Market Insights 10/9/2019

Only nine days into the month and October is living up to its reputation for volatility. Month to date, the large-, mid- and small-cap components of the S&P Composite 1500 Index are trading in the red, along with all 11 of its sectors.

U.S. equities finished higher, as yesterday’s uncertainty surrounding the upcoming talks between the U.S. and China was tempered somewhat by increased optimism the two nations can cobble together some sort of a deal when talks resume tomorrow in Washington.

In addition, the S&P 500 has recorded four daily price moves of 1% or more, well on its way to surpassing August’s count of 11. The status of the trade negotiations appears to be the fulcrum of market volatility.

Investors are trying to ascertain whether the administration will settle for face-saving piecemeal agreements or hold out for a broad, sweeping concession. The markets will likely cheer the former but cringe at the latter.

The Markets…

The Dow Jones Industrial Average rose 182 points (0.7%) to 26,346

The S&P 500 Index increased 26 points (0.9%) to 2,919

The Nasdaq Composite advanced 80 points (1.0%) to 7,904

In light volume, 659 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.04 lower to $52.59 per barrel and wholesale gasoline gained $0.01 to $1.59 per gallon

The Bloomberg gold spot price increased $0.44 to $1,505.95 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was little changed at 99.10

Job openings decline, mortgage applications rise, Fed releases meeting details

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, fell to 7.05 million jobs available to be filled in August—the lowest since March 2018—from July’s downwardly-adjusted 7.17 million figure, and below forecasts of 7.25 million. The hiring rate dipped to 3.8% from July’s 3.9% pace, and the separation rate edged lower to 3.7% from 3.8%.

The MBA Mortgage Application Index rose 5.2% last week, following the prior week’s 8.1% gain. The increase came as a 9.8% jump in the Refinance Index more than offset a 0.9% dip for the Purchase Index. The average 30-year mortgage rate dropped 9 basis points to 3.90%.

In afternoon action, the Federal Reserve released the minutes from its September meeting that concluded with the second rate cut for 2019. The report showed “a few participants” felt that prices in futures markets “were currently suggesting greater provision of accommodation at coming meetings than they saw as appropriate.” As a result of any potential misunderstanding, the Committee noted that “it might become necessary for the Committee to seek a better alignment of market expectations regarding the policy rate path with policymakers’ own expectations for that path.”

The minutes also showed that trade was an overriding concern, while also noting that “a clearer picture of protracted weakness in investment spending, manufacturing production, and exports had emerged.”

Treasuries were lower, as the yield on the 2-year note was up 3 bps at 1.45%, the yields on the 10-year note and the 30-year bond rate rose 4 bps to 1.58% and 2.08%, respectively.

More job and inflation data is in store for tomorrow’s economic calendar, courtesy of weekly initial jobless claims, forecasted to tick higher by 1,000 to 220,000, and the Consumer Price Index (CPI), with economists projecting a 0.1% m/m increase for September, matching that seen in August, and the core rate, which excludes the volatile food and energy components, to have gained 0.2% m/m after posting a 0.3% increase the month prior.

Europe higher as trade optimism kicks in, Asia mixed

European equities overcame early pressure and finished higher amid reports that China still wants to reach a trade deal with the U.S. as talks are expected to resume tomorrow, even as the U.S. yesterday blacklisted some Chinese tech companies. The markets also showed some resiliency in the face of a disappointing read on French industry sentiment for September and as U.K. Brexit uncertainty remained elevated as Prime Minister Boris Johnson is reportedly facing some pressure within his own cabinet regarding the potential for a no-deal divorce from the European Union as an October 31st deadline looms.

The euro was higher versus the U.S. dollar and the British pound was little changed after yesterday’s drop, while bond yields were higher.

Stocks in Asia finished mixed with the markets appearing a bit cautious ahead of this week’s resumption of high-level trade talks between the U.S. and China, with the former’s move yesterday to blacklist some of the latter’s tech companies adding another layer of tension and uncertainty.

Japanese equities declined, with the yen holding onto yesterday’s gains, while stocks in mainland China overcame early losses and finished higher. Listings in Hong Kong, on the other hand, fell and shares in Australia dropped following a deterioration in the nation’s October consumer confidence.