Market Insights 7/10/2019

U.S. equities finished higher, with the S&P 500 and Nasdaq returning to record high territory, as Fed Chairman Jerome Powell’s Congressional testimony re-energized July rate cut hopes that had cooled after last week’s stronger-than-expected labor report.

Treasury yields were mixed and the U.S. dollar fell, while gold was sharply higher and crude oil prices jumped following a bullish oil inventory report.

The Markets…

The Dow Jones Industrial Average rose 77 points (0.3%) to 26,860

The S&P 500 Index gained 13 points (0.5%) to 2,993

The Nasdaq Composite increased 61 points (0.8%) to 8,203

In moderate volume, 701 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil jumped $2.60 to $60.43 per barrel and wholesale gasoline was up $0.08 at $2.01 per gallon

The Bloomberg gold spot price increased $19.48 to $1,417.09 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.4% to 97.10

Fed Chairman Powell keeps rate cut expectations elevated, mortgage applications decline

The MBA Mortgage Application Index decreased 2.4% last week, following the prior week’s 0.1% dip. The decline came as a 6.5% drop in the Refinance Index more than offset by a 2.3% gain for the Purchase Index. The average 30-year mortgage rate decreased 3 basis points to 4.04%.

However, the Fed was the main focus for the markets as Federal Reserve Chairman Jerome Powell concluded his first (of two) semiannual monetary policy testimony on Capitol Hill in front of the House Financial Services Committee. Powell noted that crosscurrents, such as trade tensions and global growth worries have been weighing on economic activity and the outlook, while inflation pressures remain muted. He also reiterated that the Fed will “act as appropriate to sustain the expansion.”

Powell’s testimony was followed by the afternoon release of the minutes from the Federal Open Market Committee’s (FOMC) June monetary policy decision, where it removed its “patient” language from its statement. The report indicated that several officials believed a case for a rate cut was stronger and that it could shore up inflation and cushion the economy. The Committee appeared surprised by the sudden signs of weakness in the economy, stating, “…additional monetary policy accommodation would be warranted in the near term should these recent developments prove to be sustained and continue to weigh on the economic outlook”.

Treasuries were mixed, as the yield on the 2-year note fell 7 bps to 1.83%, the yield on the 10-year note was flat at 2.06%, while the 30-year bond rate rose 4 bps to 2.57%.

Europe mostly lower as EU growth forecast cut overshadows Fed commentary, Asia mixed

European equities finished mostly lower, as remarks from U.S. Fed Chairman Jerome Powell in his Congressional monetary policy testimony that seemed to preserve recently ramped up rate cut expectations were trumped by a lowered growth forecast from the European Union and some mixed economic news in the region. Financials were able to gain ground after a recent slide and the energy sector advanced amid a rise in crude oil prices after a larger-than-expected drop in crude oil inventories in the U.S.

The euro and British pound were higher versus the U.S. dollar, as the greenback is seeing pressure on Powell’s remarks, while bond yields in the region gained ground. In economic news, industrial and manufacturing production out of France and Italy topped forecasts for May, while similar reports out of the U.K. fell well short of estimates, but monthly GDP data out of the nation was mostly stronger than expected for May.

Stocks in Asia finished mixed amid continued caution ahead of today’s start of a two-day monetary policy testimony to Congress from U.S. Fed Chairman Jerome Powell, while the markets eyed resumed talks between the U.S. and China after the two nations agreed to a trade truce at the G-20 summit. Japanese equities declined, with the yen nudging higher, while South Korean securities gained ground, recovering slightly from a recent slide that came courtesy of escalated trade tensions with Japan.

Stocks in mainland China traded lower, but those traded in Hong Kong advanced, with June consumer price inflation rising in line with estimates, though wholesale price inflation was unchanged versus expectations of a slight increase. Shares in Australia moved to the upside despite a slip in the nation’s consumer confidence, while markets in India declined, continuing to be choppy in the wake of last week’s budget release that seemed to disappoint.