Monthly Archives: May 2017

Market Insights 5/31/2017

Stocks Drift, Finish Slightly Lower

U.S. equities finished lower for a second session with financials taking the brunt of the losses following some trading revenue warnings from within the sector, while the Fed’s Beige Book noted some districts saw some slowing in growth.

Crude oil’s continued descent pressured the energy sector, and domestic economic data was less-than-stellar. Treasury yields lost ground and gold was higher, while the U.S. dollar was flat.

The Markets…

The Dow Jones Industrial Average declined 21 points (0.1%) to 21,009

The S&P 500 Index decreased 1 point (0.1%) to 2,412

The Nasdaq Composite moved 5 points (0.1%) lower to 6,199

In heavy volume, 1.5 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.34 to $48.32 per barrel and wholesale gasoline lost $0.02 to $1.60 per gallon

The Bloomberg gold spot price increased $5.57 to $1,268.66 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 97.09

Regional manufacturing growth slows, Fed report shows moderating growth

The Chicago Purchasing Managers Index slowed but remained at a level depicting expansion (above 50), after declining to 55.2 in May, from 58.3 in March, which was the highest level since January 2015, and versus the Bloomberg expectation of a decrease to 57.0.

Pending home sales fell 1.3% month-over-month in April, versus projections of a 0.5% increase, and following the downwardly revised 0.9% decline registered in March. Compared to last year, sales were 5.4% lower. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in April.

The MBA Mortgage Application Index decreased 3.4% last week, following the previous week’s 4.4% gain. The drop came as a 5.6% fall in the Refinance Index was met with a 1.4% decline for the Purchase Index. The average 30-year mortgage rate remained at 4.17%.

The Federal Reserve’s Beige Book, a look at business activity across the nation used as a preparation tool for the Fed’s next two-day monetary policy meeting set to conclude on June 14th, was released in afternoon action. The report showed that the U.S. economy as a whole continued to grow at a “modest to moderate” pace, but the districts of Boston and Chicago noted slowing growth, while New York “indicated that activity had flattened out.” Meanwhile, the report indicated that “labor market conditions continued to tighten, with most districts citing shortages”, while prices overall “were little changed from the previous report, with most districts reporting modest increases.”

Expectations are elevated that the Fed will raise interest rates following its June meeting, though the frequency of further hikes this year is in question as the Central Bank looks to begin the process of shrinking its bloated balance sheet, a move that the transition from quantitative easing (QE) to quantitative tightening (QT) begs the question whether we are heading into another period of heightened volatility. Remember, stocks tend to fare well during rate hike cycles, the unprecedented nature of this tightening cycle suggests bouts of volatility are likely

Treasuries finished modestly higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, dipped by 1 basis point to 1.28%, 2.20% and 2.87%, respectively.

Tomorrow’s economic calendar will heat up with a plethora of key reports for the markets to digest ahead of Friday’s labor report, beginning with ADP’s private sector payroll release and weekly initial jobless claims. However, the following releases of the ISM Manufacturing Index and May auto sales figures are likely to garner the most scrutiny. ISM is expected to show manufacturing activity is expected to slow slightly to 54.6 in May from 54.8 April but remain solidly in expansion territory a depicted by a reading above 50. According the FactSet, adjusted auto sales are projected to post another y/y decline, likely preserving concerns about the divergence between hard and soft data.

Europe and Asia mixed in the face of heightened political uncertainty

European equities finished mixed amid elevated political uncertainty in the region. Recent polls suggested U.K. Prime Minister Theresa May’s Conservative Party could lose seats in Parliament and may not win an overall majority in next week’s election. This came against the backdrop of the nation’s ongoing Brexit negotiations to foster some increased political uncertainty, while elections loom in Italy and Germany later this year. The British pound overcame early losses and was higher versus the U.S. dollar.

In economic news, the Eurozone consumer price inflation estimates for May came in cooler than expected, while the region’s unemployment rate unexpectedly dipped to 9.3%. Also, Germany’s unemployment change declined by a slightly smaller amount than anticipated and the nation’s retail sales surprisingly slipped. The euro was higher versus the greenback and bond yields in the region finished mixed. Healthcare stocks gained solid ground, though the oil & gas sector came under pressure as crude oil prices extended losses. Basic materials were lower despite some relatively upbeat Chinese manufacturing and services data, while financials were hampered by a flare-up in Italian banking concerns and warnings about trading revenues out of the U.S. banking sector.

Stocks in Asia finished mixed amid lingering political uncertainty in the U.S. and Europe, while the markets digested some divergent reads on economic activity in the region. Japanese equities dipped slightly, with the yen choppy after paring gains late in the session, while a report showed the nation’s industrial production rebounded solidly in April, but at a pace that was just shy of expectations. Stocks in mainland China advanced, but those traded in Hong Kong declined, as traders grappled with a recent credit rating downgrade of the nation, festering regulatory crackdown concerns, and the aforementioned political uncertainty.

Also, the markets digested China’s official May business activity reports, which showed growth in manufacturing output held steady, slightly above forecasts, while its expansion in its key services sector accelerated slightly. Meanwhile, markets in Australia and South Korea gained modest ground, while securities in India finished flat ahead of the release of its Q1 GDP report. After the markets closed, India reported that its Q1 GDP growth slowed to a 6.1% y/y pace of expansion, from a 7.0% pace in Q4, and compared to the projected acceleration to a rise of 7.1%.

Market Insights 5/30/2017

Markets Lower, post Holiday

U.S. equities fell modestly in their return to action from the long holiday weekend, amid some mixed economic news, and festering global political and geopolitical uncertainty.

Treasuries rose amid reports showing personal income and spending matched expectations, but Consumer Confidence slipped slightly.

The U.S. dollar, crude oil and gold were all slightly lower.

The Markets….

