Monthly Archives: October 2016

Market Insights 10/31/2016

Uncertainty Keeps Markets Wandering

U.S. equities finished modestly lower and near the unchanged mark, as investors look ahead to monetary policy meetings out of the U.S., the U.K. and Japan, as well as Friday’s domestic jobs report, to gain more clarity.

Treasuries were modestly higher, following mixed economic data, while crude oil prices continued to selloff, exacerbated by disappointing OPEC talks over the weekend. Gold was higher, while the U.S. dollar was nearly flat.

The Markets…

The Dow Jones Industrial Average declined 19 points (0.1%) to 18,142

The S&P 500 Index was nearly unchanged at 2,126

The Nasdaq Composite ticked nearly 1 point lower to 5,189

In heavy volume, 1.0 billion shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil tumbled $1.84 to $46.86 per barrel, wholesale gasoline ticked $0.03 lower to $1.42 per gallon

The Bloomberg gold spot price rose $2.58 to $1,278.05 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 98.35

Personal income and spending rise

Personal income was 0.3% higher month-over-month (m/m) in September, below the Bloomberg forecast of a 0.4% rise, and compared to August’s unrevised 0.2% increase. Personal spending gained 0.5% last month, north of the expected 0.4% increase and versus August’s downwardly revised 0.1% dip. The September savings rate as a percentage of disposable income was 5.7%. The PCE Deflator was up 0.2%, matching expectations. Compared to last year, the deflator was 1.2% higher, in line with estimates. Excluding food and energy, the PCE Core Index moved 0.1% higher m/m, matching expectations, and the index was up 1.7% y/y, in line with estimates.

The Chicago Purchasing Managers Index fell but clung to expansion territory (above 50), after dropping to 50.6 in October from 54.2 in September and versus expectations of a dip to 54.0. New orders, production and inventories declined, while order backlogs and employment rose.

The Dallas Fed Manufacturing Index improved to -1.5 for October, from September’s unrevised -3.7 level, with economists forecasting an increase to 2.0. A reading below zero denotes contraction in activity.

Treasuries were higher, as the yield on the 2-year note lost 1 basis point (bp) to 0.85%, while the yields on the 10-year note and the 30-year bond dipped by 3 bps to 1.83% and 2.59%, respectively.

A heavy week of data will continue tomorrow, with key reads on October manufacturing activity, courtesy of the ISM Manufacturing Index and the final Markit Manufacturing PMI Index (economic calendar). ISM’s index is projected to tick higher to 51.7 from 51.5 in September, while Markit’s index is estimated to be unrevised at 53.2, and up from September’s 51.5 level. Readings above 50 denote expansion. As well, construction spending will be reported, forecasted to have risen 0.5% m/m during September, following the 0.7% decline seen in August.

However, Wednesday’s monetary policy decision from the Federal Open Market Committee (FOMC) and Friday’s October nonfarm payroll report are poised to command most of the attention, with traders looking to clear up uncertainty regarding a December rate hike.

As noted previously, economic data continues to support a sluggish growth narrative, although there are glimmers of hope that we could see at least a modest acceleration in 2017. Barring a surprise move on Wednesday, which could jolt the market as odds of a hike at that meeting remain low, the focus on the Fed will move back to the forefront following the election, with all eyes on the December meeting. Fed members have been preparing the market and investors for a hike, and we believe, after several false starts, it will actually follow through this time around. Perhaps equally as important will be the message the Fed sends around the next two meetings regarding what it may be looking to do into 2017.

Europe sees red, Asia mixed amid lingering uncertainty

European equities finished lower, with oil & gas issues seeing pressure after talks over the weekend between the Organization of the Petroleum Exporting Countries (OPEC) yielded no new developments regarding a production cut. Also, global sentiment was stymied by flared-up U.S. Presidential uncertainty as the November election looms, while Italian banking concerns resurfaced. In economic news, preliminary Eurozone Q3 GDP rose at a 0.3% quarter-over-quarter (q/q) pace, matching forecasts and 2Q’s expansion, while output grew 1.6% year-over-year, in line with estimates and the prior quarter’s gain. However, German retail sales unexpectedly dropped in September. The euro was lower versus the U.S. dollar and British pound reversed to the upside in late-day action, while bond yields in the region dipped.

The U.K. FTSE 100 Index and Spain’s IBEX 35 Index were down 0.6%, France’s CAC-40 Index decreased 0.9%, Germany’s DAX Index declined 0.3%, Switzerland’s Swiss Market Index dropped 1.0%, and Italy’s FTSE MIB Index fell 1.2%.

Stocks in Asia finished mixed, as the global markets remain uncertain regarding the presidential race in the U.S., while the world monetary policy landscape continues to garner attention, with decisions looming in the U.S. and U.K. this week, and the Bank of Japan expected to announce its policy stance tomorrow.

The persistent pressure on crude oil prices also bogged down the energy sector, exacerbated by no production cut agreement following weekend talks between OPEC. Stocks in Japan dipped on the heels of a disappointing September industrial production report, which may have overshadowed some weakness in the yen and the announcement that the nation’s three largest shipping companies agreed to combine their container operations.

Mainland Chinese equities and those traded in Hong Kong also dipped, while South Korean listings declined markedly, even as a report showed the country’s industrial production unexpectedly rose in September. Strength in Australian mining issues gave that nation’s markets a boost, as China strengthened its currency, more than offsetting sluggishness in oil & gas stocks and a drop in the tech sector. Finally, markets in India were closed for a holiday.

