Market Insights 9/13/2019

U.S. equities finished mixed and nearly unchanged heading into the weekend, as early upbeat sentiment surrounding U.S.-China trade optimism and positive economic data was tempered by caution ahead of a number of key central bank meetings next week.

Retail sales came in above expectations and scored a sixth-straight month of gains and consumer sentiment bounced off a near three-year low.

Treasury yields were solidly higher and the U.S. dollar ticked lower, while crude oil prices declined and gold was also down.

The Markets…

The Dow Jones Industrial Average rose 37 points (0.1%) to 27,220

The S&P 500 Index lost 2 points (0.1%) to 3,007

The Nasdaq Composite declined 18 points (0.2%) to 8,177

In moderate volume, 812 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil moved $0.24 lower to $54.85 per barrel and wholesale gasoline was unchanged at $1.55 per gallon

The Bloomberg gold spot price declined $11.70 to $1,487.56 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.1% at 98.21

Markets were higher for the week, as the DJIA increased 1.5%, the S&P 500 Index gained 1.0% and the Nasdaq Composite advanced 0.9%

Retail sales continue to rise, September consumer sentiment rebounds from multi-year low

Advance retail sales for August rose 0.4% month-over-month, versus the Bloomberg forecast of a 0.2% increase, and July’s 0.7% rise was upwardly-revised to a 0.8% gain. Last month’s sales ex-autos were flat m/m, compared to expectations of a 0.1% gain and July’s unrevised 1.0% increase. Sales ex-autos and gas ticked 0.1% higher, compared to estimates of a 0.2% gain, and July’s unadjusted 0.9% increase. The control group, a figure used to calculate GDP, increased 0.3%, matching projections, and compared to July’s revised 0.9% increase.

This was the sixth-straight month of gains for retail as strong sales of autos and building materials, along with continued solid online activity, led the way to more than offset some weakness in clothing and furniture sales, as well as a drop for department stores.

The September preliminary University of Michigan Consumer Sentiment Index rose to 92.0 from August’s read of 89.8, and north of the 90.8 expectation. After the index posted the lowest level since October 2016 in August, it rebounded as both the current conditions and expectations components of the index gained ground. The 1-year inflation forecast ticked higher to 2.8% from 2.7%, but the 5-10 year inflation forecast fell to 2.3% from the previous 2.6% rate.

Treasuries were solidly lower following the data, as the yield on the 2-year note rose 7 basis points to 1.80%, while the yields on the 10-year note and the 30-year bond jumped 12 bps to 1.90% and 2.38%, respectively.

Stocks have been threatening record highs, bond yields continue to recover, the U.S. dollar has slipped, crude oil prices modestly added to a down week, and gold finished lower. Eased trade tensions between the U.S. and China have been a main source of support for stocks and bond yields, as the U.S. briefly delayed increased tariffs on China and President Donald Trump said the U.S. could consider an interim trade deal with China, which made further trade concessions regarding the agriculture front.

The markets continue to grapple with the easing of monetary policy from global central banks, with the European Central Bank (ECB) moving deeper into negative interest rate territory yesterday and resuming quantitative easing measures with open-ended asset purchases to begin November 1st. This sets the stage for next week’s monetary policy decisions from the Fed, Bank of Japan and Bank of England.

Europe and Asia higher on trade and ECB stimulus

European equities were mostly higher, as the markets digested the upbeat consumer data out of the U.S., while financials led the way with bond yields rising and as yesterday’s increased stimulus measures from the European Central Bank (ECB) included eased lending facility terms for banks. Yesterday, the ECB announced a 10 bps cut to its deposit facility rate to -0.50%, while announcing the resumption of open-ended asset purchases of 20 billion euros a month starting November 1st,.

U.K. Brexit worries seemed to ease a bit, as Prime Minister Boris Johnson is expected to meet face-to-face for the first time with European Commission President Jean-Claude Junker on Monday, which appeared to foster some hope of a deal. The news came after the prospect of a no-deal exit from the European Union was recently tamped down after some parliamentary defeats for Boris Johnson. In economic news, the Eurozone trade surplus unexpectedly widened in July. The euro gained ground on the U.S. dollar and the British pound rallied.

Stocks in Asia finished higher, buoyed by the continued thawing of U.S.-China trade tensions as the former briefly delayed increased tariffs on the latter and U.S. President Trump said he would consider an interim trade deal, but added that he would prefer to get a whole deal done. Also, China made further trade concessions by adding some U.S. agriculture products to its exemptions from additional tariffs.

The markets appeared to also get some support from the increased stimulus measures announced yesterday from the European Central Bank. Stocks in Japan increased, with the yen continuing a recent drop, while those traded in Hong Kong also advanced. Australian securities ticked higher, and shares in India rose amid the eased trade concerns and following late-yesterday’s economic reports that showed consumer price inflation accelerated at a smaller rate than expected for August and its industrial production rose much more than expected in July. Markets in mainland China and South Korea were closed for holidays.

Stocks rally for third-straight week

Keeping up with the choppiness theme seen since January 2018, U.S. stocks posted a string of three-straight weekly rallies, which came on the heels of four-straight weekly drops, with trade remaining the main catalyst. U.S.-China tensions continued to thaw with both sides offering conciliatory measures as a face-to-face meeting approaches early next month.

U.S. economic data continued to keep recession concerns in check, with a surge in consumer credit, a drop in jobless claims and somewhat warmer inflation statistics joining Friday’s upbeat retail sales and consumer sentiment reports. Adding to the backdrop, geopolitical concerns continued to cool, while China announced more banking sector stimulus measures and the European Central Bank eased monetary policy further to try to boost their slowing economies.

With stocks in rally mode, next week’s monetary policy decision from the Federal Open Market Committee (FOMC) is poised to be the next catalyst for the markets to contend with. Although another 25 bp cut to its target fed funds rate has been priced in when the two-day meeting concludes on Wednesday, the FOMC’s updated economic projections and subsequent press conference from Fed Chairman Jerome Powell is likely to be highly scrutinized, given the thawed trade tensions and continued relatively solid economic data.