Market Insights 9/21/2018

U.S. equities finished out the week mixed, with the Dow and S&P 500 again at or near record highs, and the Nasdaq seeing pressure amid renewed scrutiny toward tech stocks.

Trade concerns continued to cool to add to the buoyancy, but investors may be looking ahead to changes to the Global Industry Classification Standard’s sectors coming.

Treasury yields were mixed and the U.S. dollar rebounded from a recent bout of weakness, as reports from Markit on business activity diverged.

Crude oil prices were mixed and gold was lower.

The Markets…

The Dow Jones Industrial Average (DJIA) rose 87 points (0.3%) higher to 26,744

The S&P 500 Index was up nearly 2 points (0.1%) to 2,930

The Nasdaq Composite lost 41 points (0.5%) to 7,987

In heavy volume, as a result of quadruple witching—the simultaneous expiration of stock and index futures and options contracts—2.6 billion shares were traded on the NYSE and 3.6 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.46 to $70.78 per barrel and wholesale gasoline was unchanged at $2.00 per gallon

The Bloomberg gold spot price fell $8.20 to $1,998.98 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 94.21

Markets were mixed for the week, as the DJIA rallied 2.3%, the S&P 500 Index rose 0.8%, while the Nasdaq Composite declined 0.3%

September business activity reports mixed

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output accelerated more than expected, rising to 55.6 in September from August’s 54.7 figure, and compared to the Bloomberg estimate calling for a slight rise to 55.0. However, the preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector unexpectedly slowed, decreasing to 52.9 from August’s 54.8 figure, versus expectations to nudge higher to 55.0. Readings above 50 for both indexes denote expansion.

Treasuries were mixed, as the yield on the 2-year note rose 1 basis point to 2.81%, while the yields on the 10-year note and the 30-year bond moved 1 bp lower to 3.06% and 3.20%, respectively.

Treasury yields extended a recent run that has been bolstered by the backdrop of continued solid economic data, which has kept expectations of a Fed rate hike next week almost a certainty, while the U.S. dollar has recovered from a drop as of late that has come courtesy of trade concerns being held in check.

Europe and Asia higher following record highs in the U.S.

European equities finished mostly higher to close out a solid weekly gain, as U.S. markets continued to rally to fresh record highs and following a solid advance in Asia. The lack of an escalation in trade concerns between the U.S. and China appeared to continue to buoy conviction, while materials issues led the advance.

The euro dipped versus the U.S. dollar, while the British pound fell sharply amid festering Brexit uncertainty. The Brexit uneasiness remained as U.K. Prime Minister Theresa May said that talks regarding the region’s exit from the European Union (EU) are at an impasse after EU leaders rejected her plan yesterday at a summit in Austria this week. May reiterated that no deal is better than a bad deal and that the U.K. must and will continue to prepare for a no-deal outcome.

Bond yields in the region finished mostly lower, while Markit’s read on Eurozone business activity in the manufacturing and services sectors showed growth was a bit smaller than expected for September.

Stocks in Asia finished mostly higher on the heels of yesterday’s move back to record highs in the U.S. that has come courtesy of the lack of an escalation in trade tensions after China and the U.S. exchanged more tariffs with rates that were below what had been initially feared. Japanese equities gained ground, extending a recent run with the yen losing some ground following an in line increase in the nation’s core consumer price inflation, while a separate report showed the nation’s manufacturing growth accelerated this month.

Chinese stocks and those traded in Hong Kong rallied amid the tempered trade concerns, and as the government announced measures to try to boost consumption. Markets in South Korea and Australia moved higher as well, but Indian listings dropped in their return to action following yesterday’s holiday amid continued skittishness, despite the recent fall in the U.S. dollar. Recent pressure on India’s currency and lingering uneasiness toward the emerging markets were met with flared-up worries toward the nation’s financial sector.

WEEKLY RECAP: Dow and S&P 500, weekly gain back to fresh record highs

The Dow and S&P 500 rallied on the week, posting fresh record highs, despite an escalation in trade tensions between China and the U.S. as they traded more tariffs. However, the markets appeared to react positively as both tariff rates were less than originally feared.

Materials and industrial s registered solid gains on the relative trade optimism, and the U.S. dollar fell to continue a recent soft patch to help the technology sector nudge higher despite lingering scrutiny of the sector. Financials led to the upside as Treasury yields rallied, with the 10-year note rate breaching the 3.00% mark.

Energy issues were also noticeably higher as crude oil prices rallied for a second-straight week in the wake of hurricane Florence’s landfall in the east coast, the greenback’s weakness, another drop in crude oil inventories and Iranian sanctions. Housing data dominated the economic calendar, with homebuilder sentiment and housing starts topping forecasts, and existing home sales stemming a monthly losing streak, while building permits surprisingly fell. Other reports showed economic output remained solid, as Leading Indicators continued to rise and regional manufacturing activity remained solidly in expansion territory.

The solid economic foundation has the probability of a Fed rate hike next week near 100%, but the accompanying statement and economic projections, as well as the subsequent press conference from Chairman Jerome Powell, are likely to face intense scrutiny. The markets are a bit less certain of a December rate increase, as cooler-than-expected August inflation data has countered signs that wage growth is picking up, while an escalation in global trade tensions may curb the Fed’s appetite and/or need to aggressively tighten policy.