U.S. Market Weekly Summary – Week Ending 10/28/2016

S&P 500 Edges Down 0.7% on Week, Led by Real Estate, Health Care; Consumer Staples Lead Gainers

The Standard & Poor’s 500 index declined 0.7% this week as the real-estate and health-care sectors logged the biggest percentage drops amid disappointing third-quarter results from a number of companies in both sectors.

The market bellwether ended Friday’s session at 2,126.41, down from 2,141.16 a week ago. All but four sectors — consumer staples, financials, industrials and utilities — were in the red for the week.

The real-estate sector, which had a number of companies report third-quarter results in the past week, fell by more than 3%. Among the decliners, Simon Property Group fell by nearly 7% as its revenue missed estimates and a guidance boost for full-year funds from operations brought the company’s forecast merely in line with analysts’ consensus view rather than above it.

CBL & Associates Properties was another decliner among real-estate stocks this week, posting a drop of 8.8%. The real-estate investment trust focused on regional shopping malls, outlet centers, community centers and office properties logged much of the weekly drop ahead Thursday afternoon’s third-quarter release. The report showed adjusted funds from operations slightly missed the Street view while revenue also came in below analysts’ mean estimate.

The health-care sector posted a 2.8% drop. Among the decliners, Community Health Systems tumbled 50% as the operator of general acute-care hospitals preliminarily reported a third-quarter loss that was wider than analysts expected despite revenue coming in line with the Street view. The company cited lower-than-expected volume as well as larger-than-anticipated reductions to reimbursement from state supplemental programs.

Also among health-care stocks, Edwards Lifesciences dropped 18% this week as the provider of medical equipment and technology reported weaker-than-expected third-quarter revenue and forecast fourth-quarter revenue below the Street view.

On the upside, the consumer-staples sector posted the biggest weekly gain, up nearly 1%. Advancers included Procter & Gamble (PG), up 3% this week. The consumer-products company released fiscal first-quarter adjusted earnings per share as well as revenue above analysts’ expectations.

Market Insights 10/28/2016

Afternoon News Halts Rally

U.S. stocks finished the regular session lower amid some divergent earnings reports and the first look at 3Q GDP, which topped growth forecasts.

Capital markets were noticeably rattled in the wake of the afternoon announcement that the FBI has uncovered and is reviewing new evidence in connection with its investigation of the Democratic presidential candidate.

The U.S. dollar, crude oil prices and Treasuries were mostly lower and gold was higher.

The Markets…

The Dow Jones Industrial Average (DJIA) decreased 8 points (0.1%) to 18,161

The S&P 500 Index was 7 points (0.3%) lower at 2,126

The Nasdaq Composite lost 26 points (0.5%) to 5,190

In moderate volume, 954 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil decreased $1.02 to $48.70 per barrel, wholesale gasoline ticked $0.03 lower to $1.45 per gallon

The Bloomberg gold spot price advanced $6.66 to $1,275.06 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.6% to 98.32

Markets were mixed for the week, as the DJIA gained 0.1%, the S&P 500 Index decreased 0.7% and the Nasdaq Composite was 1.3% lower

First look at Q3 GDP expands more than expected

The first look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 2.9%—the biggest rise in two years—from the unrevised 1.4% expansion in Q2, and above the 2.6% growth forecasted by Bloomberg. Personal consumption came in below forecasts, rising 2.1%, following the unadjusted 4.3% increase recorded in Q2, and versus the 2.6% gain that was projected. Exports contributed the most to GDP and inventories rebounded from a solid drop in Q2. However, the softer-than-expected personal consumption figure is likely dampening some of the enthusiasm, along with a negative contribution from fixed investment, which was led by the fourth-straight quarterly drop in equipment spending and a solid decline in residential investment.

On inflation, the GDP Price Index came in at a 1.5% rise, north of expectations of a 1.4% increase, from an unrevised 2.3% gain seen in Q2, while the core PCE Index, which excludes food and energy, increased 1.7%, topping forecasts of a 1.6% gain, and following the unrevised 1.8% growth in Q2.

The final October University of Michigan Consumer Sentiment Index was revised to 87.2 from the preliminary level of 87.9, and compared to expectations of a slight rise to 88.2. The index was down compared to September’s level of 91.2. The expectations and current conditions components were below the prior month’s level. The 1-year inflation outlook remained at September’s 2.4% rate, while the 5-10 year inflation projection declined to 2.4% from 2.6%.

The Q3 Employment Cost Index increased by 0.6% q/q, matching forecasts and the increase posted in Q2.

Treasuries were mostly lower, with the yield on the 2-year note dipping 3 basis point to 0.86%, the yield on the 10-year note shed 1 bp to 1.85%, and the 30-year bond rate was flat at 2.62%. Bond yields took a breather following the recent rally that has come from some relatively upbeat economic data and elevated Fed rate hike expectations.

Europe and Asia mixed

European equities finished mixed, with a plethora of divergent earnings reports garnering the lion’s share of attention, and crude oil prices continuing to slump to weigh on the energy sector, while Q3 GDP in the U.S. topped estimates.

In October economic news, German consumer price inflation moved higher, while Eurozone economic confidence surprisingly improved. The euro was higher and the British pound dipped versus the U.S. dollar. Bond yields extended a recent rally amid the increase in global interest rates that have started to gain attention of the world markets. Political uncertainty remains ahead of a vote in Spain over the weekend.

Stocks in Asia finished mixed, with the global markets continuing to digest earnings reports from around the world, while political and monetary policy uncertainty remained and focus rose on the recent rally in global bond yields. Japanese equities were standout winners, rising as the yen extended its weakness, while financials got a boost from some positive earnings results. Japanese economic data for September also garnered attention, with consumer price inflation declining, while household spending declined by a smaller-than-expected amount and the nation’s jobless rate unexpectedly dipped. Australian and South Korean securities declined, while listings in mainland China and Hong Kong also dropped. Indian stocks ticked slightly higher.

