Market Insights 12/10/2019

The day started off well for equities amid reports that the next round of tariffs would be delayed.

The Treasury curve flattened today amid mixed economic data that showed soaring small business sentiment, but weak productivity and as the Fed began its two-day policy meeting.

The U.S. dollar did not benefit from higher short term rates, falling modestly for the day.

The Markets….

The Dow Jones Industrial Average fell 27 points (0.1%) to 27,882

The S&P 500 Index decreased 3 points (0.1%) to 3,133

The Nasdaq Composite dropped 28 points (0.1%) to 8,616

In moderate volume, 780 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil was up $0.22 to $59.24 per barrel and wholesale gasoline was flat at $1.65 per gallon

The Bloomberg gold spot price was $3.20 higher at $1,468.10 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.2% lower to 97.44

Small business optimism rises, Q3 productivity revised slightly higher, Fed meeting begins

The National Federation of Independent Business (NFIB) Small Business Optimism Index for November rose to 104.7, matching the highest level since July, from October’s unrevised 102.4 level, and compared to the Bloomberg expectation of an increase to 103.0. 7 of the 10 index components contributed positively.

Final Q3 non-farm productivity was revised modestly higher to a 0.2% decline on an annualized quarter-over-quarter basis, versus expectations of a 0.1% dip, and following the unrevised 2.5% increase seen in Q2. Labor productivity, or output per hour, is calculated by dividing real output by hours worked by all persons, including employees, proprietors, and unpaid family workers, and this was the first decline since Q4 of 2015.

The Treasury curve experienced a bear flattening action today, in which short term rates move up faster than long term rates. The yield on the 2-year note was up 3 basis points to 1.64% and the yield on the 10-year note ticked 1 bp higher to 1.83%, while the 30-year bond rate was little changed at 2.26%.

The Federal Open Market Committee (FOMC) began its two-day monetary policy meeting today. The FOMC is expected to leave its fed funds target unchanged after three cuts this year. The accompanying updated economic projections with the FOMC’s dot plot of estimates for the target fed funds rate next year and beyond, along inflation expectations are likely to garner heavy scrutiny.

Europe mixed on flurry of economic data and U.S.-China trade headline

European equities finished mixed as the markets awaited some key events this week in the region, such as Thursday’s final European Central Bank monetary policy decision and the U.K. general election that is poised to have a major impact on the path of the U.K. leaving the European Union, known as Brexit. The euro and British pound traded higher versus the U.S. dollar, as bond yields in the region gained ground.

The U.K. FTSE 100 Index and Germany’s DAX Index declined 0.3%, Spain’s IBEX 35 Index and Switzerland’s Swiss Market Index is traded 0.4% to the downside, while France’s CAC-40 Index advanced 0.2% and Italy’s FTSE MIB Index rose 0.7%.

Asian joined their global counterparts in finishing mixed. The markets continuing to grapple with the prospect of a U.S.-China trade deal ahead of the December 15 deadline for further U.S. tariffs on Chinese goods to be implemented. Markets were closed prior to reports surfacing that the U.S. is considering delays on the tariff.

Japan’s Nikkei 225 Index dipped 0.1%, with the yen choppy. South Korea’s Kospi Index gained 0.5%. China’s Shanghai Composite Index ticked 0.1% to the upside and the Hong Kong Hang Seng Index declined 0.2%. Australia’s S&P/ASX 200 Index decreased 0.3% and finally, India’s S&P BSE Sensex 30 Index fell 0.6%.