The likelihood of a December rate increase could ebb and flow depending on incoming economic data between now and then. We are only now getting to a positive real rate on the short end of the curve, so it’s appropriate to continue to cheer still-fairly loose financial conditions; but with the tightness in the labor market and the Fed also shrinking its balance sheet, inflation could pick up further from here, causing some volatility to return to the markets.

Lastly, the Fed is poised to garner the most attention next week, other economic reports due that could be market catalysts include: Consumer Confidence, new home sales, preliminary durable goods orders, the final revision of Q2 GDP, personal income and spending, and the final University of Michigan Consumer Sentiment Index.

Random Thoughts

Trade has dominated the news this week as the Trump administration announced plans to put 10% tariffs on $200 billion of goods from China beginning next Monday, with the rate increasing to 25% on January 1.

China retaliated with $60 billion in tariffs on U.S. goods. Despite this escalation in trade tensions, markets around the globe mostly reacted positively. The Dow Jones Industrial average has gained more than 250 points, or nearly 1% since Friday’s close, and the S&P 500 industrials sector is also up almost 1% point.

Perhaps investors view the decline in the Chinese yuan, which is 5% lower year-to-date (vs. the U.S. dollar), as an offset to the tariffs.

Additionally, the strength in the U.S. consumer and domestic economic environment is often viewed as a cushion to counterbalance some of the tariff impact. We continue to prefer trade issues be resolved sooner rather than later so certainty can return to the market.

Market Insights 9/19/2018

U.S. equities were mixed, with strength in financials amid the continued rise in Treasury yields being offset by weakness in tech shares.

Early hopefulness that the latest round of tariff exchanges between the U.S. and China had levies that were less than originally feared was countered by a divergent housing report.

The U.S dollar extended a recent soft patch, crude oil prices rose following another bearish U.S. oil inventory report, and gold gained ground.

The Markets…

The Dow Jones Industrial Average rose 159 points (0.6%) to 26,406

The S&P 500 Index was 4 points (0.1%) higher at 2,908

The Nasdaq Composite declined 6 points (0.1%) to 7,950

In moderate volume, 826 million shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil gained $1.18 to $70.77 per barrel and wholesale gasoline was up $0.02 to $2.02 per gallon

The Bloomberg gold spot price gained $5.18 to $1,203.54 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 94.54

Housing construction activity mixed, mortgage applications rise

Housing starts for August jumped 9.2% month-over-month to an annual pace of 1,282,000 units, above the Bloomberg forecast of a 1,238,000 unit rate. July starts were revised higher to an annual pace of 1,174,000. Construction was higher m/m for single-unit and multi-unit structures, with the latter up noticeably y/y and the former little changed compared to last year. Building permits, one of the leading indicators tracked by the Conference Board as it is a gauge of future construction, fell 5.7% m/m to an annual rate of 1,229,000, versus expectations of a 1,310,000 pace, and compared to July’s downwardly-revised 1,303,000 rate. Permits for single and multi-unit construction both fell m/m, while the former remains higher y/y and the latter was solidly lower.

The MBA Mortgage Application Index increased 1.6% last week, following the prior week’s 1.8% decline. The upward move came as a 3.7% jump in the Refinance Index was accompanied by a 0.3% rise in the Purchase Index. The average 30-year mortgage rate increased 4 basis points to 4.88%.

Treasuries declined, as the yield on the 2-year note was little changed at 2.80%, while the yields on the 10-year note and the 30-year bond increased 3 bps to 3.08% and 3.23%, respectively.

Treasury yields extended a recent run and the U.S. dollar modestly added to a soft patch seen as of late. Economic data has remained mostly solid, keeping expectations high that the Fed will announce a rate hike next week, but the latest reads on inflation were cooler than expected and housing data has caused some concerns, fostering some uncertainty regarding if the Fed makes an additional move in December. Meanwhile, global trade remains in focus, with the U.S. and China exchanging more tariffs yesterday, though the rates on each other’s goods came in below expectations to help soothe some of the exacerbated skittishness.

In addition to the aforementioned housing report, other items on the economic docket slated for release include the Index of Leading Economic Indicators (LEI), with economists projecting a 0.5% m/m rise for August following the 0.6% advance posted in July, as well as weekly initial jobless claims, anticipated to increase by 6,000 to a level of 210,000.

Europe follows Asia higher amid trade announcements

European equities turned to the upside, following a solid advance in Asia and yesterday’s rally in the U.S. markets. Mining issues showed solid strength amid relatively eased trade concerns that appeared to surface after yesterday’s latest exchange of tariffs between the U.S. and China had rates that were smaller than initially feared.

The euro nudged higher and the British pound was little changed versus the U.S. dollar, while bond yields in the region traded higher. The markets seemed to look past uncertainties regarding a U.K. Brexit deal or no deal and Italian budget concerns. The U.K. reported hotter-than-expected inflation figures for August, and European new car registrations jumped for last month.

Stocks in Asia were mostly higher, with the latest trading of tariffs between the U.S. and China yesterday appearing to come in less severe than initially expected to ease exacerbated worries, while the Bank of Japan held its monetary policy stance unchanged. Japanese equities rose, prolonging a recent winning streak, while the yen extended late-yesterday’s decline.

