Market Insights 7/16/2019

U.S. equities finished modestly lower as investors scrutinized a mixed bag of earnings results from Dow members Goldman Sachs, JPMorgan Chase & Co and Johnson & Johnson, along with Wells Fargo.

Retail sales posted its fourth-straight monthly increase, bringing fed uncertainty back into focus, while industrial production was unexpectedly flat and homebuilder confidence remained strong.

Treasury yields and the U.S. dollar were higher, while crude oil prices and gold were lower.

The Markets…

The Dow Jones Industrial Average declined 24 points (0.1%) to 27,336

The S&P 500 Index was 10 points (0.3%) lower at 3,004

The Nasdaq Composite lost 35 points (0.4%) to 8,223

In light volume, 679 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.96 to $57.62 per barrel and wholesale gasoline was down $0.04 at $1.89 per gallon

The Bloomberg gold spot price decreased $11.10 to $1,403.03 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher to 97.39

Retail sales top expectations, industrial production flat, homebuilder sentiment ticks higher

Advance retail sales for June rose 0.4% month-over-month, versus the Bloomberg forecast of a 0.2% increase, and May’s 0.5% rise was downward-revised to a 0.4% gain. Last month’s sales ex-autos also moved 0.4% higher m/m, compared to expectations of a 0.1% gain and May’s downward-revised 0.4%. Sales ex-autos and gas jumped 0.7%, compared to estimates of a 0.3% gain, and May’s unadjusted 0.5% increase. The control group, a figure used to calculate GDP, also gained 0.7%, versus projections of a 0.3% rise, and compared to May’s upwardly-revised 0.6% increase.

The Federal Reserve’s industrial production came in flat m/m in June, compared to estimates calling for a 0.1% increase, and May’s unadjusted 0.4% rise. Manufacturing and mining output both gained ground, while utilities production fell. Capacity utilization slipped to 77.9% from the prior month’s unrevised 78.1% rate, where it was forecasted to remain. Capacity utilization is 1.9 percentage points below its long-run average.

The Import Price Index fell 0.9% m/m for June, versus projections of a 0.6% decline, and following May’s upwardly-revised flat reading. Compared to last year, prices were down 2.0%, versus forecasts of a 2.3% drop and compared to May’s upwardly-revised 1.1% fall.

Treasuries were lower following the retail sales report, as the yields on the 2-year and 10-year notes, along with the 30-year bond, rose 2 bps to 1.86%, 2.12% and 2.63%, respectively.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in July ticked higher to 65 from June’s unrevised 64 level, where it was expected to remain, with a level of 50 separating good and poor conditions. This was the sixth-straight month the index has been north of 60. However, the NAHB pointed out that builders “continue to grapple with labor shortages, a dearth of buildable lots and rising construction costs that are making it increasingly challenging to build homes at affordable price points relative to buyer incomes.”

Europe higher as earnings season in focus, Asia mixed following data

European equities were higher, as the global markets digested the mixed results in the U.S. as Q2 earnings season begins to heat up. The euro and British pound saw some pressure versus the U.S., which held onto early gains following a stronger-than-expected U.S. June retail sales report. Bond yields in the region moved lower, with German investor confidence falling more than expected for July, the U.K. employment change missing estimates for May and the Eurozone trade surplus widening more than forecasted for May.

Stocks in Asia finished mixed with the global markets paying close attention to the ramp up of earnings season in the U.S., along with yesterday’s Chinese economic data that showed Q2 GDP growth hit a 27-year low but its retail sales, industrial production and fixed asset investment all came in north of estimates.

Japanese equities declined in a return to action following yesterday’s holiday break, with the yen choppy. Shares in mainland China dipped, while those traded in Hong Kong ticked higher. Markets in Australia slipped, even as the minutes from the Reserve Bank of Australia’s July meeting, at which it cut rates to a record low, showed a willingness of the central bank to do more if needed.

Stocks in South Korea and India gained ground, with the markets in the latter assessing the implications of yesterday’s data that showed wholesale price inflation was cooler than expected and exports fell in June.