Mixed week on uncertainty and plethora of data

U.S. stocks finished mixed on the week, capping off a solid October decline, with the global markets continuing to grapple with uncertainty toward the monetary policy and political landscapes, while the busiest earnings calendar of the season was mixed. Boeing Co’s and Procter & Gamble Co’s (PG $87) results stood out on the positive side to help buoy the Dow, while Apple Inc’s guidance for the holiday quarter pressured its shares. M&A jumped back into focus, courtesy of AT&T Inc’s $85.4 billion agreement to acquire Time Warner Inc., as well as Qualcomm Inc’s $47.0 billion deal for NXP Semiconductors NV.

Upbeat preliminary October manufacturing and services reports, along with Friday’s stronger-than-expected 3Q GDP growth further bolstered Fed rate hike expectations. As such, the U.S. dollar ticked higher, though Treasury yields continued to rally, boosting financials, but likely bogging down the real estate sector, along with a softer-than-expected new home sales report. Healthcare issues remained under pressure amid mixed earnings results and concerns toward a possible crackdown on drug pricing in the wake of November’s Presidential election. Energy stocks finished flat despite a pullback in crude oil prices.

The choppiness in the markets will likely continue next week, with the election looming, earnings season remaining in high gear, and the U.S. economic calendar bringing a plethora of key data, headlined by personal income and spending, the ISM Manufacturing and non-Manufacturing Indexes, factory orders, and the trade balance. However, Wednesday’s monetary policy decision from the Federal Open Market Committee (FOMC) and Friday’s October non-farm payroll report are poised to command most of the attention, with traders looking to clear up uncertainty regarding a December rate hike.

As noted previously, economic data continues to support a sluggish growth narrative, although there are glimmers of hope that we could see at least a modest acceleration in 2017. Barring a surprise move on Wednesday, which could jolt the market as odds of a hike at that meeting remain below 15%, the focus on the Fed will move back to the forefront following the election, with all eyes on the December meeting. Fed members have been preparing the market and investors for a hike, and we believe, after several false starts, it will actually follow through this time around. Perhaps equally as important will be the message the Fed sends around the next two meetings regarding what it may be looking to do into 2017.

GDP hits 2.9% in biggest gain in two years

The economy grew in the third quarter at the fastest pace in two years, aided by a spike in soybean and other U.S. exports and a rebound in the size of inventories companies keep on hand for sale.

**click to enlarge**

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The government said gross domestic product, the official scorecard for the economy, expanded at a 2.9% annual clip from July through September. That’s a marked improvement from the first half of the year when the U.S. grew just barely over 1%. Economists surveyed by MarketWatch had predicted a 2.9% advance.

The acceleration in growth, along with a steady pace of hiring, is expected to prod the Federal Reserve to raise a key U.S. lending rate in December. Even if the central bank does act, interest rates for all kinds of goods such as mortgages and auto loans are likely to remain quite low for an extended period.

In the third quarter, the economy was buffeted again by diverging forces. Consumers increased spending by a moderate 2.1%, exports posted the biggest increase in almost three years and businesses restocked warehouse shelves after a rare decline in inventories in the spring. Yet higher imports, a second straight decline in how much builders spent to construct new housing and less investment in business equipment tempered results.

Bottom line, the U.S. economic expansion remains resilient, yet unremarkable. That theme is expected to carry through to the end of the year. Economists polled by MarketWatch forecast a 2.4% increase in GDP in the fourth quarter that runs from October through December.

Details in GDP report

The driving force behind the improved third-quarter performance was a 10% spike in exports, helped by a temporary boom in U.S. soybean shipments after a poor harvest in South America. Soybeans may have accounted for one-third of GDP growth in the fall, estimates Ian Shepherdson, chief economist at Pantheon Macroeconomics. Much of that gain could unwind in the fourth quarter, however.

Imports also rose, but by a much smaller 2.3%. A smaller trade deficit boosts GDP. Firms restocked warehouse shelves in another boost to GDP. The value of inventories rose by $12.6 billion in the third quarter after a $9.5 billion decline in the second quarter.

Businesses also increased investment in structures such as new plants or office space by 5.4% — the largest gain in two years — but spending on equipment was weak again. It fell 2.7% to mark the fourth straight decline.

Consumer spending, which accounts for two-thirds of the economy, grew more modestly in the third quarter after a heady 4.3% gain in the spring that was viewed as unsustainably high. Consumers have powered the economy over the past few years.

Government spending, in a bit of a surprise, rose 0.5%, mostly at the federal level.

Inflation as measured by the PCE price index, meanwhile, rose at a 1.4% annual rate. “Core” inflation climbed at a 1.7% rate if the volatile food and energy categories are stripped out.

Market Insights 10/27/2016

Stocks Edge Lower

U.S. stocks finished the regular trading session lower as domestic durable goods orders showed business spending fell more than expected. Treasury yields rallied, while the U.S. dollar, gold and crude oil prices were also higher.

Bucking the general trend, healthcare stocks rose following upbeat results from Bristol-Myers Squibb and financials found some support on the rise in bond yields.

Overseas, Europe showed some late-day resiliency, with U.K. GDP topping forecasts.

The Markets….