Chinese securities and those traded in Hong Kong advanced, while mining issues helped give Australian stocks a boost, but South Korean listings finished little changed and markets in India declined, adding to a recent soft patch that has come courtesy of concerns over the drop in the rupee and festering uneasiness toward the emerging markets.

Market Insights 9/18/2018

U.S. equities notched solid gains, as the markets shrugged off heightened trade worries following the latest exchange of tariffs between the U.S. and China, with initial levies on goods from both sides lower than what was initially expected.

Technology stocks rebounded from a recent bout of weakness, leading the advance.

Treasury yields and the U.S. dollar were higher following a read on homebuilder sentiment that held steady. Gold dipped and crude oil prices were higher.

The Markets…

The Dow Jones Industrial Average rallied 185 points (0.7%) to 26,247

The S&P 500 Index was 16 points (0.5%) higher at 2,904

The Nasdaq Composite jumped 60 points (0.8%) to 7,956

In moderate volume, 709 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.94 to $68.91 per barrel and wholesale gasoline was up $0.02 to $2.00 per gallon

The Bloomberg gold spot price moved $3.89 lower to $1,197.57 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 94.66

Homebuilder sentiment holds steady

The National Association of Home Builders (NAHB) Housing Market Index showed homebuilder sentiment this month remained at August’s unrevised 67 level, versus the Bloomberg forecast of a dip to 66. A reading of 50 separates good and poor conditions. The NAHB said a growing economy and rising incomes combined with increasing household formations should boost demand for new single-family homes moving forward. However, housing affordability is becoming a challenge, as builders face overly burdensome regulations and rising material costs exacerbated by an escalating trade skirmish.

The NAHB noted that it expects some market disruption effects due to the impact of Hurricane Florence, with single-family construction in the area making up 12.0% of national production.

The NAHB’s report kicked off a heavy week of housing data and will continue with tomorrow’s August read on construction activity in the form of housing starts and building permits. Starts are projected to jump 5.7% month-over-month to an annual rate of 1,238,000 units, and permits are forecasted to tick 0.5% higher to an annual pace of 1,310,000 units. MBA Mortgage Applications are also on tap.

Treasuries were lower, as the yield on the 2-year note ticked 1 basis point higher to 2.79%, while the yields on the 10-year note and the 30-year bond gained 6 bps to 3.05% and 3.19%, respectively.

The U.S. dollar was modestly higher, trimming yesterday’s decline with the Fed highly expected to announce a rate hike next week, though a December move continues to be uncertain. Also, trade concerns remain as the U.S. announced yesterday the implementation of another round of tariffs on Chinese goods.

The U.S. said it will proceed with tariffs on about $200.0 billion of Chinese goods at an initial rate of 10% until the end of the year, after which the rate will increase to 25%, a rate that was originally expected. China followed through with retaliatory measures by announcing 5-10% tariffs in $60.0 billion of U.S. goods and filing a complaint with the World Trade Organization. China had originally proposed a 10-25% range.

Europe and Asia mostly higher despite escalated trade tensions

European equities finished mostly higher, despite escalated trade tensions between the U.S. and China, as the former imposed further tariffs and the latter retaliated with another round of levies on U.S. goods.

The initial rate of 10% tariffs on Chinese goods seemed to relatively soothe some concerns as it is below the expected 25%, while China’s rate was also below its previously-projected range. The euro traded higher versus the U.S. dollar, while the British pound dipped as Brexit uncertainty lingers.

Bond yields in the region finished mostly higher, though Italian rates modestly added to yesterday’s decline, but action was choppy as the nation’s budget remained a source of uncertainty.

Stocks in Asia finished mostly higher, showing some resiliency in the face of the announcement that the U.S. will implement further tariffs on Chinese goods, and China retaliating with another round of levies on the U.S. However, both rates were below what was previously expected. Mainland Chinese equities and those traded in Hong Kong rose, overcoming early losses as the session matured.

Stocks in Japan also advanced, returning to action following yesterday’s holiday, with the yen giving back some early gains late in the day, ahead of tomorrow’s monetary policy decision from the Bank of Japan, and listings in South Korea moved higher.

Markets in Australia declined, with energy issues leading to the downside, while the minutes from the Reserve Bank of Australia’s unchanged monetary policy decision earlier this month showed concern regarding the U.S./China trade friction and a signal that the next move for the central bank will likely be to the tightening side.

Indian securities fell in the wake of the recent weakness in the rupee and concerns regarding the potential financial conditions contagion toward the emerging markets.

Market Insights 9/17/2018

Trade and Technology Drag Stocks Lower

U.S. stocks finished lower as trade uneasiness was accelerated by expectations President Donald Trump will go ahead with further tariffs on China after the closing bell.

Tech issues remained vulnerable by the trade uneasiness and Amazon pressured the consumer discretionary sector.

Treasury yields were little changed though the U.S. dollar fell, while a read on regional manufacturing noticeably missed estimates. Crude oil prices turned lower and gold advanced.

