Market Insights 12/12/2019

Global equities rallied on hopes that the worst of the China-U.S. trade spat may be over.

President Trump tweeted that the U.S. is “getting very close to a big deal with China,” and U.S. equities responded by closing near record highs.

The price of oil rose today, while the increased bond yields likely weighed on gold.

The Markets…

The Dow Jones Industrial Average rose 221 points (0.8%) to 28,132

The S&P 500 Index increased 27 points (0.9%) to 3,169

The Nasdaq Composite added 63 points (0.7%) to 8,717

In moderate volume, 879 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil was $0.42 higher at $59.27 per barrel and wholesale gasoline was flat at $1.63 per gallon

The Bloomberg gold spot price was $2.70 lower at $1,472.30 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.1% to 97.27

Wholesale price inflation cooler than expected, jobless claims jump

Weekly initial jobless claims jumped by 49,000 to 252,000, versus the Bloomberg estimate of 214,000, with the prior week’s figure being unrevised at 203,000. The surprising surge is garnering attention but some economists are pointing out the volatile nature of this time of year and the need to monitor the next few weeks of data before drawing conclusions.

Treasuries were lower on the day amid a bear steepener, in which long-term yields rise more than short term yields. The yield on the 2-year note rose 4 basis points (bps) to 1.66%, and the yield on the 10-year note jumped 10 bps to 1.89% and the 30-year bond added 8 bps to 2.31%.

The Producer Price Index (PPI) showed prices at the wholesale level in November came in flat month-over-month (m/m), below forecasts calling for a 0.2% gain and versus October’s unrevised 0.4% rise. The core rate, which excludes food and energy, declined 0.2% m/m, versus an expected 0.2% increase and October’s unadjusted 0.3% increase. Y/Y, the headline rate was 1.1% higher, versus projections of a 1.3% increase and matching the prior month’s unadjusted gain.

Lagarde’s first press conference offers no surprises; Europe higher, Asia mixed

The European Central Bank (ECB) kept its policy stance unchanged today. The meeting was followed by ECB President Christine Lagarde’s first press conference as head of the central bank. She offered no surprises in her commentary, as she affirmed the ECB’s current easy monetary policy stance. Lagarde added that the central bank is very aware of the side effects of negative rates, and said it would be very welcome to have other policies join monetary policy in order to support the reduction of slack.

European equities finished higher. The U.K. FTSE 100 Index and Spain’s IBEX 35 Index were up 0.8%, Germany’s DAX Index gained 0.6%, France’s CAC-40 Index and Switzerland’s Swiss Market Index rose 0.4%, and Italy’s FTSE MIB Index rallied 1.0%.

Most economist feel global economic growth may depend on comprehensive trade deals and fiscal stimulus rather than actions by central bankers to reverse last year’s slowdown in manufacturing and business investment. Today’s U.K. election is also in focus, with Prime Minister Boris Johnson’s Conservative Party expected to win, which could bring the best case scenario of the U.K. leaving the European Union—known as Brexit—with a deal in place, but recent polls have suggested the party’s lead had narrowed.

Japan reported that its core machine orders—a gauge of capital expenditures—unexpectedly dropped m/m in October, ahead of tomorrow’s key report on Q4 manufacturing sentiment. Asian data continues to take a backseat as trade remains the key driver of market action, especially in the trade sensitive region.

Japan’s Nikkei 225 Index ticked 0.1% higher, as the yen trimmed yesterday’s rise. China’s Shanghai Composite Index declined 0.3%, but the Hong Kong Hang Seng Index rallied 1.3%. Australia’s S&P/ASX 200 Index traded 0.7% lower and South Korea’s Kospi Index jumped 1.5%. India’s S&P BSE Sensex 30 Index advanced 0.4%.