U.S. equities closed the final session of 3Q with solid gains on the heels of a broad-based global advance with some recent soft data out of Japan and the eurozone boosting expectations of additional stimulus in those regions.
Treasuries were mixed as an upbeat ADP employment report was met with an unexpected decline in Midwest manufacturing activity. Gold was lower, crude oil prices were mixed and the U.S. dollar was higher.
The Dow Jones Industrial Average gained 236 points (1.5%) to 16,285
The S&P 500 Index increased 36 points (1.9%) to 1,920
The Nasdaq Composite advanced 103 points (2.3%) to 4,620
In heavy volume, 1.2 billion shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq
WTI crude oil decreased $0.14 to $45.09 per barrel, wholesale gasoline added $0.02 to $1.37 per gallon
The Bloomberg gold spot price declined by $11.42 to $1,116.01 per ounce
ADP employment report tops forecasts
The ADP Employment Change Report showed private sector payrolls rose by 200,000 jobs in September, versus the Bloomberg forecast of a 190,000 increase, while August’s rise of 190,000 jobs was revised to a 186,000 gain. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader non-farm payroll report, expected to show an increase of 200,000 jobs in September, after posting a rise of 173,000 in August. Excluding government hiring, private sector payrolls are expected to increase by 198,000, after expanding by 140,000 in August. The unemployment rate is forecasted to remain at 5.1% and average hourly earnings are projected to rise 0.2% month-over-month.
The Chicago Purchasing Managers Index showed Midwest activity unexpectedly fell into contraction territory (below 50), falling to 48.7 in September from 54.4 in August, and versus the expectation of a decline to 53.0. New orders, production and inventories all fell m/m, while employment grew compared to the prior month.
The MBA Mortgage Application Index fell 6.7% last week, after jumping 13.9% in the previous week. The drop came as a 7.5% decline in the Refinance Index was accompanied by a 5.6% decrease for the Purchase Index, while the average 30-year mortgage rate dipped 1 basis point to 4.08%.
In afternoon action, Federal Reserve Chairwoman Janet Yellen delivered the opening remarks to the Fed’s annual community banking conference in St. Louis, which provides an opportunity for bankers, regulators, and academic researchers to come together to share ideas and insights about community banking. Last week, Yellen noted in a speech that an interest rate hike sometime later this year would likely be appropriate, keeping expectations of a rate liftoff this year intact.
Treasuries were mixed, with the yield on the 2-year note declining 1 bp to 0.64%, while the yield on the 10-year note was flat at 2.05% and the 30-year bond rate ticked 2 bps higher to 2.87%. Bond yields have dropped as of late with the global markets remaining hampered by global growth concerns and Fed monetary policy uncertainty, as well as this week’s potential government shutdown, which appears to be set for a delay until December after the Senate passed a short-term spending bill, while the House is expected to approve the bill later today.
Tomorrow, global September business activity will be in focus, with reports on manufacturing and services sector output out of China and manufacturing activity out of the eurozone being followed by the ISM Manufacturing Index and Markit’s Manufacturing PMI Index in the U.S. ISM’s read is projected to decline to 50.6 from 51.1 in August, while Markit’s report is projected to remain at the prior month’s 53.0 level. Readings above 50 for both indexes denote expansion.
Underlying the view that the bull market is not over is the continued growth in the U.S. economy. The manufacturing sector, as well as multi-nationals, has been hit double-barreled by China’s growth slowdown and the dollar’s strength. The manufacturing sector is only about 12% of the U.S. economy though; with the services side representing the other 88%. And here the picture is much brighter. Associated with that strength is the improvement in housing—which is increasing its weight in the economy—and job growth, which continues to hum.
Europe and Asia broadly higher
European equities rallied, with Asian stocks finishing broadly higher and U.S. stocks extending yesterday’s gains. The advance in the region was broad-based, though automakers got a boost from an announcement that China will cut taxes on vehicle purchases. Stocks shrugged off some disappointing German economic reports and the festering migrant crisis, as Germany’s retail sales unexpectedly declined in August and its unemployment change surprisingly rose in September.
The Eurozone unemployment rate remained at 11.0%. In economic news, the Eurozone consumer price inflation estimate dipped 0.1% y/y for September, versus forecasts of a flat reading, and following the 0.1% rise posted in the month prior. Also, U.K. 2Q GDP was unrevised at a 0.7% quarter-over-quarter pace of expansion, matching forecasts, and an acceleration from the 0.4% growth posted in 1Q. The euro was lower versus the U.S. dollar, while bond yields in the region were mixed.
Stocks in Asia finished broadly higher, closing out a dismal 3Q for the equity markets, with the modest gains yesterday in the U.S. that snapped a string of recent losses slightly easing dampened global sentiment. Stocks in China advanced, as automakers received some support from the announcement out of China that it will cut taxes on vehicle purchases, ahead of tomorrow’s beginning of a week-long holiday, while some reports on the nation’s manufacturing and services sector activity are slated to be released tonight. Japanese equities gained back some of yesterday’s tumble on the exacerbated global growth concerns, while the yen retreated somewhat from its recent rally. Also, expectations of further stimulus measures from the Bank of Japan buoyed the markets on the heels of reports showing that nation’s industrial production unexpectedly declined and retail sales grew by a smaller amount than anticipated for August. Tomorrow, Japan will report its 3Q Tankan survey, which will give us a largely-followed look at sentiment in the country’s large manufacturing sector. An advance in Australia was aided by some strength in financials and mining stocks, while South Korean securities were higher, returning to action after being closed for the past two sessions due to a holiday. Finally, Indian equities extended yesterday’s gains that came from the larger-than-expected rate cuts by the Reserve Bank of India.