The Markets…

The Dow Jones Industrial Average fell 93 points (0.4%) to 26,062

The S&P 500 Index was 16 points (0.6%) lower at 2,889

The Nasdaq Composite dropped 114 points (1.4%) to 7,896

In moderate volume, 732 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil dipped $0.08 to $68.91 per barrel and wholesale gasoline was little changed at $1.97 per gallon

The Bloomberg gold spot price moved $5.73 higher to $1,200.59 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.4% to 94.49

Regional manufacturing activity falls more than expected to kick off the week

The Empire Manufacturing Index showed output from the New York region fell more than expected but remained solidly in expansion territory (a reading above zero) for September. The index dropped to 19.0 from August’s unrevised 25.6 level, with the Bloomberg forecast calling for a decline to 23.0.

Treasuries were little changed, with the yields on the 2-year and 10-year notes, along with the 30-year bond, flat at 2.78%, 2.99% and 3.13%, respectively. The U.S. dollar saw some pressure.

The markets continued to grapple with a highly-expected Fed rate hike next week as economic data has been mostly solid, headlined by the August non-farm payroll report that showed wage growth was stronger than expected, but recent reads on inflation came in cooler than anticipated to keep a December rate hike in question. Trade concerns continued to fester as talks with China seemed threatened by news that President Donald Trump is likely to go ahead with further tariffs on Chinese goods after today’s market close.

Today’s regional manufacturing report kicked off the week’s economic calendar, and will be complemented by the Philly Fed Business Outlook Index later this week, along with the Leading Index, which will give us a look at economic momentum as we head toward Q4. However, the housing market, which has been a recent source of economic uncertainty, will likely garner the most of attention, courtesy of August housing starts and building permits and existing home sales. Tomorrow the data will begin with a September read on homebuilder sentiment in the form of the NAHB Housing Market Index, expected to dip to 66 for September from 67 in August, though a reading of 50 separates good and poor conditions.

There is little doubt that near-term risks have risen, but that can help the long-running bull market continue as investor enthusiasm remains lacking and we have not reached the euphoria stage. Risks exist on both sides—pullbacks are possible but so are breakouts to the upside—warranting a relatively neutral stance on US equities in our opinion. Trade disputes as of yet are not having much impact on U.S. economic growth, although the risk remains, especially with regard to China. Meanwhile, the Fed will almost assuredly raise rates later this month, but has kept overtly hawkish commentary to a minimum. International equities have continued to diverge from U.S. equities and we would continue to be under-weighted on most developed market regions.

Remember John Templeton’s famous quote ““Bull markets are born in pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Europe mixed on earnings and trade worries, which weighed on Asia

European equities finished mixed, with the euro and British pound rising versus the U.S. dollar, while expectations that the U.S. could soon impose further tariffs on China seemed to exacerbate global trade concerns. U.K. Brexit uncertainty lingered but Italian budget worries appeared to continue to recede. Earnings from the retail sector also helped support the markets. Bond yields in the region traded mixed with the cooled Italian budget concerns weighing on that nation’s rates, while most other yields nudged higher. Eurozone consumer price inflation for August came in as expected.

The U.K. FTSE 100 Index was little changed, France’s CAC-40 Index dipped 0.1%, Germany’s DAX Index declined 0.2%, and Switzerland’s Swiss Market Index decreased 0.4%, while Italy’s FTSE MIB Index rallied 1.1% and Spain’s IBEX 35 Index gained 0.4%.

The previously mentioned trade concerns also weighed on stocks in Asia, led by the Chinese markets, with concerns that if the U.S. goes ahead with another round of tariffs on Chinese goods it could thwart an another round of talks. However, volume was lighter than usual with markets in Japan closed for a holiday. South Korean equities traded lower, but Australian stocks moved higher with financials leading to the upside. Indian markets finished lower on the trade uneasiness and following a downgrade of the nation’s markets by Goldman Sachs, as well as the continued drop in the rupee as the government’s measures to support the currency appeared to disappoint.

Random Thoughts

Damage from Hurricane Florence is expected to exceed the losses from Katrina in 2005, and Harvey in 2017.

Yet hurricane damage largely remains a localized event and ends up injecting economic growth into the region as depreciated structures are repaired or rebuilt with new materials.

As a result, investors have chosen to ignore Florence and refocus on the fundamentals, which remain strong. The end of the third quarter earnings period is two weeks away.

S&P Capital IQ consensus estimates point to a near 22% year-over-year increase, with all 11 sectors projected to post positive results.

In addition, the U.S. economy remains firm in Q3 after a strong 4.2% GDP growth pace in Q2. Finally, the technical underpinnings of the three major U.S. equity indices are also positive.

Even though the S&P 500’s current MTD decline is typical, the magnitude is tamer than usual. Therefore, investors should not be surprised if share prices soften even further toward month-end following the Fed’s expected rate hike and in response to Q3 EPS pre-announcements.

However, the month after should offer investors a reason to be optimistic, as the S&P 500 typically recorded a strong performance in October of midterm election years.

Market Insights 9/14/2018

U.S. equities were able to claw their way back to near the unchanged mark following a midday drop that ensued after President Donald Trump’s comments on going ahead with tariffs against China ratcheted trade concerns higher, while investors also kept a close eye on Hurricane Florence’s landfall on the east coast.

Treasury yields and the U.S. dollar gained ground following upbeat July retail sales revisions, as well as consumer sentiment and industrial production reports that topped expectations.