The Dow Jones Industrial Average decreased 30 points (0.2%) to 18,170

The S&P 500 Index was 6 points (0.3%) lower at 2,133

The Nasdaq Composite lost 34 points (0.7%) to 5,216

In moderate volume, 962 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.54 to $49.72 per barrel, wholesale gasoline ticked $0.01 higher to $1.48 per gallon

The Bloomberg gold spot price advanced $2.55 to $1,269.65 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.3% higher at 98.91

Durable goods orders mixed, jobless claims dip

September preliminary durable goods orders dipped 0.1% month-over-month (m/m), compared to Bloomberg’s estimate of a flat reading and August’s upwardly revised 0.3% gain. Ex-transportation, orders rose 0.2% m/m, matching forecasts, and August’s favorably revised 0.1% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, fell 1.2%, versus projections of a 0.1% dip, and following the upwardly revised 1.2% rise in the month prior.

Weekly initial jobless claims declined by 3,000 to 258,000 last week, compared to forecasts of a decrease to 256,000, as the prior week’s figure was upwardly revised by 1,000 to 261,000. The four-week moving average rose by 1,000 to 253,000, while continuing claims dropped 15,000 to 2,039,000, south of the estimated level of 2,052,000.

Pending home sales rose 1.5% m/m in September, versus projections of a 1.0% gain and following the downwardly revised 2.5% drop registered in August. Compared to last year, sales were 2.0% higher, versus forecasts of a 4.0% increase. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose in September to the highest level since June

The Kansas City Fed Manufacturing Activity Index for October remained at September’s 6 level, compared to forecasts of a decline to 3, with a reading north of zero depicting expansion.

Treasuries dropped with the yield on the 2-year note rising 1 bp to 0.88%, the yield on the 10-year note gaining 5 bps to 1.84%, and the 30-year bond rate advancing 6 bps to 2.60%.

Tomorrow, the U.S. economic calendar will bring the first read (of three) on Q3 GDP, projected to show growth accelerated to an annualized quarter-over-quarter pace of 2.6%, after expanding by 1.4% in 2Q. Personal consumption is anticipated to have decelerated a bit to a 2.6% growth rate after Q2′s 4.3% jump. According to the U.S. Bureau of Economic Analysis, consumer spending makes up about 70% of U.S. economic activity—meaning not only is the holiday shopping season hanging on the status of the consumer, but to a large extent, so is the health of the U.S. economy.

Additional reports on tap for tomorrow will include the 3Q Employment Cost Index, expected to show a 0.6% increase, matching the prior quarter’s rise and the final University of Michigan Consumer Sentiment Index for October, expected to be revised modestly higher to 88.2 from the preliminary read of 87.9, but down from September’s 91.2 level.

Europe shows some resiliency, Asia mixed

European equities battled back from early losses that stemmed from some disappointing earnings reports, while oil & gas issues led to the upside with crude oil prices recovering from a recent sell-off and financials also found support. A preliminary read on U.K. 3Q GDP showed growth unexpectedly accelerated to a 2.3% y/y pace, from the 2.1% expansion posted in 2Q, where economists had expected it to remain. Also, q/q, U.K. growth came in at 0.5%, from 0.7% in 2Q, but above the expected 0.3% increase. The report was delivered by the Office for National Statistics, which noted that there was “little evidence of a pronounced effect” from the late-June vote in the U.K. to exit the European Union, known as a Brexit.

Both the euro and the British pound declined versus the U.S. dollar, while bond yields in the region gained ground. The global markets continued to grapple with political and monetary policy uncertainty, while Sweden’s central bank kept its benchmark interest rate unchanged at a negative rate.

Stocks in Asia finished mixed with the continued drop in crude oil prices on Wednesday pressuring the energy sector, while the global markets remain focused on earnings season.

Japanese equities declined despite some weakness in the yen, as traders grapple with the Bank of Japan’s recent shift in monetary policy to targeting the yield curve. Stocks trading in mainland China and Hong Kong were mostly lower with oil & gas issues seeing pressure and a report showing growth in the nation’s industrial profits decelerated solidly in September. Australian securities were led lower by weakness in basic materials and oil & gas issues. Indian equities rebounded from yesterday’s decline that came on concerns about loan-loss provisions in the banking sector. Stocks in South Korea rose.

Tomorrow, the international economic docket will yield household spending and CPI from Japan and new home sales and PPI from Australia. Releases from across the pond will include advance 3Q GDP, PPI, CPI and consumer spending from France, CPI from Germany and consumer confidence for the Eurozone.

Company & Earnings News….

Tesla Motors Inc. reported Q3 earnings-per-share of $0.71, excluding items that may impact comparability with the $0.32 FactSet estimate, as revenues surged 145.4% year-over-year (y/y) to $2.3 billion, compared to the projected $2.2 billion. TSLA pared gains to close slightly higher.

Ford Motor Co. posted Q3 EPS ex-items of $0.26, above the expected $0.20, with revenues declining 5.8% y/y to $35.9 billion, versus the projected $33.8 billion. F maintained its full-year earnings outlook. North American and European profits topped forecasts, though South American and Asia Pacific bottom-line results missed and its free cash flow was negative. Shares were lower.

United Parcel Service Inc. announced Q3 profits of $1.44 per share, in line with forecasts, as revenues rose 4.9% y/y to $14.9 billion, versus the estimated $14.7 billion. UPS reaffirmed its full-year EPS guidance. Shares closed lower.

Twitter Inc. reported Q3 earnings of $0.13 per share, topping the estimated $0.09, as revenues grew 8.0% y/y to $616 million, exceeding the projected $604 million. The social media company’s total monthly active users came in slightly above expectations. TWTR issued stronger-than-expected full-year operating earnings guidance, while confirming the restructuring of 9.0% of its global workforce. Shares finished higher.

Bristol-Myers Squibb Co. posted Q3 EPS ex-items of $0.77, above the forecasted $0.65, as revenues rose 21.0% y/y to $4.9 billion, north of the expected $4.8 billion. BMY raised its full-year profit outlook and announced a new $3.0 billion share repurchase program. Shares traded higher.

