Market Insights 11/5/2019

Continued optimism surrounding the U.S.-China trade front helped the Dow and Nasdaq to add to their lists of record highs, courtesy of reports that the U.S. is considering scrapping plans to increase tariffs on China in December and potentially rolling back levies implemented in September.

Treasury yields and the U.S. dollar were higher, along with crude oil prices, while gold was sharply lower.

The Markets…

The Dow Jones Industrial Average rose 31 points (0.1%) to 27,493

The S&P 500 Index ticked 4 points (0.1%) lower to 3,075

The Nasdaq Composite inched 2 points higher to 8,435

In heavy volume, 984 million shares were traded on the NYSE and 2.2 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.69 to $57.23 per barrel and wholesale gasoline was up $0.01 at $1.67 per gallon

The Bloomberg gold spot price tumbled $25.74 to $1,484.08 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.5% to 97.97

ISM services sector output rebounds from 3-year low, trade deficit narrows

The October Institute for Supply Management (ISM) non-Manufacturing Index rose to 54.7 from September’s 52.6, and versus the Bloomberg forecast of a slight increase to 53.5, with a reading above 50 denoting expansion. The index rebounded from the lowest level since August 2016 as new orders and business activity both improved to 55.6 and 57.0, respectively, and employment increased to 53.7, though growth in prices fell to 56.6. Non-manufacturing activity accounts for a large majority of U.S. economic output.

The final Markit U.S. Services PMI Index for October was revised lower to 50.6 from the preliminary estimate of 51.0, where it was forecasted to remain, and below September’s 50.9 level. A reading above 50 denotes expansion. The release is independent and differs from ISM’s report, as it has less historic value and Markit weights its index components differently, while its survey respondents include those that vary more in company size.

Treasuries were lower, as the yield on the 2-year note increased 3 basis points (bps) to 1.62%, the yield on the 10-year note rallied 8 bps to 1.86%, and the 30-year bond rate rose 6 bps to 2.33%.

The trade balance showed that the deficit narrowed by a slightly smaller amount than expected to $52.5 billion in September, compared estimates of $52.4 billion. August’s deficit was revised slightly higher to a $55.0 billion shortfall. Exports decreased 0.9% m/m to $205.9 billion, while imports fell 1.7% to $258.4 billion.

Europe mixed on data and continued improved trade sentiment, Asia higher

European equities finished mixed, with optimism regarding the U.S.-China trade front continuing to support sentiment. Concerns were further eased, as the likelihood of a “phase-one” agreement was bolstered by reports that the U.S. was mulling scrapping plans for a December increase in tariffs on Chinese goods and considering rolling back tariffs implemented in September. However, some mixed earnings reports in the region, along with divergent economic data, kept investors wary. U.K. services sector output unexpectedly improved to a level separating contraction from expansion for last month, but Spanish unemployment jumped more than anticipated for October.

The euro and British pound declined versus the U.S. dollar, while bond yields in the region were higher.

Stocks in Asia finished higher, with further signs that a “phase-one” trade deal between the U.S. and China could be in the offing continuing to buoy sentiment and helping the U.S. stock markets continue to notch all-time highs. Japanese equities jumped, in a return to action following yesterday’s holiday break, finding support from a drop in the yen and as Bank of Japan Governor Kuroda suggested fiscal stimulus was needed to bolster the impact of its accommodative monetary policy actions.

Stocks in mainland China and Hong Kong rose. Australian securities nudged higher, with the markets digesting the Reserve Bank of Australia’s monetary policy decision to leave its stance unchanged after a series of rate cuts this year.