Crude oil prices were mixed and gold was lower.

The Markets…

The Dow Jones Industrial Average inched 8 points higher to 26,154

The S&P 500 Index was up 1 point to 2,905

The Nasdaq Composite lost 4 points (0.1%) to 8,010

In moderate volume, 762 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.40 higher to $68.99 per barrel and wholesale gasoline was down $0.02 at $1.97 per gallon

The Bloomberg gold spot price fell $7.26 to $1,994.21 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 94.92

Markets were higher for the week, as the DJIA increased 0.9%, the S&P 500 Index rose 1.2%, and the Nasdaq Composite jumped 1.4%

Retail sales data mixed, industrial production and consumer sentiment reports top forecasts

Advance retail sales for August ticked 0.1% higher month-over-month, below the Bloomberg forecast of a 0.4% gain, but July’s figure was upwardly-revised to a 0.7% rise. Last month’s sales ex-autos were up 0.3% m/m, versus expectations calling for a 0.5% rise, though July’s gain was favorably-revised to a 0.9% increase. Sales ex-autos and gas nudged 0.2% to the upside m/m, compared to estimates of a 0.5% gain, but July’s increase was adjusted upward to 0.9%. The control group, a figure used to calculate GDP, increased 0.1%, compared to projections of a 0.4% gain, though July’s growth was revised favorably to a 0.8% gain.

The September preliminary University of Michigan Consumer Sentiment Index unexpectedly jumped to 100.8—a six month high—from August’s final read of 96.2, and compared to expectations for a slight rise to 96.6. The current economic conditions and expectations components of the report both improved solidly. The 1-year inflation forecast dipped to 2.8% from 3.0%, while the 5-10 year inflation forecast declined to 2.4% from the previous 2.6% rate.

The Federal Reserve’s industrial production report showed a 0.4% m/m rise in August, compared to estimates of a 0.3% gain and matching July’s upwardly revised increase. Manufacturing output ticked higher, while mining and utilities production both rose solidly. Capacity utilization ticked higher to 78.1% from the prior month’s downwardly-revised 77.9% rate, and versus forecasts of 78.2%. Capacity utilization is 1.7 percentage points below its long-run average.

The Import Price Index dropped 0.6% m/m for August, versus projections of a 0.2% decline, and following July’s downwardly-revised 0.1% dip. Compared to last year, prices were higher by 3.7%, south of forecasts calling for a 4.1% increase and compared to the previous month’s upwardly-revised 4.9% gain.

Treasuries declined, as the yields on the 2-year and 10-year notes, along with the 30-year bond, all rose by 3 basis points (bps) to 2.79%, 2.99% and 3.13%, respectively.

The data came amid lingering global trade uncertainty and expectations that the Fed will raise interest rates later this month. However, this week’s cooler-than-expected inflation reports have countered last week’s stronger-than-projected wage growth figure of the August non-farm payroll report to calm Fed jitters and keep the markets grappling with the potential for a December Fed move. The markets also digested yesterday’s unchanged monetary policy decisions from the European Central Bank and the Bank of England, along with Turkey’s decisive rate hike announcement.

Europe and Asia higher on eased emerging market pressure

European equities finished mostly higher, with the euro and British pound seeing some pressure after yesterday’s gains versus the U.S. dollar, which rebounded today following some upbeat economic data. The currencies gained ground yesterday as a cooler-than-expected U.S. consumer price inflation report was met with commentary accompanying unchanged monetary policy decisions from the European Central Bank and the Bank of England. Bond yields in the region traded mostly higher, even as the Eurozone trade surplus shrank much more than expected in July. Technology issues led to the upside, with optimism lingering that the U.S. and China could start another round of trade talks and the semiconductor sector recovering from recent downside pressure. Yesterday’s aggressive rate hike from Turkey, which has seen economic turmoil and its currency tumble, appeared to help global sentiment and ease some of the pressure on emerging markets.

Stocks in Asia finished mostly to the upside, even as global trade uncertainty remained with this week’s optimism from reports that the U.S. is seeking another round of talks with China being countered by comments from President Donald Trump that suggested China is facing more pressure to strike a deal. Semiconductor stocks rebounded from recently renewed scrutiny of the sector to help technology issues gain ground, while Turkey’s central bank’s move to boost of its benchmark interest rate helped stem some of the pressure on the lira to help ease exacerbated emerging market concerns. This week’s cooler-than-expected U.S. inflation data also alleviated some of the upward momentum in the U.S. dollar to also provide some support to the emerging markets.

Stocks in Japan rose, with the yen losing some ground, and those traded in South Korea rallied, while Australian securities also advanced. India’s markets returned to action following yesterday’s holiday break, posting a solid increase, but Chinese stocks finished mixed following divergent August economic data and as the markets grappled with the trade uncertainty. China’s retail sales rose more than expected and its industrial production grew in line with forecasts, though its fixed asset investment unexpectedly decelerated.

Stocks rebound as tech and energy lead way…data, trade and monetary policy in focus

U.S. stocks rebounded after last week’s pullback, with technology and energy sectors recovering. Chip stocks found a reprieve, Dow member Apple Inc. introduced its latest stable of iPhones, and trade concerns were relatively kept at bay despite more comments from President Donald Trump. Crude oil prices rebounded on eased emerging market contagion concerns, another dose of bullish oil inventory data and the impending Iranian sanctions.