Qualcomm Inc. announced an agreement to acquire NXP Semiconductors NV for $110.00 per share in cash, representing a total enterprise value of about $47.0 billion. Shares of both companies were higher.

Market Insights 10/26/2016

Equities Disagree Direction

U.S. stocks finished mixed as upbeat results from Boeing lent some support to the divergent Dow, while a read on services sector activity growth accelerated more than expected.

Crude oil prices finished lower after a brief spike following a bullish government oil inventory report.

In other developments, corporate earnings results continued to roll in and new home sales missed expectations for September. Treasury yields advanced, gold was lower and the U.S. dollar was nearly unchanged.

The Markets….

The Dow Jones Industrial Average increased 30 points (0.2%) to 18,199

The S&P 500 Index was 4 points (0.2%) lower at 2,139

The Nasdaq Composite lost 33 points (0.6%) to 5,250

In moderate volume, 866 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.78 to $49.18 per barrel, wholesale gasoline ticked $0.02 lower to $1.47 per gallon

The Bloomberg gold spot price shaved $7.23 to $1,266.64 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was mostly flat at 98.70

New home sales miss forecasts, growth in services sector activity jumps

New home sales rose 3.1% month-over-month (m/m) in September to an annual rate of 593,000, but below the Bloomberg forecast of 600,000 units. The median home price increased 1.9% y/y to $313,500. The supply of new home inventory dipped to 4.8 months at the current sales pace. Sales surged in the Northeast m/m, and rose solidly in the South and Midwest, while sales in the West dropped. Compared to last year, sales in all regions were sharply higher. New home sales are based on contract signings instead of closings.

The preliminary Markit U.S. Services PMI Index for October rose to 54.8 from September’s reading of 52.3, compared to forecasts of a modest rise to 52.5, with a reading above 50 indicating expansion. Markit said new order volumes rose at the quickest rate seen so far in 2016, while service providers reported the strongest business optimism since August 2015. The release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and its index components are weighted differently.

The MBA Mortgage Application Index decreased 4.1% last week, after rising 0.6% in the previous week. The decline came as the Refinance Index dropped 2.3% and the Purchase Index fell 6.9%. The average 30-year mortgage rate decreased 2 basis points to 3.71%.

The advance goods trade deficit unexpectedly shrank to $56.1 billion in September, from the downwardly revised $59.2 billion in August, versus projections calling for the deficit to widen to $60.5 billion.

Treasuries were lower, with the yield on the 2-year note increasing 2 bps to 0.87%, the yield on the 10-year note gaining 3 bps to 1.78% and the 30-year bond rate advancing 4 bps to 2.54%.

Tomorrow, the U.S. economic calendar will begin with a look at manufacturing demand with the September durable goods orders report, projected to show no change m/m, while the ex-transportation component is forecasted to rise 0.2% m/m and non-defense capital goods orders excluding aircraft—a gauge of business spending—is expected to dip 0.1% after August’s solid 0.9% gain. Also prior to the open, we will receive weekly initial jobless claims, anticipated to decrease by 5,000 to a level of 255,000. Once trading commences the docket will deliver pending home sales, expected to have risen 1.0% m/m in September, and the Kansas City Fed Manufacturing Index, forecasted to decline to 3 during October from the 6 registered the month prior, though a reading above zero denotes expansion in manufacturing activity.

Europe and Asia mostly lower

European equities finished lower, with basic materials issues leading the way, along with energy issues as crude oil prices continued to see pressure following a short-lived recovery on some bullish U.S. government oil inventory data. Sentiment was hampered by some lackluster earnings results on both sides of the pond. Results from the financial sector in the region were mixed, while German consumer confidence unexpectedly dipped for November.

The global markets continued to grapple with uncertainty toward the monetary policy and political fronts. The euro and British pound moved higher versus the U.S. dollar, while bond yields in the region gained ground.

Stocks in Asia finished mostly to the downside as the global markets grapple with ramped up earnings season, with a plethora of mixed reports yesterday leading the U.S. markets lower, while the continued pressure on crude oil prices hampered the energy sector. Equities trading in mainland China and Hong Kong decreased with energy issues seeing pressure, while Indian stocks traded lower amid concerns about loan-loss provisions in the banking sector. South Korean securities decreased as local reports of travel agencies in China being told to reduce the number of tourists visiting South Korea weighed on the market, per CNBC.

Australian equities fell on the weakness in oil & gas issues and as a hotter-than-expected read on the nation’s consumer price inflation hamstrung sentiment.
However, Japanese stocks bucked the trend amid some upbeat earnings results as the nation’s reporting season gears up to overshadow some recent strength in the yen.

Tomorrow’s international economic calendar will yield industrial profits from China and trade data from Australia. Reports from across the pond will include advance 3Q GDP and the Index of Services from the U.K. and consumer confidence and wage data from Italy.

Market Insights 10/25/2016

Flood of Earnings Data

U.S. stocks traded lower amid a deluge of divergent corporate earnings reports, while crude oil prices were also under pressure and a read on domestic consumer confidence dropped more than expected.

Treasuries were mixed, gold was higher and the U.S. dollar was nearly unchanged.

In overseas developments, European equities dipped and stocks in Asia were mixed as the global markets continue to grapple with world monetary and political ambivalence.