The Dow Jones Industrial Average (DJIA) declined 51 points (0.2%) to 21,029,

The S&P 500 Index fell 3 points (0.1%) to 2,413, and

The Nasdaq Composite moved 7 points (0.1%) lower to 6,203.

In moderate volume, 768 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq.

WTI crude oil ticked $0.14 lower to $49.66 per barrel and wholesale gasoline lost $0.01 to $1.62 per gallon. Elsewhere,

The Bloomberg gold spot price decreased $5.26 to $1,262.84 per ounce, and

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.29.

Personal income and spending in line with forecasts, Consumer Confidence dips

Personal income was up 0.4% month-over-month in April, matching the Bloomberg forecast, and compared to March’s unrevised 0.2% increase. Personal spending also rose 0.4% last month, in line with expectations and March’s favorably revised 0.3% gain, from an initial flat reading. The April savings rate as a percentage of disposable income was 5.3%. The PCE Deflator was up 0.2%, matching expectations, after the prior month’s 0.2% decline. Compared to last year, the deflator was 1.7% higher, in line with estimates. March’s y/y figure was upwardly revised to a 1.9% increase. Excluding food and energy, the PCE Core Index was up 0.2% m/m, versus expectations of a 0.1% increase, and the index was 1.5% higher y/y, matching estimates. March’s y/y figure was unrevised at a 1.6% increase.

The Consumer Confidence Index declined to 117.9 in May from the downwardly revised 119.4 in April, and compared to estimates of a 119.9 reading. Sentiment toward the present situation increased slightly, though the expectations of business conditions for the next six months decreased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 11.7 from the downwardly revised 10.9 level posted in April.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.9% gain in home prices y/y in March, versus expectations of a 5.8% increase. M/M, home prices were up 0.9% on a seasonally adjusted basis for March, above forecasts of a 0.8% gain.

The Dallas Fed Manufacturing Activity Index unexpectedly moved further to a level depicting expansion (a reading above zero). The index rose to 17.2 in May, from 16.8 in April, and compared to the expected decline to 15.4.

Treasuries finished higher, as the yield on the 2-year note dipped 1 basis point (bp) to 1.29%, while the yields on the 10-year note and the 30-year bond declined 3 bps to 2.22% and 2.89%, respectively.

Although this week’s economic calendar will be shortened by Monday’s holiday, it will bring plenty of data to digest ahead of the Fed’s monetary policy meeting later in June. Tomorrow’s Fed Beige Book, the ISM Manufacturing Index and monthly auto sales are some highlights from the docket, but the week will culminate with Friday’s key May non-farm payroll report. Other reports slated for release tomorrow include the Chicago PMI Index, forecasted to decline to 57.5 this month from April’s 58.3, as well as pending home sales, with economists anticipating the pipeline of existing home sales to have increased 0.5% m/m in April following the prior month’s 0.8% decline, and MBA Mortgage Applications.

U.S. markets were roiled by so-called “unprecedented” political issues but bounced back quickly. Investing based on political winds is not likely to be a successful strategy and we urge focus on economic and earnings fundamentals. The U.S. economy is bouncing back from the weak first quarter while the labor market continues to tighten. A June rate hike by the Federal Reserve remains on the table for now. Global growth has picked up, but the recent slowdown and inversion of the yield curve in China are causing some concerns.

Europe mostly lower, Asia mixed as global markets set to get back to action

European equities finished mostly lower with some markets returning to action following yesterday’s holiday, while political uncertainty flared up ahead of next week’s election in the U.K. as Brexit negotiations continue. Also, Italian election risk gained ground after Democratic Party leader Renzi pushed for an early election, while Germany is set to hold an election later this year. Geopolitical uncertainty also festered amid rhetoric between the U.S. and Germany regarding trade and defense.

In economic news, France’s Q1 GDP growth topped forecasts, while Eurozone consumer, economic and business sentiment all deteriorated. The euro and British pound ticked higher versus the U.S. dollar, while bond yields traded mostly to the downside. The markets also digested some comments from European Central Bank (ECB) President Mario Draghi, which appeared to foster a dovish reaction, as he reiterated that it is still too early to consider pulling back its highly accommodative monetary policy stance. Oil & gas issues declined as crude oil prices extended last week’s drop, while financials also saw some pressure on the lower bond yields, comments from the ECB’s Draghi and the flared up political and geopolitical uneasiness.

Stocks in Asia finished mixed as the U.S. and some European markets returned to action following yesterday’s holiday, though Chinese markets remained closed for a holiday. The markets are grappling with political uncertainty in the U.S. and Europe, along with geopolitical concerns as North Korea continued to conduct missile tests and rhetoric out of Germany toward the U.S.

Stocks in Japan finished little changed, as traders digested data showing the nation’s household spending fell more than expected but retail sales grew by a larger amount than projected, while the yen gained some ground. South Korean equities declined, while those traded in Australia overcame early weakness to finish higher, and Indian listings advanced, remaining at record high levels.

International reports for tomorrow include manufacturing and services PMIs from China, business confidence from Australia, housing data from Japan, GDP from India, employment figures and retail sales from Germany, PPI and CPI from France, as well as CPI and employment data from the Eurozone.

U.S. Market Weekly Summary – Week Ending 05/26/2017

S&P 500 Gains 1.4% on Week as Utilities, Tech Stocks Lead Broad Climb; Energy Slumps

The Standard & Poor’s 500 index rose 1.4% this week as the utilities and technology sectors led a broad climb that was bucked only by energy and telecommunications.

The market benchmark ended the week at 2,415.82, up from 2,381.73 last week. Among the biggest gainers, the utilities sector added 2.5% and technology climbed 2.3%, with most other sectors following the move higher.