Monetary policy focus ramped up, with central banks in Europe holding steady but offering mostly upbeat economic commentary, while Turkey moved its benchmark interest rate up by more than 600 bps to 24.00%, helping support the lira and slightly alleviating some of the skittishness toward the emerging markets. Concerns about the Fed being forced to accelerate its tightening campaign were held in check by three separate August inflation reports that were noticeably cooler than expected.

The U.S. dollar slipped on the data, as well as resurfaced optimism that the U.S. and China may hold another round of trade talks and the aforementioned modest calming of emerging market worries. However, Treasury yields gained ground, with the 10-year note moving back to within striking distance of 3.00% and the 2-year note posting a fresh 10-year high, as U.S. small business optimism and job openings registering all-time highs, ahead of Friday’s upbeat industrial production, consumer sentiment and July retail sales revisions.

Next week, the housing market, which has been a recent source of economic uncertainty, will come into focus, courtesy of August housing starts and building permits and existing home sales, along with a September read on homebuilder sentiment in the form of the NAHB Housing Market Index. Regional manufacturing activity for this month will also be on display amid the releases of the Empire Manufacturing Index and the Philly Fed Business Outlook Index. Finally, the Leading Index will give us a look at economic momentum as we head toward Q4.

Market Insights 9/13/2013

U.S. equities were higher amid eased trade concerns, with the U.S. looking to engage in another round of talks with China, as well as a second dose of cooler-than-expected inflation data that appeared to calm some Fed jitters.

Technology stocks recovered from some resurfaced scrutiny of the space to lead the way, while Treasury yields were nearly flat and the U.S. dollar extended a drop following the inflation report, a decline in jobless claims, and after unchanged monetary policy decisions from the European Central Bank and Bank of England.

Gold and crude oil prices were lower.

The Markets….

The Dow Jones Industrial Average (DJIA) rose 147 points (0.6%) to 26,146

The S&P 500 Index was 15 points (0.5%) higher at 2,904

The Nasdaq Composite increased 59 points (0.8%) to 8,014

In moderate volume, 756 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.78 to $68.59 per barrel and wholesale gasoline lost $0.04 to $1.99 per gallon

The Bloomberg gold spot price moved $4.68 lower to $1,201.56 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.3% to 94.56

Inflation data misses again, jobless claims surprisingly dip

The Consumer Price Index (CPI) rose 0.2% month-over-month (m/m) in August, below the Bloomberg estimate of a 0.3% gain, and matching July’s unrevised increase. The core rate, which strips out food and energy, ticked 0.1% higher m/m, below expectations to match July’s unadjusted 0.2% gain. Y/Y, prices were 2.7% higher for the headline rate, south of forecasts of a 2.8% rise and July’s unrevised 2.9% increase. The core rate was up 2.2% y/y, below projections to match July’s unadjusted 2.4% increase. Energy and shelter prices rose, along with airline fares and used auto prices, but apparel weighed on the index after posting the largest decline in about seven decades, per Bloomberg. Prices for medical care, communication, recreation and personal care also declined. The report follows yesterday’s wholesale price inflation data that dipped for the first time in eight months.

Weekly initial jobless claims dipped by 1,000 to 204,000, versus estimates calling for a rise to 210,000, with the prior week’s figure being revised higher by 2,000 to 205,000. The four-week moving average declined by 2,000 to 208,000, while continuing claims fell by 15,000 to 1,696,000, south of estimates of 1,710,000.

Treasuries were little changed, as the yield on the 2-year note and the 30-year bond were flat at 2.76% and 3.11%, respectively, while the yield on the 10-year note ticked 1 basis point (bp) higher to 2.97%. The U.S. dollar reversed lower, as the inflation data appeared to keep accelerated Fed rate hike jitters in check.

The markets continued to grapple with festering global trade uncertainties, though reports yesterday suggested the U.S. is seeking another round of talks with China, as well as a host of global monetary policy decisions. The European Central Bank and Bank of England left their stances unchanged, while Turkey’s central bank hiked its benchmark rate by 625 bps to 24.00%. The moves come as the Fed is highly-expected to raise rates later this month, bolstered by last week’s stronger-than-expected August non-farm payroll report that showed wage growth topped estimates, but a December move remains a source of uncertainty, exacerbated by today’s inflation data

Europe mixed on trade and central bank decisions, Asia higher

European equities finished mixed, with global trade concerns easing a bit amid reports the U.S. is seeking another round of talks with China, though President Donald Trump responded by saying he feels no pressure to reach a deal with China. Monetary policy garnered heavy attention, with the Bank of England (BoE) and European Central Bank (ECB) holding their policy stances unchanged, as expected. Moreover, Turkey decisively hiked its benchmark rate to 24.00% from 17.75%, which lent some support to the European banking sector and fostered a jump in the lira, which has been pummeled by the nation’s economic turmoil.

The BoE upgraded its economic growth forecast but warned of Brexit uncertainty, while the ECB notched down its economic growth forecast as expected and maintained its inflation outlook. President Mario Draghi noted at the customary press conference following the decision that underlying economic strength will likely mitigate downside risks but a major source of uncertainty comes from the rise of protectionism.