The Markets…

The Dow Jones Industrial Average decreased 54 points (0.3%) to 18,169

The S&P 500 Index was 8 points (0.4%) lower at 2,143

The Nasdaq Composite lost 26 points (0.5%) to 5,283

In moderate volume, 820 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.56 to $49.96 per barrel, wholesale gasoline was unchanged at $1.49 per gallon

The Bloomberg gold spot price gained $9.52 to $1,273.96 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was mostly flat at 98.76

Consumer confidence falls

The Consumer Confidence Index dropped to 98.6 in October from the downwardly revised 103.5 level in September, and compared to the Bloomberg estimate of 101.5. Sentiment toward the present situation and expectations of business conditions both deteriorated. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—declined to 2.2 from the 5.3 posted in September.

It appears households remain in relatively good shape, with wages and incomes rising and debt levels/debt servicing costs low. But this upward pressure on inflation bears watching. Remember, consumer spending drives nearly 70% of US economic growth. When inflation is rising alongside a robust economy, it doesn’t tend to choke off growth. But if it’s rising alongside a sluggish economy it puts pressure on the consumer, which in turn pressures the economy.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.1% gain in home prices y/y in August, versus expectations of a 5.0% increase. Month/month (m/m), home prices were up 0.2% on a seasonally adjusted basis for August, above forecasts of a 0.1% increase.

The Richmond Fed Manufacturing Activity Index improved but remained in contraction territory (a reading below zero), increasing to -4 in October from the -8 posted in September, in line with expectations.

Treasuries were mixed, with the yield on the 2-year note gaining 1 basis point (bp) to 0.85%, while the yield on the 10-year note dipped 1 bp to 1.75% and the 30-year bond rate declined 2 bps to 2.50%.

Tomorrow, the U.S. economic calendar will commence with the weekly MBA Mortgage Applications report followed by wholesale inventories, which are projected to tick 0.1% higher m/m in September. Just after the opening bell, Markit’s preliminary Services PMI Index will be released, with economists forecasting an October reading of 52.5, up slightly from September’s 52.3. We will round out the day with some housing data in the form of new home sales, with economists expecting a 1.5% m/m decrease during September to an annual rate of 600,000 units.

Europe lower, Asia mixed

Healthcare stocks led a decline for European equities as the global markets digested a plethora of mixed earnings reports on both sides of the pond. The British pound fell versus the U.S. dollar amid festering Brexit uncertainty and as Bank of England Governor Carney answered questions in the House of Lords on the economic consequences of the Brexit. However, a read on German business confidence improved more than expected in October, on the heels of yesterday’s favorable U.S. manufacturing report. The euro ticked higher versus the U.S. dollar and bond yields in the region finished mixed.

Stocks in Asia finished mixed amid a ramp up in earnings reports and yesterday’s flood of M&A news and upbeat read on manufacturing activity out of the U.S., while South Korea’s disappointing GDP report weighed on its shares. South Korea’s Q3 GDP growth slowed to a 2.7% y/y pace from 3.3% in Q2.

An advance for Japanese equities was aided by some weakness in the yen, while Indian stocks traded lower and Australian securities rose with technology, basic materials and financials leading the way. Equities trading in Hong Kong moved to the downside and mainland Chinese listings ticked higher as traders grappled with increased optimism of further government fiscal stimulus and concerns about the crackdown on the real estate sector.

Tomorrow, the international economic docket will include a consumer sentiment read from China, small business confidence from Japan, the Import Price Index from Germany, retail sales from Italy and house purchase loans for the U.K.

Company and Earnings News-

General Motors Co. reported Q3 earnings-per-share ex-items of $1.72, above the $1.48 FactSet estimate, as revenues rose 10.3% year-over-year to $42.8 billion, compared to the expected $39.0 billion. GM said it expects full-year EPS to be at the high end of its prior range. However, analyst focus appeared to be on the automaker’s performance in Europe and its Chief Financial Officer Chuck Stevens noted that due to the U.K. Brexit vote and ensuing weakness in the British pound, breaking even this year is going to be very challenging. Shares finished solidly lower.

Dow member 3M Co. posted Q3 profits of $2.15 per share, one penny north of forecasts, with revenues flat y/y at $7.7 billion, roughly in line with projections. MMM lowered the high end of its full-year profit outlook. Shares moved lower.

Dow component Caterpillar Inc. announced Q3 EPS ex-items of $0.85, exceeding the expected $0.76, as revenues declined 16.4% y/y to $9.2 billion, below the forecasted $9.9 billion. CAT lowered its full-year EPS and revenue guidance. Shares traded to the downside.

Dow member DuPont reported Q3 earnings ex-items of $0.34 per share, topping the estimated $0.21, with revenues rising 1.0% y/y to $4.9 billion, roughly in line with forecasts. DD increased its full-year profit outlook. Shares declined.

Dow component Merck & Co. Inc. posted Q3 EPS ex-items of $1.07, topping the estimated $0.99, with revenues rising 5.0% y/y to $10.5 billion, exceeding the projected $10.2 billion. MRK raised its earnings guidance for the year. Eli Lilly and Co. announced 3Q earnings ex-items of $0.88 per share, below the forecasted $0.96, as revenues rose 5.0% y/y to $5.2 billion, versus the estimated $5.3 billion. LLY reaffirmed its full-year EPS outlook. MRK gained ground and LLY ticked higher.

Dow member Procter & Gamble Co. posted fiscal Q1 earnings ex-items of $1.03 per share, versus the expected $0.98, as revenues were unchanged y/y at $16.5 billion, roughly in line with forecasts. PG reaffirmed its full-year guidance. Shares were nicely higher.

Dow component Visa Inc. announced fiscal 4Q EPS ex-items of $0.78, topping the expected $0.73, with revenues increasing 19.0% y/y to $4.3 billion, due to the inclusion of Europe and continued growth in payments volume and processed transactions, compared to the estimated $4.2 billion. V traded lower.

