Market Insights 12/11/2019

Markets responded positively to the conclusion of the December Fed Policy meeting, leaving stocks modestly higher on the day with tech stocks leading the way.

The Fed meeting offered no real surprises to the market. Treasury yields did come down substantially and the U.S. dollar traded lower, as the median dot plot showed that policymakers expect to leave policy unchanged through 2020 but futures are still pricing in reasonably high odds of a rate cut in the latter half of next year.

The Markets…

The Dow Jones Industrial Average rose 30 points (0.1%) to 27,911

The S&P 500 Index increased 9 points (0.3%) to 3,141

The Nasdaq Composite added 38 points (0.4%) to 8,654

In moderate volume, 752 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil was $0.48 lower at $58.76 per barrel and wholesale gasoline lost $0.02 to $1.63 per gallon

The Bloomberg gold spot price was $6.90 higher at $1,475.00 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—dipped 0.3% to 97.09

Consumer price inflation and mortgage apps rise, ahead of final Fed decision of 2019

The Consumer Price Index (CPI) rose 0.3% month-over-month in November, above the Bloomberg estimate calling for a 0.2% increase, and versus October’s unrevised 0.4% gain. The core rate, which strips out food and energy, was 0.2% higher m/m, in line with expectations to match October’s unadjusted rise. Y/Y, prices were 2.1% higher for the headline rate, north of forecasts calling for a 2.0% gain and compared to October’s unadjusted 1.8% increase. The core rate was up 2.3% y/y, matching projections to be in line with October’s unadjusted gain.

The MBA Mortgage Application Index rose 3.8% last week, following the prior week’s 9.2% drop. The increase came as an 8.7% jump in the Refinance Index more than offset a 0.4% dip for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point higher to 3.98%.

Fed Leaves Rates Unchanged

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting today, which will be the last of 2019. Rates were left unchanged, as was widely expected. The Summary of Economic Projections (SEP) showed expectations for 2.0% GDP growth next year with expectations for slowing growth over the next two years.

The slow pace of growth was not enough for the dot plot to indicate additional rate cuts, but the dot plots did move notable closer to market expectations with the median dots having policy remaining unchanged for 2020. Fed Chairman Powell said current policy is appropriate as long as data holds up. Futures markets still have strong odds of on cut in the latter half of 2020.

Treasuries finished higher following the Fed meeting with the yield on the 2-year note dipping 4 bps to 1.61%, the yield on the 10-year note dropping 5 bps to 1.80%, and the 30-year bond decreasing 4 bps to 2.23%.

Tomorrow will offer more inflation data with the release of the Producer Price Index (PPI), which often offers a leading view of where consumer inflation may be heading. The PPI is expected have risen 1.3% year-over-year. Initial jobless claims are also set to be released with expectations pointing towards a modest increase from last week, but remaining very low at 214,000.

Europe higher ahead of monetary policy decisions and U.K. election

ere higher, but the gains were kept in check amid caution ahead tomorrow’s outcome from the European Central Bank, as well as Thursday’s U.K. general election, which could have major implications on the path of the U.K.’s divorce from the European Union, known as Brexit. Expectations of a win for Prime Minister Boris Johnson’s Conservative Party have been running high and have boosted the British pound, as a win for the party could bring the best case Brexit scenario of an exit with a deal in place. However, recent exit polls have suggested the lead for the Conservative Party has narrowed. The euro ticked higher versus the U.S. dollar and the British pound also gained ground, while bond yields in the region were mostly lower.

The U.K. FTSE 100 Index was little changed, Germany’s DAX Index rose 0.6%, France’s CAC-40 Index gained 0.2%, and Spain’s IBEX 35 Index advanced 0.8%, while Italy’s FTSE MIB Index and Switzerland’s Swiss Market Index ticked 0.1% higher.

Stocks in Asia finished mostly higher amid some relatively improved developments on the global trade front as the U.S., Mexico and Canada trade agreement will go to a vote in the House and the Wall Street Journal reported yesterday that the U.S. and China were mulling delaying tariffs set to kick in on December 15.

China’s Shanghai Composite Index moved 0.2% higher and the Hong Kong Hang Seng Index rose 0.8%, on the heels of the trade headlines and data yesterday showing China’s aggregate financing—a measure of total credit issued—and new yuan loans for last month were much higher than expected. South Korea’s Kospi Index gained 0.4%, Australia’s S&P/ASX 200 Index advanced 0.7% and India’s S&P BSE Sensex 30 Index traded 0.4% to the upside. Japan’s Nikkei 225 Index dipped 0.1%, ahead of tomorrow’s report on capital spending and this week’s key read on manufacturing sentiment for Q4.