Market Insights 12/6/2019

U.S. stocks were up sharply after a strong jobs report that showed the U.S. economy added 266,000 jobs in November. European equities were higher on the day along with Asian equities were also higher despite some mixed economic data out of Japan.

Oil was up following a two-day OPEC+ meeting that yielded an agreement to cut production. Gold fell and the dollar rose, as U.S. Treasury yields moved higher.

The Markets…

The Dow Jones Industrial Average was up 337 points (1.2%) to 28,015

The S&P 500 Index added 29 points (0.9%) to 3,146

The Nasdaq Composite gained 86 points (1.0%) to 8,657

850 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil added $0.77 to $59.20 per barrel and wholesale gasoline was $0.03 higher to $1.65 per gallon

The Bloomberg gold spot price was $18.10 lower at $1465.10 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—rose 0.3% to 97.68

Markets were mixed for the week, as the DJIA and Nasdaq Composite dipped 0.1%, while the S&P 500 Index advanced 0.1%

November non-farm payroll and consumer sentiment reports trounce forecasts

Non-farm payrolls jumped by 266,000 jobs month-over-month in November, compared to the Bloomberg forecast of an 180,000 increase. The rise of 128,000 seen in October was revised to a gain of 156,000 jobs. Excluding government hiring and firing, private sector payrolls increased by 254,000, versus the forecasted gain of 178,000, after rising by 163,000 in October, revised from the 131,000 increase that was initially reported.

The unemployment rate dipped to 3.5% from October’s 3.6% rate, where it was expected to remain, while average hourly earnings were up 0.2% m/m, below projections of a 0.3% increase, but October’s initially-reported 0.2% rise was adjusted upward to a 0.4% gain. As such, y/y wage gains were 3.1% higher, versus estimates of a 3.0% pace, and versus October’s upwardly-revised 3.2% increase.

Treasuries fell following the employment data. The yields on the 2-year note and the 30-year bond rose 2 basis points to 1.61% and 2.28%, respectively. The yield on the 10-year note is gained 3 bps to 1.84%.

Europe higher on mixed data and trade focus

European equities were higher despite a larger-than-expected drop in German industrial production. The German data continued to suggest the global manufacturing sector remains hampered and exacerbated by a struggling auto sector.

The euro traded lower versus the U.S. dollar as European bond yields fell, while the U.S. saw higher rates. The British pound gave back some of this week’s solid gains that came amid rising expectations that the Conservative Party will win next week’s general election, which could bring the best case Brexit scenario of the U.K. leaving the European Union with a deal in place.

Stocks in Asia finished mostly higher amid mixed data. Japanese data showed the nation’s household spending fell more than expected, leading indicators surprisingly dipped and earnings were stronger than expected. The global markets continue to grapple with mixed headlines regarding the potential for a “phase one” U.S.-China trade deal ahead of the December 15 deadline for further tariffs on Chinese goods to be implemented.

Oil prices were higher following the two-day OPEC+ meeting, which concluded with a pledge of deeper-than-expected production cuts and Saudi Arabia announced even deeper cuts than the deal required. A modest disappointment came from the duration of the agreement, which will only run through March.

Stocks and sentiment whipsawed by trade and data

U.S. stocks began the week on shaky footing with some relatively upbeat manufacturing reports out of China, the Eurozone and U.K. being outweighed by an unexpected acceleration in the contraction for the sector in the U.S. as noted by the ISM Manufacturing Index. The pressure on stocks intensified as optimism regarding a “phase one” U.S.-China trade agreement was challenged by President Donald Trump saying at the NATO summit that it might be better to wait until after the 2020 election to strike a deal. However, as mid-week rolled around stocks and sentiment reversed to the upside as the ISM non-Manufacturing Index showed growth continued—albeit at a slower pace—for the services sector, which carries more economic weight than its manufacturing counterpart.

President Trump contrasted his earlier remarks by noting that talks with China were going well. The week’s recovery culminated with Friday’s blowout November employment figures and stronger-than-expected December consumer sentiment report. When the dust settled, the Dow and Nasdaq ended with modest weekly losses but the S&P 500 managed to post an eighth gain in nine weeks, putting in on track for a sharp Q4 advance.

Despite a late-week recovery, the U.S. dollar finished the week lower, while the Treasury yield curve steepened. Gold nudged higher and crude oil prices jumped in the lead up to the expected deeper production cuts from OPEC+ members. The energy sector outperformed for the week, along with consumer staples, health care and financials, though tech, industrials and consumer discretionary stocks registered red figures.