CMS Energy (CMS) was among the utilities sector’s advancers this week, up 2.9% since last Friday. The company’s Consumers Energy subsidiary said Monday it is planning to spend nearly $440 million to modernize its natural-gas system.

The technology sector’s advancers included information-technology company CSRA (CSRA), whose shares rose 5.9% on the week as its SRA International subsidiary received a five-year, $266 million contract from the General Services Administration’s Federal Systems Integration & Management Center.

Salesforce.com (CRM) shares gained 3.9% on the week as the company said Dell Technologies will expand its use of Salesforce’s sales, service, and marketing applications and CRM platform.

However, the energy sector dropped 2.1% this week as oil prices tumbled on disappointment over production cuts by the Organization of the Petroleum Exporting Countries. Investors had been hoping for a more aggressive plan than the one announced.

The energy sector’s decliners included Transocean (RIG), down 9.1% on the week, Marathon Oil (MRO), down 6.9% for the week, and Chesapeake Energy (CHK), which shed 8.5%.

Market Insights 5/26/2017

Stocks Finish Flat Ahead of Holiday Weekend

U.S. stocks finished trading mostly flat on light volume, ending the recent six-session winning streak ahead of the extended Memorial Day holiday weekend.

Traders digested mixed Q1 GDP and durable goods orders reports, while Costco and Ulta Beauty announced some upbeat earnings data.

Crude oil prices rebounded somewhat from yesterday’s tumble, Treasury yields dipped and the U.S. dollar and gold gained ground. Overseas, equities in Asia and Europe finished mixed.

The Markets…

The Dow Jones Industrial Average decreased 3 points to 21,080

The S&P 500 Index added 1 point to 2,416

The Nasdaq Composite ticked 5 points (0.1%) higher to 6,210

In light volume, 683 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil gained $0.90 to $49.80 per barrel and wholesale gasoline was $0.03 higher at $1.63 per gallon

The Bloomberg gold spot price increased $11.76 to $1,267.44 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% higher at 97.45

Markets were solidly higher for the week, as the DJIA jumped 1.3%, the S&P 500 Index rallied 1.4%, and the Nasdaq Composite surged 2.1%

Durable goods orders miss, Q1 GDP growth revised higher

April preliminary durable goods orders declined 0.7% month-over-month (m/m), compared to the Bloomberg estimate of a 1.5% decline, though March’s 1.7% gain was revised to a 2.3% rise. Ex-transportation, orders were 0.4% lower m/m, compared to forecasts of a 0.4% gain and versus March’s upwardly revised 0.8% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, came in flat, versus projections of a 0.5% increase, and matching the downwardly revised reading in the month prior.

Orders for the volatile component of transportation weighed on the headline figure as a slight gain in autos and a solid rise in defense aircraft and parts were more than offset by a drop in non-defense aircraft and parts. Weakness was also seen in demand for machinery, electrical equipment and appliances, and fabricated metals. However, a bright spot was a solid gain in orders for computers and electronic products.

The data, notably the back-to-back flat readings for the proxy for business spending in the durable goods report, may have fostered concerns about whether Q1′s soft patch was transitory as recent history and the Fed have suggested. The average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, but hard data has been stubbornly weak relative to soft data. So for now, we are seeing the glass half full, concluding that we are likely just experiencing yet another “soft patch” in an ongoing expansion.

The second look (of three) at Q1 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 1.2%, up from the first release’s 0.7% gain. Forecasts called for an adjusted 0.9% pace of expansion. Q4 GDP grew by an unrevised 2.1% rate. Personal consumption came in at a 0.6% gain for Q1, up from the preliminary estimate of a 0.3% increase, and compared to the expectations of a 0.4% increase. Personal consumption grew by an unrevised 3.5% in Q4.

On inflation, the GDP Price Index was revised to a 2.2% gain, versus forecasts of an unrevised 2.3% increase, while the core PCE Index, which excludes food and energy, was adjusted to a 2.1% rise, compared to expectations of an unrevised 2.0% gain.

The final May University of Michigan Consumer Sentiment Index was revised to 97.1 from the preliminary level of 97.7, versus forecasts of 97.5. However, the index was up slightly compared to April’s level of 97.0. Compared to last month, the expectations component improved, while the current conditions component declined. The 1-year inflation outlook remained at April’s 2.6% rate, while the 5-10 year forecast ticked higher to 2.4% from 2.3%.

Treasuries were mostly higher in an abbreviated session, with the yield on the 2-year note flat at 1.29%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 2.25% and 2.91%, respectively.

Please note: All U.S. markets will be closed on Monday in observance of the Memorial Day holiday.

Europe and Asia mixed amid political uncertainty and continued energy weakness

European equities finished mixed, with oil & gas issues remaining a drag on the markets as crude oil prices tumbled yesterday amid apparent disappointment from the highly-anticipated extension of production cuts by OPEC. Political and geopolitical uncertainty lingered to hamper conviction, with polls showing U.K. Prime Minister Theresa May losing ground ahead of next month’s election as Brexit negotiations continue. However, the British pound fell to help buoy the U.K. markets. Also, the markets eyed U.S. President Trump’s first international trip as he wraps up in Europe with G-7 leaders gathering in Italy.

The euro declined versus the U.S. dollar and bond yields in the region lost ground. In light economic news, Italian economic, manufacturing and consumer sentiment reports all declined for May.

Stocks in Asia finished mixed with the energy sector getting pressured as oil prices tumbled yesterday in reaction to the highly-expected extension of production cuts by OPEC. Japanese equities declined, with the yen gaining ground late in the session, while a read on the nation’s core consumer price inflation came a bit cooler than expected. Chinese shares took a breather after a strong weekly advance and stocks in Hong Kong finished flat. Australian securities fell amid a drop in oil & gas issues and weakness out of the basic materials sector. However, South Korean and Indian equities hit record highs for a second session.

