Market Insights 9/6/2019

U.S. equities finished out the final session of a shortened week mixed, but notched a second solid weekly gain.

Federal Reserve Chairman Jerome Powell’s spoke in Switzerland offering mostly positive reviews of where the U.S. economy stands.

Treasury yields were lower after yesterday’s jump and the U.S. dollar was little changed, while crude oil prices were modestly higher and gold tacked onto yesterday’s plunge.

The Markets…

The Dow Jones Industrial Average rose 69 points (0.3%) to 26,797

The S&P 500 Index added 3 points (0.1%) to 2,979

The Nasdaq Composite declined 14 points (0.2%) to 8,103

In moderately-light volume, 735 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil moved $0.22 higher to $56.22 per barrel and wholesale gasoline was up $0.02 at $1.57 per gallon

The Bloomberg gold spot price declined $13.58 to $1,505.47 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 98.41

Markets were higher for the week, as the DJIA increased 1.5%, the S&P 500 Index gained 1.8% and the Nasdaq Composite advanced 1.8%

August nonfarm payroll report mixed

Non-farm payrolls grew by 130,000 jobs month-over-month (m/m) in August, compared to the Bloomberg forecast of a 160,000 increase. The rise of 164,000 seen in July was revised to a gain of 159,000 jobs. Excluding government hiring and firing, private sector payrolls increased by 96,000, versus the forecasted gain of 150,000, after rising by 131,000 in July, revised from the 148,000 increase that was initially reported. The Labor Department said it saw notable jobs gains in health care and financial activities, while the mining sector lost jobs.

The unemployment rate remained at July’s 3.7% rate, in line with forecasts, while average hourly earnings were up 0.4% m/m, above projections to match July’s unrevised 0.3% gain. Y/Y, wage gains were 3.2% higher, versus estimates of a 3.0% increase, and compared to July’s upwardly-adjusted 3.3% gain. Finally, average weekly hours ticked higher to 34.4, matching estimates, from July’s unrevised 34.3 rate. The labor force participation rate rose to 63.2% from 63.0% in July.

Treasuries were higher, as the yields on the 2-year and 10-year notes were down 2 basis points (bps) at 1.52% and 1.55%, respectively, while the 30-year bond rate fell 4 bps to 2.02%.

In a speech in Switzerland on the economy and monetary policy, Federal Reserve Chairman Jerome Powell said that the Central Bank’s pivot to lower interest rates has helped to sustain U.S. economic growth, and that as a result of the recent moves the “outlook is still a favorable one.” He added that while he believes that “trade policy is causing some companies to hold back on investment”, and that there continues to be quite a bit of uncertainty, he expects the difficulties to be contained and does not see the U.S. slipping into a recession.

Europe and Asia higher amid data, lingering trade hopes

European equities finished mostly higher, with the global markets remaining buoyed by increased optimism regarding trade after the U.S. and China announced they will resume talks in Washington early next month. However, a mixed read on August employment in the U.S., along with a larger-than-expected drop in German industrial production for July kept gains in check. In other economic news, Q2 Eurozone GDP growth was revised modestly higher to a 1.2% y/y pace, which was down slightly from the 1.3% expansion posted in Q1.

Heightened Brexit uncertainty continued to be a drag, as Prime Minister Boris Johnson’s recent defeat in parliament dampened the possibility of a no-deal Brexit as an October 31st deadline looms, but it fostered uncertainty regarding the political path forward. The markets also awaited today’s speech from U.S. Federal Reserve Chairman Jerome Powell in Zurich on the economic outlook and monetary policy.

The euro ticked higher versus the U.S. dollar and the British pound fell after a recent rally, while bond yields in the region were mostly lower, with several key rates remaining in negative territory.

Stocks in Asia finished higher to close out the week, with the global markets continuing to find a boost from increased trade optimism as the U.S and China said they will resume talks in Washington early next month.

Stocks in Japan moved higher, with the yen holding onto a recent slide that has come from the eased trade concerns and as economic data was mixed. Japan’s household spending rose in July, though its earnings figures declined for the month.

Mainland Chinese equities advanced with the nation offering further stimulus measures by reducing the amount of cash banks need to hold in reserve, while those traded in Hong Kong also gained ground, shrugging off a credit rating downgrade from Fitch, as telecommunications service supply issues rallied after Italy’s new government exercised special powers to enter into supply deals with some of these companies.