Market Insights 8/13/2019

U.S. equities bounced off their early lows that came from global growth concerns, political uneasiness, and escalated U.S.-China trade tensions, to finish solidly higher.

The reversal came as the U.S. Trade Representative announced the removal of certain tariffs on Chinese goods that were expected on September 1st and the delay of certain tariffs to December 15th.

Treasury yields, the U.S. dollar and crude oil prices were higher following the news, while gold pared a recent rally to six-year highs.

The Markets…

The Dow Jones Industrial Average jumped 382 points (1.5%) to 26,280

The S&P 500 Index increased 43 points (1.5%) to 2,926

The Nasdaq Composite advanced 153 points (2.0%) to 8,016

In moderate volume, 856 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil rallied $2.17 to $57.10 per barrel and wholesale gasoline was up $0.07 at $1.74 per gallon

The Bloomberg gold spot price fell $7.93 to $1,503.23 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.5% to 97.81

Consumer price inflation slightly hotter than expected, small business optimism ticks higher

The Consumer Price Index (CPI) rose 0.3% month-over-month in July, matching the Bloomberg estimate, and above June’s unrevised 0.1% increase. The core rate, which strips out food and energy, was 0.3% higher m/m, versus expectations of a 0.2% increase and in line with June’s unadjusted rise. Y/Y, prices were 1.8% higher for the headline rate, topping forecasts of a 1.7% increase, and north of June’s unadjusted 1.6% rise. The core rate was up 2.2% y/y, above projections calling for it to match June’s unadjusted 2.1% gain.

The National Federation of Independent Business (NFIB) Small Business Optimism Index for July ticked higher to 104.7 from June’s unrevised 103.3 level, and versus expectations of an increase to 104.0.

Treasuries finished lower, as the yield on the 2-year note jumped 10 basis points (bps) to 1.67%, the yield on the 10-year note gained 5 bps to 1.68%, and the 30-year bond rate moved 2 bps higher to 2.15%. The global markets continued to be skittish on global growth concerns, escalating unrest in Hong Kong, Italian political and U.K. Brexit uncertainty, as well as the recent Fed rate cut and elevated expectations that further reductions were likely this year.

The July inflation picture will round out tomorrow with the release of the Import Price Index, expected to have declined 0.1% m/m following the 0.9% fall registered in June, while MBA Mortgage Applications will also be released.

Europe reverses higher as trade concerns cool on USTR announcement, Asia lower

European equities turned to the upside and finished higher, overcoming early losses that stemmed from continued global market uneasiness toward global growth concerns and the coinciding drop in bond yields, political uneasiness in Italy, the U.K. and Hong Kong, as well as expectations of further global monetary policy accommodation. The upside reversal came as the U.S. Trade Representative announced that certain Chinese products will be removed from the tariff list and certain products will be delayed from September 1st to December 15th.

U.S.-China trade concerns eased on reports that U.S. and China held a phone conversation and plan to hold another round of phone discussions within the next two weeks. The euro and British pound dipped versus the U.S. dollar, while bond yields in the region were mostly lower. The economic calendar was mixed, with German investor confidence falling much more than expected for August, though U.K. employment data for June showed wage gains accelerated and the job growth was higher than projected.

Stocks in Asia finished lower, with the global markets continuing to be hampered by U.S.-China trade uncertainty, political uneasiness in Europe, global growth concerns and the escalating unrest in Hong Kong with the airport cancelling all departing flights for a second-straight day.

Chinese equities declined and those traded in Hong Kong were sharply lower, with economic data released late-yesterday showing aggregate financing—a measure of total credit issued—and new yuan loans for July both decisively missing expectations.

Stocks in Japan dropped in a return to action following yesterday’s holiday break, with the yen choppy after Monday’s gains, South Korean and Australian listings traded lower, while Indian securities tumbled after being closed yesterday for a holiday.