Stocks string together gains to post weekly rally

U.S. stocks posted a six-session winning streak before Friday’s pause, extending a rebound from last week’s selloff and spike in volatility on Wednesday that stemmed from a flare-up in domestic political concerns that called pro-growth policy pledges into question. President Trump embarked on his first trip overseas, which appeared to take some of the focus off domestic political issues, likely helping foster the rebound. Also, he struck some defense and aerospace deals in Saudi Arabia to boost the stocks in the sector.

Technology stocks continued to rally, while some relative upside surprises by retailers, headlined by Best Buy Co. Inc. (BBY $60), boosted the consumer discretionary sector. The Fed’s May meeting minutes seemed to foster a dovish takeaway to help ease concerns about the pace of future rate hikes after June’s highly-anticipated move. However, the energy sector took a hit as crude oil prices gave back a rally that led up to this week’s widely-expected OPEC extension of production cuts that looked to disappoint the markets. The divergence between hard and soft economic data also festered, with new and existing home sales both falling more than expected in April to exacerbate concerns about the impact of demand easily outstripping supply. Meanwhile, treasury yields nudged higher, along with the U.S. dollar.

Although next week’s economic calendar will be truncated by Monday’s holiday, the docket will bring plenty of data to digest ahead of the Fed’s monetary policy meeting later in June. Personal income and spending, and Consumer Confidence will get the ball rolling, followed by the Fed’s Beige Book, the ISM Manufacturing Index and monthly auto sales. The week will culminate with Friday’s key May non-farm payroll report.

U.S. markets were roiled by so-called “unprecedented” political issues but bounced back quickly. Investing based on political winds is not likely to be a successful strategy and we urge focus on economic and earnings fundamentals. The U.S. economy is bouncing back from the weak first quarter while the labor market continues to tighten. A June rate hike by the Federal Reserve remains on the table for now. Global growth has picked up, but the recent slowdown and inversion of the yield curve in China are causing some concerns.

Next week’s international economic reports worth noting include: Australia—building approvals and retail sales. China—industrial profits and Manufacturing and non-Manufacturing PMIs. India—Q1 GDP. Japan—household spending, retail sales, and industrial production. Eurozone—consumer price inflation and consumer confidence, along with German retail sales and unemployment change. U.K.—Markit’s PMI Manufacturing Index.

Market Insights 5/25/2017

Record Run Continues

U.S. stocks finished higher for the sixth-straight session as traders reacted favorably to yesterday’s Fed minutes which indicated a systematic approach to unwinding the central bank’s inflated balance sheet.

A plethora of favorable earnings reports out of the retail sector also aided the upbeat sentiment, however, the energy sector was under pressure with crude oil prices falling in the wake of the highly-expected extension of OPEC’s production cuts. In economic news, weekly jobless claims nudged higher and the preliminary trade deficit unexpectedly widened.

Treasury yields were mixed, the U.S. dollar ticked higher and gold dipped.

The Markets…

The Dow Jones Industrial Average increased 71 points (0.3%) to 21,083

The S&P 500 Index added 11 points (0.4%) to 2,415

The Nasdaq Composite gained 42 points (0.7%) to 6,205

In moderate volume, 814 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil dropped $2.46 to $48.90 per barrel and wholesale gasoline was $0.05 lower at $1.60 per gallon

The Bloomberg gold spot price decreased $2.57 to $1,256.16 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 97.22

Jobless claims tick higher

The advance goods trade deficit widened to $67.6 billion in April, from the upwardly revised $65.1 billion in March, and compared to expectations of $64.5 billion.

Weekly initial jobless claims rose by 1,000 to 234,000 last week, below the Bloomberg forecast of 238,000, with the prior week’s figure being revised higher by 1,000 to 233,000. The four-week moving average fell by 5,750 to 235,250, while continuing claims rose by 24,000 to 1,923,000, south of estimates of 1,925,000.

Preliminary wholesale inventories declined 0.3% month-over-month in April, versus forecasts for a 0.2% increase, and following March’s downwardly revised 0.1% gain.

The Kansas City Fed Manufacturing Activity Index for May increased to 8, from April’s 7 reading, but below forecasts of a rise to 9, though a level north of zero depicts expansion.

Treasuries were mixed, with the yield on the 2-year note increasing 1 basis point to 1.29%, the yield on the 10-year note flat at 2.25% and the 30-year bond rate declining 1 bp to 2.92%. Please note: Treasury markets will be closing early tomorrow in observance of the Memorial Day Holiday.

Treasury yields finished lower yesterday following the May Fed meeting minutes that kept June rate hike expectations intact but noted that the Federal Open Market Committee (FOMC) was looking for more evidence suggesting that the recent soft patch of economic data was transitory. The report also offered details of the discussion regarding shrinking the Central Bank’s bloated balance sheet. Most of the FOMC favored an approach where it would determine a set of slowly but surely increasing caps, or limits, on the dollar amounts of Treasury and agency securities that would be allowed to run off each month. They also agreed that discussions of potential changes to the Committee’s reinvestment policy will be continued in its June 13th-14th meeting.

The economic week will conclude with tomorrow’s release of the first revision (of two) to Q1 GDP, projected to be adjusted to a 0.9% quarter-over-quarter annualized pace of growth, from the initial estimate of a 0.7% rate of expansion. Q1 growth slowed noticeably from Q4′s 2.1% expansion, matching the pattern seen in the past 10 years and the Fed is watching data to see evidence this is transitory. Seeing through a weak Q1, we point out that the average GDP growth for the subsequent quarters over the past 10 years has been 1.8%, but hard data has been stubbornly weak relative to soft data.

