Q3 Ends on a Down Note
U.S. equities finished a choppy final trading day of the 3Q lower amid some disappointing domestic economic reports and continued geopolitical uneasiness. Consumer Confidence declined more than expected in September, housing prices missed expectations, and manufacturing activity in the Midwest slowed more than estimated.
Chinese and Eurozone growth concerns lingered, while protests Hong Kong expanded and media reports surfaced that Russia may be looking to impose capital controls, of which the nation’s central bank denied.
Treasuries finished lower, as did crude oil and gold prices, while the U.S dollar continued its rally.
The Dow Jones Industrial Average declined 28 points (0.2%) to 17,043
The S&P 500 Index was 6 points (0.3%) lower at 1,972
The Nasdaq Composite fell 12 points (0.3%) to 4,493
In heavy volume, 923 million shares were traded on the NYSE, and 2.1 billion shares changed hands on the Nasdaq
WTI crude oil fell $3.41 to $91.16 per barrel, wholesale gasoline lost $0.07 to $2.44 per gallon
The Bloomberg gold spot price declined $8.32 to $1,207.49 per ounce
Consumer Confidence drops, while home prices miss
The Consumer Confidence Index dropped to 86.0 in September, falling to the lowest level since May, from an upwardly revised 93.4 in August and compared to the 92.5 level that economists surveyed by Bloomberg had projected. The drop came as a solid month-over-month decline in the component pertaining to expectations of business conditions was accompanied by a decrease in sentiment regarding the present situation.
Treasuries finished lower, as the yield on the 2-year note ticked 1 basis point higher to 0.58%, the yield on the 10-year note rose 2 bps to 2.50% and the 30-year bond rate increased 4 bps to 3.21%.
The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 6.8% y/y in July, compared to the 7.4% increase that economists had expected. Moreover, m/m, home prices were lower by 0.5% on a seasonally adjusted basis for July, versus forecasts calling for a flat pace of growth.
The Chicago Purchasing Managers Index showed growth in Midwest activity decelerated more than expected, decreasing to 60.5 for September, from 64.3 in August, and versus expectations of a decline to 62.0, though a reading above 50 depicts growth.
September U.S. manufacturing activity is poised to take most of the spotlight from tomorrow’s economic calendar, with the release of the final Markit Manufacturing PMI Index being followed by the ISM Manufacturing Index. Markit’s report is expected to show growth remained at August’s 57.9 level, while the ISM report is forecasted to show a slight decline to 58.5 from the prior month’s 59.0 figure, with readings above 50 for both indexes denoting expansion. Manufacturing reports have showed continued expansion for the sector, helping fuel optimism regarding the U.S. economy, but fostering increased concerns about a potential sooner-than-expected Fed rate hike.
However, at its most recent policy meeting, the Fed maintained its “considerable time” statement language pertaining to its current target range for the fed funds rate, likely due to its ongoing concerns about the “significant underutilization” of labor resources and its apparent lack of concern about inflation risks. As such, the employment components of the reports are likely to garner the most attention, ahead of Friday’s September nonfarm payroll release. Markit’s preliminary report suggested payrolls rose at the fastest pace since March 2012, while August’s ISM report showed the 14th consecutive month of growth in employment.
Other data on tomorrow’s economic docket include: the ADP Employment Change report, MBA mortgage applications, construction spending, and vehicle sales.
Europe higher, Asia mixed following data
The European equity markets finished mostly to the upside, with reports from the economic calendar fostering optimism of further stimulus measures from the European Central Bank (ECB), and overshadowing heightened geopolitical concerns, courtesy of expanding pro-democracy protests in Hong Kong. Meanwhile, reports that Russia may introduce capital controls caused some volatility for the nation’s currency, prompting the Russian central bank to respond by saying it is not considering the introduction of any kind of restrictions on cross-border movement of capital, per Reuters.
The Eurozone consumer price inflation estimate for September came in at a 0.3% y/y forecast, matching projections, and compared to the 0.4% increase estimated in the previous month. The Eurozone unemployment rate remained at an elevated 11.5% for August, while the German unemployment change unexpectedly rose for this month. However, a separate report showed Germany’s retail sales grew at a much higher rate than anticipated for August. Against the backdrop of the decelerating inflation and elevated unemployment rate, the ECB is set to deliver its monetary policy decision on Thursday, and the ECB may need to include government bonds longer-term, but this may not be enough to lift the European economy out of stagnation.
U.K. stocks finished lower despite the nation’s 2Q GDP growth being surprisingly adjusted higher to a 0.9% quarter-over-quarter pace of growth, from the preliminary 0.8% rate of expansion. The growth in U.K. economic output was an acceleration from the 0.7% expansion in 1Q, and the figure may have exacerbated Bank of England rate hike concerns, which ramped up last week as Governor Carney suggested the time for rate increases may be nearing.
Stocks in Asia finished mixed as traders digested a plethora of data out of Japan and China, while continued protests in Hong Kong continued to weigh on markets in the region. Japan’s Nikkei 225 Index fell, with some strength in the yen during the session pressuring export-related issues, while data from the economic calendar diverged. Japan’s retail sales rose much more than projected for August, but separate reports showed the nation’s industrial production unexpectedly fell and household spending dropped more than anticipated for the month.
China’s Shanghai Composite Index gained ground despite the release of the final HSBC China Manufacturing PMI Index, which was revised lower to 50.2 for September, from 50.5 in the preliminary report, where economists had expected it to remain. The reading was unchanged from August’s level, but a figure above 50 denotes expansion. However, the Hong Kong Hang Seng Index fell again as pro-democracy protests continued to expand in the nation’s streets, ahead of public holidays, which begin tomorrow and will cause the country’s markets to be closed for the next two days, fostering concerns that the crowds could increase. The Reserve Bank of India left its monetary policy unchanged, as expected, while South Korea’s industrial production surprisingly dropped in August.