Dow member United Technologies Corp. reported Q3 EPS ex-items of $1.76, above the forecasted $1.66, with revenues increasing 4.0% y/y to $14.4 billion, exceeding the expected $14.3 billion. UTX raised the low end of its full-year profit outlook, while reaffirming its revenue guidance. Shares are gained ground.

Under Armour Inc. (reported Q3 EPS of $0.29, above the expected $0.25, as revenues rose 22.0% y/y to $1.5 billion, roughly in line with forecasts. UA reaffirmed its full-year revenue outlook. Shares fell sharply as some analysts expressed concerns about the slowdown in North American sales growth during the quarter and as the company’s revenue growth forecast for 2017 and 2018 disappointed the Street, along with its warning that profit would grow at a slower pace than sales.

Market Insights 10/24/2016

Stocks Manage Gains Amid Major M&A Moves

U.S. stocks began the week with solid gains in the wake of a heavy dose of M&A news, headlined by AT&T’s $85.4 billion agreement to acquire Time Warner, while a preliminary read on domestic manufacturing activity for October topped expectations.

Global sentiment received an early boost on the heels of some favorable Japanese economic data and as growth in Eurozone business activity bested forecasts.

Treasuries, gold and crude oil prices were lower and the U.S. dollar managed an advance.

The Markets…

The Dow Jones Industrial Average increased 77 points (0.4%) to 18,223

The S&P 500 Index was 10 points (0.5%) higher at 2,151

The Nasdaq Composite gained 52 points (1.0%) to 5,310

In moderate volume, 782 million shares were traded on the NYSE and 1.5 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.33 to $50.52 per barrel, wholesale gasoline ticked $0.02 lower to $1.49 per gallon

The Bloomberg gold spot price lost $1.95 to $1,264.52 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 98.79

Preliminary manufacturing report tops forecasts to kick off economic week

The preliminary Markit U.S. Manufacturing PMI Index for October unexpectedly improved to 53.2 from September’s 51.5 level, where the Bloomberg forecast expected it to remain, with a reading above 50 denoting expansion in activity. Markit said output and new order growth hit one-year highs, and manufacturers reported the fastest expansion of input buying since June 2015, while input cost inflation accelerated to the strongest for almost two years.

Treasuries declined, with the yield on the 2-year note ticking 2 basis points (bps) higher to 0.84%, while the yields on the 10-year note and the 30-year bond gained 3 bps to 1.76% and 2.51%, respectively.

Tomorrow, releases from the U.S. economic calendar will include manufacturing and housing data, in the form of the S&P CoreLogic Case-Shiller Home Price Index, expected to show housing prices in the 20-city composite were 5.0% higher y/y and 0.1% higher on a seasonally-adjusted month-over-month basis, and the Richmond Fed Manufacturing Index, forecasted to improve to -4 during October from the -8 the month prior, with a reading below zero denoting contraction in manufacturing activity. Consumer Confidence will round out the day, expected to decline to 101.5 in October from the prior month’s 104.1.

Europe gains ground, Asia mostly higher

European equities traded mostly higher, with financials leading the way, while some political uncertainty in Spain was cleared up over the weekend after the Socialist party voted not to block incumbent Prime Minister Rajoy from leading a minority government. Economic data was on the positive side, with Markit’s Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—rising to 53.7 in October, from 52.6 in September, and compared to the modest increase to 52.8 that was expected. A reading above 50 denotes expansion, and the upbeat read came as growth in German services and manufacturing output accelerated, while French manufacturing activity moved out of contraction territory.

The euro was little changed versus the U.S. dollar, while bond yields in the region finished mixed. The British pound declined and earnings season continued to roll on in the region.

Stocks in Asia finished mostly to the upside, with some relatively upbeat Japanese economic data lending support, while optimism that the Chinese government will increase infrastructure spending and expedite reform of state-owned enterprises lifted the markets in China, per Bloomberg. Japanese equities managed to tick higher, though gains were held in check by some late-day strength in the yen and caution as earnings season is set to ramp up in the nation. Japan’s September exports fell by a smaller amount than anticipated and the nation’s PMI Manufacturing Index showed expansion in the sector accelerated for October.

Mainland Chinese stocks rose and those traded in Hong Kong advanced, while equities in South Korea and India also increased. However, Australian securities declined, with consumer goods, oil & gas, technology and financials seeing some pressure.

U.S. Market Weekly Summary – Week Ending 10/21/2016

S&P 500 Rises 0.4% This Week, Led by Materials, Financials; Telecom, Consumer Staples Slip

The Standard & Poor’s 500 index ended Friday’s session up 0.4% from a week ago, driven by increases across materials and financial stocks as commodities gained and banks reported third-quarter earnings above expectations.

The market benchmark closed Friday at 2,141.16 versus its week-ago close of 2,132.98. All but three sectors — telecommunications, consumer staples and industrials — rose in the past week.

Gold prices on Thursday climbed to their highest level since Oct. 5, boosting metals-related stocks in the materials sector. Advancers included Hecla Mining (HL), which jumped 13% this week as the company issued preliminarily silver and gold production results for Q3, saying silver production soared 67% to about 4.3 million ounces and gold production jumped 20% to 52,126 ounces. The company also boosted its silver-production estimate for 2016.

The energy sector also rose as US oil prices on Wednesday hit their highest level since July 2015 after data showed weekly stockpiles fell for the sixth time in the past seven weeks. Among gainers, oilfield-services provider Halliburton (HAL) reported it swung to a surprise profit for the third quarter despite weaker-than-expected revenue, pushing shares up 3.1% this week.