This sets the stage for tomorrow’s preliminary April durable goods report, giving some hard data for the markets to look at post Q1. The volatile headline figure is expected to show a 1.5% drop m/m, after March’s 1.7% gain, while excluding transportation, orders are projected to rise 0.4% after increasing 0.8% in March. Non-defense capital goods orders excluding aircraft—a gauge of business spending—will likely be highly scrutinized, forecasted to increase 0.5% for a second-straight month to cap off four-consecutive monthly increases. This figure is part of the Conference Board’s Index of Leading Economic Indicators; which is quite healthy, solidifying our view that we likely just experiencing yet another “soft patch” in an ongoing expansion.

Europe dips as oil drops, Asia mostly higher after Fed minutes

European equities finished modestly lower, with oil & gas issues seeing some pressure as crude oil prices fell in the wake of the highly-expected extension of OPEC production cuts by nine months. Crude oil prices gave back a recent rally that came in anticipation of the OPEC production cut extension, with some apparent disappointment that more was not announced to fight the global supply glut that has kept crude oil prices depressed. The global markets reacted to yesterday’s Fed May meeting minutes out of the U.S. The report appeared to foster some relative dovish takeaways as it suggested that after June’s highly-expected rate hike, the Central Bank may wait until it sees evidence the recent soft economic patch was transitory before raising rates further. In economic news, U.K. Q1 GDP growth was revised lower to a 0.2% q/q pace of expansion, from a previously-estimated rise of 0.3%, where it was expected to remain. The growth was a deceleration from the 0.7% expansion posted in Q4. The euro was little changed and the British pound dipped versus the U.S. dollar, while bond yields in the region mostly moved to the downside.

Political uncertainty remained, as U.K. Brexit negotiations continue, while elections loom for the U.K., Germany and Italy later this year, and U.S. President Trump continued his first overseas trip in Europe today. Volume was lighter today as a few markets in the region, including Switzerland, were closed for a holiday.

Stocks in Asia finished mostly higher, on the heels of the extended winning streak in the U.S. yesterday, while the markets awaited the highly-expected OPEC decision to extend production cuts. Also, yesterday’s May meeting minutes from the Fed in the U.S. were eyed, showing a June hike was likely, but the pace thereafter may be in question, while the Central Bank discussed how to begin unwinding its huge balance sheet. Japanese equities gained ground, overcoming early losses that stemmed from some firming of the yen after the Fed minutes, aided by some optimism regarding corporate earnings in the nation.

Shares trading in mainland China and Hong Kong advanced, continuing to shrug off yesterday’s credit downgrade of the nation by Moody’s, with financials showing some strength. South Korean stocks moved nicely higher amid the global market advance as the Bank of Korea kept its benchmark interest rate unchanged as expected. Australian securities rose, buoyed by strength in basic materials and oil & gas issues, while Indian listings jumped back to record highs, amid a rally in industrial equipment makers.

Market Insights 5/24/2017

Win Streak to Five

U.S. stocks continued to trend higher following the afternoon release of the minutes from the Fed’s last meeting, which made reference to balance sheet normalization and after showing some early resiliency in the wake of a disappointing April existing-home sales report and a sovereign credit downgrade of China.

Gold was higher, while the U.S. dollar, crude oil prices and Treasury yields were lower.

The Markets…

The Dow Jones Industrial Average (DJIA) increased 75 points (0.4%) to 21,012

The S&P 500 Index added 6 points (0.2%) to 2,404

The Nasdaq Composite gained 24 points (0.4%) to 6,163

In moderately-light volume, 797 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil moved $0.11 lower to $51.36 per barrel and wholesale gasoline was $0.01 lower at $1.65 per gallon

The Bloomberg gold spot price increased $5.93 to $1,257.15 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.12

Existing home sales fall more than expected, Fed meeting minutes released

Existing-home sales in April decreased 2.3% month-over-month to a 5.57 million annual rate compared to the Bloomberg forecast of a 5.65 million pace, and down from March’s negatively revised 5.70 million rate, which was the fastest pace since February 2007. Sales of single-family homes declined 2.4% m/m and purchases of multi-family structures decreased 1.6%, but both were up y/y. The median existing-home price was up 6.0% y/y at $244,800. Unsold inventory came in at a 4.2-month pace at the current sales rate, up from March’s 3.8 months pace and the 4.6 months rate a year ago. Inventory of homes for sale is up 7.2% y/y. Sales declined in all regions except for the Midwest. Existing home sales are based on contract closings instead of signings and account for the majority of the housing sales market.

National Association of Realtors (NAR) Chief Economist Lawrence Yun said, “Demand is easily outstripping supply in most of the country and it’s stymieing many prospective buyers from finding a home to purchase.” The report follows yesterday’s disappointing new home sales report, but as noted we’re starting to see an encouraging uptick in both home ownership and household formations. This suggests that consumer confidence is starting to translate into some economy-boosting action.

The MBA Mortgage Application Index rose 4.4% last week, following the previous week’s 4.1% decline. The increase came as a 10.5% surge in the Refinance Index more than offset a 0.8% dip for the Purchase Index. The average 30-year mortgage rate dropped 6 basis points to 4.17%.

At 2:00 p.m. ET, the minutes from the Fed’s May 2nd-3rd monetary policy meeting were released. The minutes noted that “members agreed that the slowing in growth during the first quarter was likely to be transitory,” and after assessing current conditions Committee members agreed to maintain the target range for the federal funds rate at 3/4 to 1 percent. Additionally, the participants discussed issues pertaining to potential changes to the Committee’s policy regarding reinvesting principal payments from securities in its System Open Market Account. Most policymakers favored an approach where the Committee would determine a set of slowly but surely increasing caps, or limits, on the dollar amounts of Treasury and agency securities that would be allowed to run off each month and to only allow the amounts of the repayments that exceeded the caps to be reinvested each month, with the final value of the caps to be maintained until the size of the balance sheet is normalized. It was agreed that discussions of potential changes to the Committee’s reinvestment policy will be continued in its June 13th-14th meeting.