The euro and British pound rose versus the U.S. dollar following the decisions and a second day of cooler-than-expected U.S. inflation data. Bond yields in the region were mostly higher. The rise in the pound hampered the U.K. markets and resurfacing Italian budget uncertainty hamstrung conviction in Italy.

Stocks in Asia finished mostly to the upside amid eased trade concerns on reports that the U.S. and China could hold another round of talks, while some upbeat data in the region appeared to support sentiment.

Japanese equities rose, with the yen giving back some recent gains, while the nation reported a much stronger-than-expected rise in July machine orders—a gauge of business spending. Stocks in mainland China and Hong Kong rallied on the eased trade worries that had dragged the latter into bear market territory this week.

Markets in South Korea ticked slightly higher, but those in Australia declined with the markets seeming to weigh a noticeably stronger-than-expected August employment report with what that could mean for monetary policy. Markets in India were closed for a holiday. Monetary policy was in focus ahead of today’s decisions out of Europe and as Turkey decisively hiked its benchmark interest rate that sparked a rally in the lira to cool some concerns that have hampered emerging markets

Market Insights 9/12/2018

U.S. equities finished mixed after a bumpy session, as early optimism of reports that the U.S. is trying to set up a new round of trade talks with China were tempered following the release of the Fed’s Beige Book that indicated some concerns among some districts regarding tariffs and trade.

Treasury yields and the U.S. dollar were lower following a cooler-than-expected wholesale inflation report, while gold was higher.

The Markets…

The Dow Jones Industrial Average (DJIA) rose 28 points (0.1%) to 25,999

The S&P 500 Index was 1 point higher at 2,889

The Nasdaq Composite declined 18 points (0.2%) to 7,954

In moderate volume, 764 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil jumped $1.12 to $70.37 per barrel and wholesale gasoline gained $0.02 to $2.03 per gallon

The Bloomberg gold spot price moved $7.28 higher to $1,205.87 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was down 0.4% to 94.85

Wholesale price inflation unexpectedly dips, mortgage applications decline, ahead of Fed report

The Producer Price Index (PPI) showed prices at the wholesale level in August, and the core rate, which excludes food and energy, were down 0.1% month-over-month, missing the Bloomberg expectations of 0.2% increases. July’s headline rate was unrevised at a flat reading, and the core rate was unadjusted at a 0.1% gain. Y/Y, the headline rate was 2.8% higher, versus projections of a 3.2% gain and July’s unrevised 3.3% increase. The core PPI rose 2.3% y/y last month, south of estimates to match July’s unrevised 2.7% increase.

The MBA Mortgage Application Index declined 1.8% last week, following the prior week’s 0.1% dip. The downward move came as a 5.9% drop in the Refinance Index more than offset a 0.9% rise in the Purchase Index. The average 30-year mortgage rate increased 4 basis points to 4.84%.

The Federal Reserve released its Beige Book—an anecdotal report on the nation’s business activity used as a policy tool to prep for the next two-day meeting set to conclude on September 26th. The report indicated that while the economy expanded at a “moderate pace” during August, trade concerns and a lack of skilled workers were noted worries, with three of the 12 districts reporting weaker growth during the month. However, wage growth remained “modest to moderate” as employers look to offer benefits in order to attract employees.

Expectations continue to run high that the Central Bank will announce a third rate hike for the year on September 26th.

Treasuries were higher, as the yield on the 2-year note was little changed at 2.74%, while the yield on the 10-year note declined 2 bps to 2.96% and the 30-year bond rate dipped 1 bp to 3.11%.

The U.S. dollar was also lower after the inflation data and as the markets continue to grapple with festering global trade uncertainties, while awaiting tomorrow’s monetary policy decisions out of Europe. China/U.S. trade relations continue to garner the lion’s share of attention, while the latter remains in talks with Canada regarding a potential new NAFTA deal and reports are suggesting its talks with the European Union have progressed.

Europe shows resiliency with energy leading the way, Asia mostly lower on trade concerns

European equities finished higher, with energy issues leading to the upside as crude oil prices extended a recent rise on another larger-than-expected drop in U.S. crude oil inventories, looming Iranian sanctions and as Hurricane Florence threatens the east coast in the U.S.

The euro ticked higher and the British pound was little changed versus the U.S. dollar after wholesale price inflation in the U.S. came in noticeably cooler than expected. The inflation report appeared to keep accelerated Fed rate hike concerns in check ahead of tomorrow’s monetary policy decisions from the European Central Bank (ECB) and the Bank of England.

The markets showed some resiliency in the face of a larger-than-expected decline in Eurozone industrial production for July, lingering Brexit uncertainty, festering global trade worries, and flaring-up Italian budget uneasiness. Bond yields in the region finished mostly lower, though Italian rates ticked higher.

Japanese equities declined, giving back some of a recent advance, with technology issues seeing some pressure following some disappointing earnings results out of the chip sector and ahead of Apple’s new iPhone launch.

Stocks in mainland China and Hong Kong decreased, with the latter remaining in bear market territory. After the closing bell, China reported that new yuan loans came in a bit shy of estimates, though its aggregate financing—a gauge of total credit issued—easily topped forecasts.

