased Fed concerns and U.S.-China trade optimism. Brexit anxiety continued to fester, ahead of next week’s key vote, exacerbated by data showing U.K. manufacturing and industrial production unexpectedly declined in November, while the nation’s three-month GDP growth decelerated to the slowest pace in six months. The euro was lower and the British pound rose versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished mixed, with the major markets in the region appearing to find support from the extended winning streak in the U.S. yesterday, which has come amid lingering optimism of trade talks between the U.S. and China, as well as a host of dovish commentary from the Fed that has eased monetary policy mistake concerns. Japanese equities led to the upside, with the yen showing signs of stabilization after a recent rally, and despite some downbeat news out of the retail sector.

Shares in mainland China and Hong Kong advanced ahead of some key lending statistics set to be released over the weekend, while stocks traded in South Korea also moved higher. However, Australian securities declined amid some weakness in the heavyweight financial and materials sectors and markets in India also fell.

Stocks continue strong start to 2019

U.S. stocks posted a third-straight weekly gain, on upbeat trade sentiment and the continued easing of Fed monetary policy mistake worries. The continued retreat in the U.S. dollar and recovery in crude oil prices also likely contributed to improved investor conviction.

Stocks showed resiliency in the face of Samsung’s profit warning that followed Dow member Apple’s recent negative preannouncement, as well as a host of disappointing holiday sales figures out of the retail sector. Optimism that the U.S. and China could reach a trade deal before the 90-day truce ends in March was fostered by mid-level talks that were extended to Wednesday being characterized as extensive.

Fed concerns eased as a plethora of Central Bank officials—headlined by a second dose of comments from Chairman Jerome Powell in less than a week—continued to stress that it can be patient and flexible with rate hikes. The commentary out of the Fed was joined by the minutes from its December policy meeting that showed the details of the discussion seemed to be a bit more dovish than the statement led on.

Treasury yields nudged higher as the economic calendar, although remaining stunted by the drawn out partial government shutdown, showed against the backdrop of subdued inflation pressures, the ISM non-Manufacturing Index continued to signal solid expansion in key U.S. services sector activity, jobless claims fell and job openings remained elevated.

Next week, the economic calendar could continue to be muted if the government shutdown remains, but the docket will still be heavy, delivering inflation data in the form of the Producer Price Index and Import Price Index. Also, housing will come into focus with the NAHB Housing Market Index and housing starts and building permits report, along with manufacturing as regional reports out of New York and Philadelphia will be joined by the Fed’s industrial production and capacity utilization release.

However, the unofficial start to Q4 earnings season could be a key factor in whether the stock markets continue the solid rebound to kick off 2019. Earnings growth is expected to slow but cling to the fifth-straight quarter of double-digit expansion, per data compiled by FactSet. The financial sector will be in focus as some heavyweights are on the docket, starting with Citigroup Inc. (C $57) on Monday, and trading activity, net interest margin and lending activity are poised to garner scrutiny, along with guidance and conference call commentary.