Tomorrow, the U.S. economic calendar will include wholesale inventories, expected to have increased 0.2% to match the previous month’s rise, weekly initial jobless claims, forecasted to have ticked higher to level of 238,000 from 232,000 and the Kansas City Fed Manufacturing Index, anticipated to have increased to a level of 10 from April’s 7, with a level above 0 indicating expansion in activity.

Treasuries traded higher, with the yields on the 2-year and 10-year notes declining 3 bps to 1.29% and 2.25%, respectively, while the 30-year bond rate ticked 2 bps lower to 2.92%.

Europe mostly lower, Asia mostly higher

European equities finished mostly to the downside, with caution appearing to prevail ahead of today’s release of the Fed’s May meeting minutes in the U.S. and tomorrow’s OEPC meeting, which is highly-expected to result in an extension of production cuts. Crude oil prices were choppy following a recent rally in anticipation of the extended production cuts, while oil inventories in the U.S. fell more than expected again.

The markets digested the credit rating downgrade of China by Moody’s Investor Service, which was accompanied by a change to the country’s outlook to stable from negative. Basic materials were slightly lower on the downgrade. Germany reported another favorable sentiment gauge, as the nation’s consumer confidence unexpectedly improved for June. The euro and British pound declined modestly versus the U.S. dollar and bond yields in the region traded mixed.

Political and geopolitical uncertainty lingered ahead of elections in the Eurozone and U.K. later this year, while U.S. President Donald Trump continues his first international trip, and in the wake of this week’s deadly terrorist attack in the U.K. and last weekend’s missile test by North Korea.

Stocks in Asia finished mostly to the upside, with conviction being held in check ahead of today’s May meeting minutes from the Fed in the U.S., and tomorrow’s OPEC meeting that is expected to deliver an extension of production cuts. The markets shrugged off the downgrade of China’s credit rating by Moody’s Investor Service, which noted a possible “material rise” in economy-wide debt and the potential for economic growth to slow. However, Moody’s changed its outlook for the country to stable from negative. Shares trading in both mainland China and Hong Kong ticked higher amid a late-session rebound.

Japanese equities rose, aided by some weakness in the yen. Australian and South Korean securities advanced, while Indian stocks declined, retreating modestly from near record highs, amid some recent mixed earnings reports.

The international economic docket for tomorrow will be light, yielding industrial orders from Italy and GDP and business investment from the U.K.

Market Insights 5/23/2017

Winning Streak Perseveres

U.S. equities added to their recent run, notching four-straight sessions in the green, but disappointing domestic housing and manufacturing reports, as well as some somberness over a deadly terrorist attack in the U.K., kept the gains in check.

Treasury yields were higher and the U.S. dollar gained ground, while gold fell and crude oil prices ticked modestly higher.

The Markets…

The Dow Jones Industrial Average increased 43 points (0.2%) to 20,938

The S&P 500 Index added 4 points (0.2%) to 2,398

The Nasdaq Composite gained 5 points (0.1%) to 6,139

In moderate volume, 767 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil moved $0.34 higher to $51.47 per barrel and wholesale gasoline was unchanged at $1.66 per gallon

The Bloomberg gold spot price decreased $8.54 to $1,252.09 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 97.36

New home sales fall, business activity data mixed

New home sales fell 11.4% month-over-month (m/m) in April to an annual rate of 569,000, well below forecasts of 610,000 units, and compared to the upwardly revised 642,000 unit pace in March, which was the strongest pace in almost a decade. The median home price was down 3.8% y/y at $309,200. New home inventory rose to 5.7 months of supply at the current sales pace. Sales were down m/m in all regions. Y/Y, sales were higher in the Midwest and South, though lower in Northeast and West. New home sales are based on contract signings instead of closings.

Tomorrow, we will get a broader look at home buying activity in the form of existing home sales, with contract closings expected to decline 1.1% to an annual rate of 5.65 million units from March’s fastest pace since February 2007. However, the highlight of tomorrow’s docket will likely be the release of the minutes from the Federal Open Market Committee’s (FOMC) May monetary policy meeting. A June rate hike is highly expected though details of the discussion are likely to be scrutinized for clues to any changes in the outlook for further hikes this year. Also, the debate regarding plans to shrink the Fed’s robust balance sheet is also poised to garner attention as it could have implications on whether this could impact the frequency of rate increases. MBA Mortgage Applications are also scheduled to be released.

Shrinking the Fed balance sheet is a form of policy tightening and we are probably going to hear a lot more about a transition from quantitative easing (QE) to quantitative tightening (QT). The question of why to shrink the balance sheet will get plenty of press. Shrinking the balance sheet gives ammunition back to ease policy when the next recession occurs. But the Fed is navigating uncharted waters in trying to shrink such a gargantuan balance sheet; which is why the process is likely to be very gradual, but also why periods of market volatility could ensue.

The preliminary Markit U.S. Manufacturing PMI Index came in at 52.5 for May, below April’s final read of 52.8, and compared to estimates calling for an improved level of 53.0. However, the preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector this month accelerated to 54.0 from April’s reading of 53.1, versus forecasts of an improvement to 53.3. Readings above 50 for both reports denote expansion in activity.

The Richmond Fed Manufacturing Activity Index dropped to 1 in May from 20 in April, clinging to expansion territory (a reading above zero), and versus expectations of a 15 reading.

Treasuries were lower, as the yield on the 2-year note rose by 2 basis points (bps) to 1.30%, while the yield on the 10-year note added 3 bps to 2.29%, and the 30-year bond rate gained 4 bps to 2.95%.

