Market Insights 9/18/2019

U.S. equities finished mixed in choppy action after the Fed cut the target for its fed funds rate, as widely expected, but indicated division as to future actions.

Treasury yields reversed course to end mixed following the rate decision and crude oil prices again pared back from Monday’s spike as Saudi Arabia suggested a return to normal output levels sooner than expected after the weekend attack on some of its key oil facilities.

The U.S. dollar was higher, but gold ended lower.

The Markets…

The Dow Jones Industrial Average rose 36 points (0.1%) to 27,147

The S&P 500 Index added 1 point to 3,007

The Nasdaq Composite decreased 9 points (0.1%) to 8,177

In moderate volume, 842 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.23 to $58.11 per barrel and wholesale gasoline lost $0.02 to $1.66 per gallon

The Bloomberg gold spot price decreased $6.84 to $1,494.54 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.3% at 98.90

Fed cuts rates, but doubt surrounds future moves

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, announcing a 25 basis point reduction to its target range for the Fed funds rate to 1.75%-2.00%. The Committee cited “the implications of global developments for the economic outlook as well as muted inflation pressures” as the primary reason for the move.

Information received since it met in July indicates that, “the labor market remains strong and that economic activity has been rising at a moderate rate,” with job gains remaining solid and the unemployment rate low. The Committee added that, “Although household spending has been rising at a strong pace, business fixed investment and exports have weakened, and that overall inflation and inflation for items other than food and energy are running below 2 percent.

The decision was not unanimous, indicating a widening divide among Members over future actions, as St. Louis Fed President James Bullard preferred a 50 bp cut, while Kansas City Fed President Esther George and Boston Fed President Eric Rosengren favored no change to the current target. As well, the Committee’s projected rate increases, known as the “dots plot,” continued to show sharp divisions among Members with regards to the path of rate moves, with nearly half expecting no additional cuts, while a little more than half expect one more cut this year.

Treasuries reversed course to finish mixed following the Fed announcement, as the yield on the 2-year note rose 3 bps to 1.76%, while the yields on the 10-year note and the 30-year bond declined 3 bps to 1.79% and 2.25%, respectively.

Europe modestly higher with monetary policy decisions looming, Asia mixed

European equities nudged higher, with the energy sector rising despite crude oil prices continuing to trim its spike on Monday, as Saudi Arabia suggested output could return to normal levels sooner than expected after oil facilities were attacked over the weekend.

The global markets seemed to tread with some caution ahead of today’s monetary policy decision out of the U.S., which will be followed up by announcements from the Bank of Japan and Bank of England (BoE) tomorrow. U.K. Brexit uncertainty continued to fester as Prime Minister Boris Johnson looks to find an exit deal ahead of the October 31st deadline on the heels of meetings with the European Union.

Ahead of the BoE’s decision, U.K. inflation statistics came in mostly cooler than expected for August. In other economic news, Eurozone construction output fell m/m in July and core consumer price inflation rose in line with expectations. The euro and British pound lost ground versus the U.S. dollar and bond yields in the region were lower.

Stocks in Asia finished mixed, with the energy markets choppy in the wake of the wild swings in crude oil prices on the heels of the recent attack on Saudi Arabian oil facilities and as the region suggested output could return to normal levels sooner than expected.

Also, the global markets appeared a bit cautious ahead of today’s monetary policy decision out of the U.S., which will be followed by tomorrow’s decisions out of Japan and the U.K. Stocks in Japan edged lower, with the yen choppy ahead of the Fed’s decision and as the nation’s exports continued to fall in August but at a smaller rate than projected.

Mainland Chinese equities rose, but those traded in Hong Kong dipped. South Korean securities advanced and Australian listings traded to the downside, while shares in India moved higher.