A Mixture of Uncertainty
U.S. equities ended today’s session in the same fashion as it has seen all week, mixed and near the flat line, as investors continued to search for some sort of catalyst amid another sundry of divergent reports on both the equity and economic fronts.
Meanwhile, a much softer-than-expected Q2 U.S. GDP report was offset somewhat by relatively favorable reads on consumer sentiment and regional manufacturing activity.
Treasuries were higher, as yields dipped, while gold, while the U.S. dollar tumbled, and crude oil prices inched higher.
The Dow Jones Industrial Average fell for the fifth-straight session, shedding 24 points (0.1%) to 18,432
The S&P 500 Index added 4 points (0.1%) to 2,174
The Nasdaq Composite increased 7 points (0.1%) to 5,162
In heavy volume, 1.2 billion shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq
WTI crude oil was $0.46 higher at $44.60 per barrel, wholesale gasoline gained $0.02 to $1.32 per gallon
The Bloomberg gold spot price jumped $18.04 to $1,353.79 per ounce
the Dollar Index—a comparison of the U.S. dollar to six major world currencies—plunged 1.3% to 95.52
Markets were mixed for the week, as the DJIA lost 0.8%, the S&P 500 Index ticked 0.1% lower, while the Nasdaq Composite advanced 1.2%
First read on Q2 GDP disappoints
The first look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 1.2%, from the downwardly revised 0.8% expansion in Q1, and well below the 2.5% growth forecasted by Bloomberg. Personal consumption came in slightly south of forecasts, rising 4.2%, following the positively adjusted 1.6% increase recorded in Q1, and versus the 4.4% gain that was projected. The preliminary Q2 GDP report showed the solid gain in personal consumption was accompanied by favorable contributions from exports and imports, though output was negatively impacted by private inventory investment, residential and nonresidential fixed investment, and state and local government spending.
On inflation, the GDP Price Index came in at a 2.2% rise, above expectations of a 1.9% increase, from an upwardly revised 0.5% gain seen in Q1, while the core PCE Index, which excludes food and energy, increased 1.7%, matching forecasts, and following the upwardly revised 2.1% growth in Q1.
The final July University of Michigan Consumer Sentiment Index was revised to 90.0 from the preliminary level of 89.5, and compared to expectations of a slight rise to 90.2. Expectations and current conditions components of the report were both revised higher. The index was down compared to June’s level of 93.5. The 1-year inflation outlook ticked higher and the 5-10 year inflation forecast held steady.
The Chicago Purchasing Managers Index remained in expansion territory (above 50), dipping to 55.8 in July from 56.8 in June—which was the highest since January 2015—and versus expectations of a decline to 54.0.
The Q2 Employment Cost Index grew by 0.6% q/q, matching forecasts and the increase posted in 1Q. Today’s data was in line with our view that wages and housing appear to be helping bolster spending and confidence among the all-important consumer, while business confidence and spending remain hamstrung. Additionally, some inflation measures heating up may force the Federal Open Market Committee’s (FOMC) hand and we believe the risk of an actual inflation problem remains low; but we could have an inflation scare.
Treasuries finished higher following the GDP report, with the yield on the 2-year note declining 6 basis points (bps) to 0.66%, while the yields on the 10-year note and the 30-year bond fell 5 bps to 1.45% and 2.18%, respectively. Bond yields have been mixed in the wake the FOMC leaving its monetary policy stance this week.
Financials lead Europe higher, Asia mixed in reaction to Bank of Japan decision
European equities finished mostly higher, with financials leading the way, buoyed by a plethora of positive earnings results. Also a troubled Italian lender announced that it has received an alternative rescue proposal to help ease ramped up concerns in the nation’s banking sector. The move for the sector came ahead of key European banking stress tests results that are due out after the closing bell in the U.S. Traders digested a smaller-than-expected expansion of stimulus measures out of Japan, as well as the softer-than-expected Q2 GDP in the U.S. These were accompanied by the preliminary estimate of Q2 Eurozone GDP, which slowed to a q/q growth rate of 0.3%, as expected, from the 0.6% expansion posted in Q1. Also, the Eurozone consumer price inflation estimate for July came in hotter than anticipated. The euro and British pound gained ground on the U.S. dollar, while bond yields in the region were mostly lower. Amid the heightened volatility in the global markets following a plethora of data and monetary policy decisions.
The U.K. FTSE 100 Index ticked 0.1% higher, France’s CAC-40 Index and Switzerland’s Swiss Market Index rose 0.4%, Germany’s DAX Index increased 0.6%, Spain’s IBEX 35 Index gained 1.3%, and Italy’s FTSE MIB Index advanced 2.0%.
Stocks in Asia finished mixed, with Japanese stocks posting wild swings in the wake of the Bank of Japan’s (BoJ) monetary policy decision to hold off on more aggressive stimulus measures and instead just boost its buying program of exchange traded funds (ETFs). The yen rallied sharply following the decision, though BoJ Governor Kuroda reiterated that further easing will be done if needed and said the central bank has not hit a policy limit, per Bloomberg. Japanese equities were able to post gains after briefly falling sharply on the heels of the BoJ’s decision. Ahead of the announcement, Japan reported cooler-than-expected core consumer price inflation and a larger-than-expected drop in household spending, while its industrial production grew more than anticipated for June.
Mainland Chinese shares declined, though stocks did post a solid monthly gain, buoyed by recent relatively favorable economic data, while those in Hong Kong fell sharply. Australian securities ticked higher, with healthcare and consumer services issues outweighing some weakness in basic materials stocks, while markets in India and South Korea traded lower.
WEEKLY RECAP: Mixed week full of data and monetary policy decisions
U.S. stocks finished mixed on the week that saw Q2 earnings season reach its apex, while results from Dow member Apple Inc., Facebook Inc. and Alphabet Inc bolstered a solid gain for technology issues. For the 316 companies in the S&P 500 that have reported results thus far, 58% have topped revenue forecasts, while 81% have bested earnings expectations, per data compiled by Bloomberg.
The global markets grappled with an unchanged monetary policy decision from the U.S. FOMC and a disappointing stimulus announcement from the Bank of Japan. Treasury yields and the U.S. dollar both came under pressure as the FOMC decision was followed by much softer-than-expected U.S. Q2 GDP growth. As such, crude oil prices fell to weigh on the energy sector. For analysis of the stock market sectors amid the heightened volatility and renewed pressure on oil prices and the U.S. dollar.
THE WEEK AHEAD: Another week of heavy data looms
With earnings season remaining robust, next week’s domestic economic calendar will also be plentiful, headlined by key July services and manufacturing reports from the Institute for Supply Management (ISM) and Markit, while culminating with Friday’s July non-farm payroll report. U.S. economic data has been positive as of late helping push the Dow and S&P 500 to all-time highs in July.
Other notable releases on next week’s economic calendar include: personal income and spending, monthly auto sales, factory orders and the trade balance.
Along with manufacturing and services reports across the board, next week’s international reports worth noting include: Australia—the Reserve Bank of Australia monetary policy decision. Eurozone—retail sales and German factory orders. U.K.—Bank of England monetary policy decision.