Europe mostly higher, Asia mixed, U.K. terrorist attack eyed

European equities finished mostly higher, following some upbeat economic data, while the markets appeared relatively calm in the face of a deadly terrorist attack in the U.K. Markit’s preliminary Composite PMI Index—a gauge of business activity in both the manufacturing and services sectors—remained at the fastest pace of expansion in more than six years for this month, while German business confidence for this month rose to the highest level since 1991.

Also, Germany’s Q1 GDP growth was unrevised at a 0.6% quarter-over-quarter pace of expansion, matching estimates, and up from the 0.4% growth seen in Q4. French business and manufacturing confidence both improved in May, while Switzerland’s exports declined last month. Crude oil prices took a breather from a recent rally that came amid heightened optimism regarding extended production cuts.

Is Energy an Opportunity or a Trap, world economic growth has improved, according to Markit’s PMI surveys, which have largely moved into positive territory around the world. That should help to bolster demand. But the correlation between economic growth and growth in oil demand may be changing, as other sources of energy are becoming more viable, and we are maintaining our neutral outlook for the energy sector.

The euro and British pound declined versus the U.S. dollar despite the data, while bond yields in the region were mixed.

Stocks in Asia finished mixed as the markets grappled with the extended rebound in the U.S. yesterday, along with festering U.S. political uncertainty and as geopolitical concerns lingered following the weekend’s North Korean missile test, a terrorist attack in the U.K., and Indian Army military raids. Securities in Japan declined, with the yen gaining some ground on the news of the U.K. terrorist attack, while a report showed the nation’s manufacturing growth slowed in May. Australian equities fell, as basic materials retreated modestly from a recent run, while Indian listings came under pressure, as the nation’s Army said it launched military raids into a Pakistan-controlled part of Kashmir to destroy camps hosting terrorists, per Bloomberg. Markets in South Korea, on the other hand, advanced, as did those traded in Hong Kong, while mainland Chinese stocks were lower.

Tomorrow’s international economic calendar will be fairly light, with reports slated for release to include Japan’s Leading Index, PPI from Spain, and consumer confidence from Germany.

Market Insights 5/22/2017

Market Rebound Continues

U.S. equities continued their rebound from last week’s malaise that came amid a flare-up in domestic political uncertainty and volatility.

Defense stocks got a boost from President Trump’s deals with Saudi Arabia on his first overseas trip, and Ford announced a new CEO. Treasury yields and gold are moved higher, and the U.S. dollar was little changed, with the economic calendar empty today.

Crude oil prices extended a run as of late amid continued production cut optimism.

The Markets…

The Dow Jones Industrial Average increased 90 points (0.4%) to 20,895

The S&P 500 Index added 12 points (0.5%) to 2,394

The Nasdaq Composite gained 49 points (0.8%) to 6,134

In moderate volume, 792 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.46 to $51.13 per barrel and wholesale gasoline was $0.01 higher at $1.66 per gallon

The Bloomberg gold spot price increased $5.06 to $1,260.99 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly unchanged at 96.98

Fed, housing and business activity reports set to join political focus this week

Treasuries dipped as the U.S. economic docket was void of any major releases today. The yields on the 2-year and 10-year notes, along with the 30-year bond, all ticked 1 basis point (bp) higher to 1.28%, 2.25% and 2.91%, respectively.

Along with continued focus on the political front, this week’s economic calendar will bring looks at the housing sector, beginning with tomorrow’s new home sales report, with economists expecting a 1.8% month-over-month (m/m) decline during April to a rate of 610,000 units, as well as Markit’s preliminary Manufacturing and Services PMIs for May with both indexes forecasted to inch higher to 53.0 and 53.3, respectively, while the Richmond Fed Manufacturing Index will round out the day, forecasted to move lower to a level of 15 for May.

More housing data, manufacturing and business activity reports will come later in the in the form of existing home sales, the second read on Q1 GDP and preliminary durable goods orders. Q1 leading indicators say a lot more about the economy prospectively than backward-looking measures like GDP, and they remain quite healthy.

The release of the Fed’s May meeting minutes could command attention as the markets grapple with the path of future rate hikes and the expected beginning of the paring of the Central Bank’s bloated balance sheet.

Europe mixed on M&A, politics and euro strength, Asia mostly higher

European equities finished mixed, with the markets continuing the grapple with political uncertainty on both sides of the pond. The euro continued to climb versus the U.S. dollar, which has been pressured by ramped-up U.S. political uneasiness.

The euro got a further boost from comments from German Chancellor Angela Merkel regarding the currency being “too weak,” leading to Germany’s trade surplus, per Bloomberg. However, the British pound dipped versus the greenback, as ongoing U.K. Brexit negotiations fostered uncertainty. Adding to the political risk, Germany, Italy and the U.K. face elections later this year.

Bond yields in the region were mixed. Telecommunications issues led to the upside to extend a recent rally, while oil & gas issues moved modestly to the upside as crude oil prices extended a run as of late on optimism the extension of production cuts will be announced.

Stocks in Asia finished mostly to the upside as the U.S. markets continued to recover on Friday from a midweek selloff that came as volatility spiked amid flared-up U.S. political uncertainty, which appeared to call President Trump’s ability to pass pro-growth policies into question. The global markets are shrugging off lingering geopolitical uncertainty as North Korea conducted another missile test over the weekend, while paying attention to U.S. President Trump’s first foreign trip.

Japanese equities gained ground, with the yen stabilizing after last week’s rally, while the nation’s trade report showed exports grew at a smaller pace than expected and imports topped forecasts. Australian securities rose, with basic materials recovering and oil & gas issues gaining ground as crude oil prices extend a recent run on optimism of extended production cuts.

South Korean listings showed some resiliency in the face of the North Korean missile tests and a deceleration in that nation’s export growth, advancing 0.7%, and markets in India moved higher, back to near record territory as the markets cheered the finalization of rates for the national sales tax, per Bloomberg.

