Market Insights 9/17/2019

U.S. stocks were modestly higher with the global markets exhibiting caution ahead of tomorrow’s Fed monetary policy decision.

Geopolitical concerns continued after the weekend’s attack on Saudi Arabian oil facilities. Crude oil prices gave back some of yesterday’s surge amid reports that Saudi Arabian output may be restored to normal sooner than expected.

Treasury yields and the U.S. dollar were lower, while gold rose.

The Markets…

The Dow Jones Industrial Average rose 34 points (0.1%) to 27,111

The S&P 500 Index added 8 points (0.3%) to 3,006

The Nasdaq Composite increased 32 points (0.4%) to 8,186

In moderate volume, 813 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil tumbled $3.56 to $59.34 per barrel and wholesale gasoline lost $0.07 to $1.68 per gallon

The Bloomberg gold spot price increased $3.11 to $1,501.54 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.4% at 98.23

Industrial production and homebuilder sentiment both improve, Fed meeting set to begin

The Federal Reserve’s industrial production rose 0.6% month-over-month in August, above the Bloomberg estimate of a 0.2% increase, and July’s upwardly-adjusted 0.1% dip. Manufacturing, mining and utilities output all grew. Capacity utilization increased to 77.9% from the prior month’s unrevised 77.5% rate, and versus the expected 77.6%. Capacity utilization is 1.9 percentage points below its long-run average.

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment in September improved to 68 from August’s upwardly-revised 67 level, compared to forecasts of 66, with a level of 50 separating good and poor conditions. This was the eighth-straight month the index has been north of 60. The NAHB noted that, “Builders’ optimism in recent months is being fueled by low interest rates and solid home buyer demand.

Treasuries were higher, as the yield on the 2-year note declined 3 basis points to 1.72%, while the yields on the 10-year note and the 30-year bond dropped 4 bps to 1.81% and 2.27%, respectively.

Geopolitical concerns remain elevated after the attack on Saudi Arabian oil facilities over the weekend, while the markets were likely cautious as the Fed began its two-day monetary policy meeting.

U.S. equity indexes have emerged out of their recent trading range, but persistent economic and trade uncertainties have not subsided. Clearly, the economic picture is mixed, as manufacturing continues to weaken but the consumer/services segments remain strong. Most Fed watchers expect a 25bp cut tomorrow. Chairman Jerome Powell has downplayed expectations of a rate-cutting cycle, calling the July cut a “mid-cycle adjustment;” and some Fed Presidents, such as Eric Rosengren, have pointed to gradual increases in wages and prices to justify holding rates steady. Doing so could disappoint investors and result in increased volatility. Regardless, we still have doubts that rate cuts is the medicine for what ails the economy.

Europe and Asia mixed on heightened geopolitical tensions and ahead of Fed

European equities finished mixed, with the markets grappling with heightened geopolitical tensions after the attack on Saudi Arabian oil facilities over the weekend the sent crude oil prices spiking yesterday. Also, the markets likely traded cautiously as tomorrow’s monetary policy decision out of the U.S. looms, and will be followed by decisions out of Japan and from the Bank of England. September German investor sentiment figures were released, with confidence regarding the current situation falling more than expected but the expectations component slipping slightly less than anticipated.

The euro rose versus the U.S. dollar and bond yields in the region were mixed. The British pound also gained ground, modestly adding to a recent run as Brexit uncertainty continued to fester.

Stocks in Asia finished mixed, with the markets digesting yesterday’s spike in oil prices as geopolitical concerns increased in the wake of the weekend’s attack on Saudi Arabian oil facilities, while caution likely set in ahead of tomorrow’s monetary policy decision out of the U.S. Chinese data continues to suggest slowing economic activity as the nation reported a deceleration in August home prices, which came on the heels of the weekend’s softer-than-expected reads on industrial production, retail sales and fixed asset investment. Stocks in Japan ticked higher, with the yen continuing to slip as the markets returned to action following yesterday’s holiday.