In the financial sector, Morgan Stanley (MS), Goldman Sachs Group (GS) and Bank of America (BAC) all reported third-quarter adjusted earnings above analysts’ expectations this week. Morgan Stanley shares climbed 4.3% since last Friday’s close, while Goldman’s weekly gain amounted to 2.4% and Bank of America rose 4.2% this week.

Telecommunications stocks led one of the few sectors that fell this week. Among the sector’s decliners, Rogers Communications (RCI) on Monday reported weaker-than-expected adjusted third-quarter earnings even as sales topped analyst estimates. Rogers also said Chief Executive Guy Laurence would be stepping down and former Telus (TU) CEO Joseph Natale would take the helm. Rogers shares fell 1.8% this week.

Market Insights 10/21/2016

Stocks Finish Friday Flat

U.S. stocks finished the regular trading session near the unchanged mark as corporate earnings reports were in focus with the domestic economic front void of any major releases.

Technology issues moved higher as Dow member Microsoft easily bested expectations, while fellow Dow component General Electric reported revenues that fell short of forecasts.

Global monetary policy and political uncertainty continued to elicit concerns. Treasuries were mixed, while gold, the U.S. dollar and crude oil prices gained ground.

The Markets…

The Dow Jones Industrial Average lost 17 points (0.1%) to 18,146

The S&P 500 Index was unchanged at 2,141

The Nasdaq Composite gained 16 points (0.3%) to 5,257

In moderate volume, 851 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.22 to $50.85 per barrel, wholesale gasoline gained $0.04 to $1.53 per gallon

The Bloomberg gold spot price added $1.27 to $1,267.03 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 98.66

Markets were mostly higher for the week, as the DJIA gained nearly 0.1%, the S&P 500 Index increased 0.4% and the Nasdaq Composite was 0.8% higher

Treasuries mixed to close out a busy week

Treasuries finished mixed, while the economic calendar was void of any major reports Friday. The yield on the 2-year note ticked 1 basis point higher at 0.83%, while the yields on the 10-year note and the 30-year bond dipped 2 bps to 1.74% and 2.49%, respectively.

This week, bond yields are modestly giving back some of a recent jump and the U.S. dollar continues to rally as the global markets grapple with Fed rate hike uncertainty and festering political uncertainty as the November U.S. Presidential election looms. This week’s economic front was relatively positive, with industrial production ticking higher, the Fed’s Beige Book noting continued economic expansion, and consumer price inflation nudging higher, while housing data was mostly positive, headlined by a stronger-than-expected existing home sales report.

Stocks were mostly higher on the week as financials found support from Bank of America Corp, Dow member Goldman Sachs Group Inc, and Morgan Stanley continuing the trend of upbeat earnings from the sector. Technology issues showed some resiliency in the face of disappointing results from Dow component International Business Machines Corp and guidance from Dow member Intel Corp, aided by Friday’s blowout report from Microsoft. Telecom issues fell behind as Dow member Verizon Communications Inc posted disappointing revenues. Thus far in earnings season, of the 116 companies that have reported results from the S&P 500, 66.4% have topped revenue forecasts and 81.9% bested profit projections, per data compiled by Bloomberg.

U.S. equity indexes are within the summer’s range and we believe a bullish rotation within equities may be taking place. The important third quarter earnings season is just gearing up, with expectations having been downgraded over the past couple of months, setting up the likelihood of a good quarter relative to expectations. However, some improvement in economic data and higher inflation readings leaves the possibility of tighter monetary policy from the Fed and even other central banks.

Europe mixed, Asia mostly lower

European equities finished mixed, with the euro and British pound seeing some pressure versus the U.S. dollar as the markets grappled with yesterday’s unchanged monetary policy decision from the European Central Bank (ECB), which also suggested any changes will be decided on at its December meeting. Also, earnings season continued to ramp up with some mixed reads. Technology issues led to the upside aided by Microsoft’s results in the U.S., while healthcare and consumer goods issues moved to the downside. Bond yields in the region finished mixed. In economic news, U.K. public sector net borrowing for September topped expectations.

Stocks in Asia finished mostly lower to close out the week. Global market conviction may have been stymied by recent mixed earnings and economic reports and yesterday’s weakness in crude oil prices, along with festering political and monetary policy uncertainty. Also, Mother Nature had a say on today’s trading, with an earthquake hitting Western Japan and a typhoon disrupting markets in Hong Kong. Japanese equities declined, trimming a weekly gain as the yen strengthened late in the day, while markets in Hong Kong were closed due to the storm.

Mainland Chinese stocks advanced following a solid rise in September property prices, though the report may have caused concerns about further crackdowns on the real estate sector to resurface. The data is the latest in a string of Chinese economic reads in the past week that have painted a mixed picture. Lending and 3Q GDP releases suggested steady growth in the world’s second-largest economy and a miss in September industrial production appeared to stem some of the enthusiasm. Meanwhile, securities trading in Australia, India and South Korea decreased.

THE WEEK AHEAD: Economic calendar returns to action on Monday

Next week, the U.S. economic calendar will heat back up with additional housing data in the form of new and pending home sales reports. Also, durable goods orders for September will likely garner some attention, expected to have matched the previous month’s 0.1% increase.

Additional reports set to be released next week include the Consumer Confidence Index, the Richmond and Kansas City Fed Manufacturing Indexes, advance Q3 GDP and the final University of Michigan Consumer Sentiment Index for October.

International reports due out next week include: China—the Leading Index and Industrial profits. Japan—the Leading Index, trade balance, small business confidence, CPI and jobless rate. U.K.—housing loans, advance Q3 GDP and the Index of Services. Germany—Ifo business climate survey, the Import Price Index, GfK consumer confidence and CPI. France—business confidence, PPI, CPI and consumer spending.