Market Insights 12/4/2019

Trade induced volatility continued, but today, that volatility was to the upside. President Donald Trump said that talks with China were going well, which stood in contrast to his comments yesterday that it may be better to wait until after the 2020 election for a China deal that roiled the markets.

Treasury yields were up sharply, but the U.S. dollar remained under pressure. The march toward higher yields and equity prices was seemingly undeterred by ADP’s private sector employment report, which noticeably missed expectations. The report comes ahead of Friday’s highly-anticipated Labor Report.

Crude oil prices were higher on inventory data and speculation OPEC could deepen production cuts.

The Markets…

The Dow Jones Industrial Average increased 147 points (0.5%) to 27,650

The S&P 500 Index added 20 points (0.6%) to 3,113

The Nasdaq Composite picked up 46 points (0.5%) to 8,567

In moderate volume, 850 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil moved $2.33 higher to $58.43 per barrel and wholesale gasoline was up $0.04 at $1.60 per gallon

The Bloomberg gold spot price was $2.20 lower at $1,480.20 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies— shed 0.1% to 97.61

Services sector growth remains, ADP employment report misses

The November Institute for Supply Management (ISM) non-Manufacturing Index declined to 53.9 from October’s 54.7, and versus the Bloomberg forecast of a dip to 54.5, with a reading above 50 denoting expansion. Despite the miss, the index remains in expansion territory as growth in new orders and employment both accelerated. Business activity fell 5.4 points to 51.6 and prices expanded at a faster pace. Non-manufacturing activity accounts for a large majority of U.S. economic output. The ISM said the respondents hope for a resolution on tariffs and continue to be hampered by constraints in labor resources.

The ADP Employment Change Report showed private sector payrolls rose by 67,000 jobs in November, below forecasts of a 135,000 gain, while October’s increase of 125,000 jobs was revised to a 121,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader November non-farm payroll report, expected to show jobs grew by 190,000 and private sector payrolls rose by 178,000. The unemployment rate is forecasted to remain at 3.6% and average hourly earnings are projected to rise 0.3% month-over-month and be up 3.0% y/y.

Treasuries fell sharply with the curve modestly steepening. The yield on the 2-year note was up 3 basis points (bps) to 1.57%, the yield on the 10-year note added 5 bps to 1.77% and the 30-year bond rate increased 6 bps to 2.22%.

Tomorrow will bring readings on initial jobless claims, which are expected to stay in their recent very low range; the trade balance with expectations that there was a modest reduction in the trade deficit; and factory orders, which are expected to increase 0.3% month-over-month.

Global markets whipsawing on trade sentiment

European equities finished higher, with President Donald Trump noting at the NATO summit that talks with China were going well, countering his remarks yesterday that it might be better to wait until after the 2020 election to make a deal with China.

The U.K. FTSE 100 Index was up 0.4%, France’s CAC-40 Index and Italy’s FTSE MIB Index gained 1.3%, Germany’s DAX Index advanced 1.2%, Spain’s IBEX 35 Index rose 1.5%, and Switzerland’s Swiss Market Index traded 1.0% to the upside.

The euro was little changed versus the U.S. dollar and bond yields in the region were higher. The British pound rallied as expectations of a win for the Conservative Party in next week’s general election are rising. A win by the Conservative Party would likely deliver the best case Brexit scenario of the U.K. leaving the European Union with a deal in place.

The President’s comments came too late for Asian equities as they finished mostly to the downside, despite some favorable economic data.

Australia’s S&P/ASX 200 Index dropped 1.6%. China’s Shanghai Composite Index declined 0.2% and the Hong Kong Hang Seng Index traded 1.3% to the downside. South Korea’s Kospi Index declined 0.7%, though India’s S&P BSE Sensex 30 Index advanced 0.4%.