Stocks in Australia dipped and those traded in South Korea finished little changed. However, markets in India gained ground, snapping a recent losing streak that has been exacerbated by the contagion fears toward the emerging markets.

Indian markets rebounded on optimism regarding Prime Minister Modi’s reported review of the economy and the potential for the government and Reserve Bank of India to offer support for the rupee to try to stem the currency’s recent slide.

In addition to the aforementioned monetary policy meetings from the European Central Bank and the Bank of England, other items on tomorrow’s international economic calendar include CPI from Japan, labor data from Australia, CPI from Germany and France and PPI from Switzerland.

Market Insights 9/11/2018

U.S. equities finished higher, as persistent global trade concerns as of late took a back seat to record high U.S. small business sentiment and job openings.

Treasury yields and the U.S. dollar rose following the reports, while gold only inched higher. Crude oil prices rallied, boosting energy shares, as Hurricane Florence threatens the east coast.

The Markets….

The Dow Jones Industrial Average rose 114 points (0.4%) to 25,971

The S&P 500 Index was 11 points (0.4%) higher at 2,888

The Nasdaq Composite increased 48 points (0.6%) to 7,972

In moderate volume, 680 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil jumped $1.71 to $69.25 per barrel and wholesale gasoline gained $0.05 to $2.01 per gallon

The Bloomberg gold spot price ticked $0.29 higher to $1,996.65 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.1% to 95.25

Small business optimism hits record, along with job openings report

The National Federation of Independent Business (NFIB) Small Business Optimism Index for August improved more than expected to a record high of 108.8, from the prior month’s unrevised 107.9 level, and versus the Bloomberg expectation of a tick higher to 108.0. Capital spending plans hit highs note seen since 2007 and inventory investment intentions hit 2005 levels.

Wholesale inventories were revised lower to a 0.6% month-over-month (m/m) gain for July from the preliminary estimate of a 0.7% gain, where it was expected to remain. June’s figure was unrevised at a 0.1% increase. Sales were flat m/m, compared to June’s downwardly-revised 0.2% decline, and versus estimates of a 0.1% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—ticked higher to 1.26 from June’s 1.25 rate.

The Labor Department’s Job Openings and Labor Turnover Survey (JOLTS), a measure of unmet demand for labor, rose to a fresh record high of 6.94 million jobs available to be filled in July after June’s upwardly revised 6.82 million figure, and compared to forecasts calling for a 6.68 million figure. The hiring rate remained at June’s 3.8% pace, and the separation rate held at June’s 3.7% level.

Treasuries were lower, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, rose 4 basis points (bps) to 2.75%, 2.98% and 3.12%, respectively The U.S. dollar was only modestly higher amid continued choppy trading as the markets grappled with festering global trade uncertainties, and ahead of this week’s monetary policy decisions out of Europe. The European central bank announcements will come as the U.S. economic front remains solid. Today’s upbeat employment data followed last week’s stronger-than-expected August non-farm payroll report, notably signs that wage growth may be gaining momentum, that kept rate hike expectations for this month intact and nudged up speculation of a December move.

Tomorrow’s economic calendar will offer investors their first look at August inflation numbers, courtesy of the Producer Price Index (PPI), with economists forecasting a 0.2% increase m/m following the flat reading in July, while the core rate, which excludes food and energy, is also projected to have risen by 0.2% m/m after advancing by 0.3% the month prior.

In afternoon action the Federal Reserve will release its Beige Book —an anecdotal report on the nation’s business activity used as a policy tool to prep for the next two-day meeting set to conclude on September 26th. MBA Mortgage Applications are also slated for release.

Europe and Asia mixed on data and trade concerns

European equities finished mixed, with the euro and British pound dipping versus the U.S. dollar, while lingering trade worries toward the U.S. and China were countered by record highs in U.S. small business optimism and job openings, as well as stronger-than-expected German investor confidence for September. German investor confidence for the current situation unexpectedly grew and the expectations component of the survey improved more than anticipated. Reports suggesting progress in trade talks between the U.S. and the European Union, though a new breakthrough remains elusive, appeared to help offset some of the China/U.S. concerns.

Energy issues led to the upside as crude oil prices rallied on the potential supply impacts of the nearing Hurricane Florence on the U.S. east coast and the looming Iranian energy sanctions.

Bond yields in the region finished mostly higher, with Italian rates rebounding from a recent decline that came on eased fiscal concerns, which has also fostered outperformance as of late in Italian stocks. The moves came as the European Central Bank and Bank of England are expected to announce monetary policy decisions on Thursday.

Stocks in Asia finished mixed, with global trade uneasiness continuing to weigh on the Chinese markets, with China reportedly set to ask the World Trade Organization for permission to retaliate against the U.S. However, yesterday’s upbeat GDP report, bolstered by stronger-than-expected business spending, along with some weakness in the yen, helped Japanese equities rise and extend a winning streak.

Stocks in mainland China and Hong Kong fell, with the latter remaining in bear market territory. Australian securities advanced, aided by strength in energy and technology issues, while those traded in South Korea traded lower and markets in India fell sharply, as the trade concerns and lingering concerns about contagion in the emerging markets continued to hamper sentiment.