Chinese stocks finished mixed, with mainland stocks declining, amid festering regulatory crackdown concerns and economic uncertainty in the wake of recent soft data, but those traded in Hong Kong increased, with insurers getting a boost from some analyst optimism toward the group.

The Markit Manufacturing and Services PMIs from around the globe will dominate tomorrow’s international economic calendar, while other reports will include the All-Industry Index from Japan, the Ifo Business Climate survey, GDP and trade data from Germany, as well as Spain’s trade balance.

U.S. Market Weekly Summary – Week Ending 05/19/2017

S&P 500 Sheds 0.4% on Week as Financials, Consumer Discretionary Weigh; Real Estate Rises

The Standard & Poor’s 500 index fell 0.4% this week, with the financial and consumer-discretionary sectors leading to the downside although four sectors led by real estate managed to eke out gains. The market benchmark ended the week at 2,381.73, down from 2,390.90 last week and marking its second weekly decline in a row.

The decline came as investors worried the latest political controversies surrounding President Donald Trump could hurt the administration’s ability to push through policy changes the market has been betting on since the November election. The sector that fell the most this week – financials – had been the biggest beneficiary of investor optimism for Trump’s policies since Nov. 8.

Financials lost 1.0% this week amid worries Trump’s troubles could roil efforts for tax cuts and deregulation in the sector. Among the decliners, JPMorgan Chase (JPM) dropped 2.5% this week, Bank of America (BAC) fell 4.0%, Goldman Sachs Group (GS) declined 3.3% and Morgan Stanley (MS) slipped 2.2%.

In the consumer-discretionary sector, which shed 0.8%, the decliners included a number of retailers that released disappointing quarterly results and/or lackluster guidance. Among them, teen-apparel retailer American Eagle Outfitters (AEO) tumbled 20% this week amid the report of lower-than-expected Q1 adjusted earnings per share and gross margin while its guidance for Q2 also disappointed.

On the upside, the real-estate sector added 1.2%. The gainers included Ventas (VTR), which rose 2.2% this week as the real-estate investment trust’s board maintained its quarterly dividend payment rate at $0.775 per share. Other advancers included HCP (HCP), which added 1.4% this week as the real-estate investment trust named Scott Brinker, the former chief investment officer at Welltower (HCN), as its next chief investment officer.

Market Insights 5/19/2017

Stocks Advance

Closing out the week, U.S. stocks continued to rebound from Wednesday’s drop that stemmed from a spike in volatility as political concerns ramped up.

The global markets appeared to stabilize to help extend gains, along with some upbeat earnings reports, headlined by Deere & Co.

Treasuries were slightly higher and the U.S. dollar continued to slide, while gold and crude oil prices moved higher.

The Markets…

The Dow Jones Industrial Average increased 142 points (0.7%) to 20,805

The S&P 500 Index added 16 points (0.7%) to 2,382

The Nasdaq Composite gained 29 points (0.5%) to 6,084

In moderately-heavy volume, 1.0 billion shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.01 to $50.67 per barrel and wholesale gasoline was $0.04 higher at $1.65 per gallon

The Bloomberg gold spot price increased $7.89 to $1,254.96 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.7% lower at 97.14

Markets were lower for the week, as the DJIA declined 0.5%, the S&P 500 Index lost 0.4%, and the Nasdaq Composite decreased 0.6%

Stabilization appears after midweek shake up

Treasuries finished slightly higher as the U.S. economic calendar void of any major releases today. The yields on the 2-year and 10-year notes were nearly unchanged at 1.27% and 2.23%, respectively, while the 30-year bond rate ticked 1 basis point lower to 2.89%.

The markets appear to have stabilized following a midweek jump in volatility on exacerbated U.S. political concerns that fostered increased uncertainty regarding President Trump’s ability to implement pledged pro-growth policies. The U.S. dollar fell sharply this week, along with bond yields on the mid-to-long-end of the curve, while crude oil prices moved higher amid optimism of a longer-than-expected extension of global oil production cuts. Results from Dow members Wal-Mart Stores Inc. (WMT $79) and Home Depot Inc. (HD $156), along with Target Corp. (TGT $56), were highlights in the retail sector and a waning Q1 earnings season. Also, we saw upbeat reads on homebuilder sentiment and industrial production and capacity utilization, which offset a disappointing housing starts and building permits report. Amid the choppiness and despite the rebounds in the past two sessions, the domestic stock markets traded lower on the week.

Along with likely continued focus on the political front, next week’s economic docket will bring looks at the housing sector with the releases of new and existing home sales. Moreover, manufacturing and business activity will likely be scrutinized, with Markit’s preliminary Manufacturing and Services PMIs, along with the second read on Q1 GDP and preliminary durable goods orders.

International reports due out next week include: China—industrial profits. Japan—trade balance and consumer price inflation. Eurozone—Markit’s business activity reports, along with German Q1 GDP and business sentiment. U.K.—Q1 GDP.

Europe rebounds and Asia mostly higher as global markets stabilize

European equities rebounded from a two-day slide, as the global markets appeared to stabilize from a flare-up in U.S. political uncertainty that caused concerns that pro-growth policies could be jeopardized. The gains came despite the continued drop in the U.S. dollar that boosted the euro and British pound. The heightened political uncertainty in the U.S. joins looming elections in the U.K., Germany and Italy, as well as continued Brexit negotiations.

Stocks in Asia finished mostly to the upside, with the U.S. markets rebounding somewhat from Wednesday’s selloff that came courtesy of a flare-up in U.S. political risk concerns, though action remained choppy as uncertainty remained. Japanese equities gained ground with the yen giving back some recent gains. Chinese stocks nudged higher, amid some signs of stabilization from recent pressure stemming from resurfacing economic concerns and uneasiness toward heightened regulatory crackdowns.

Indian and South Korean shares ticked slightly higher, though Australian securities declined amid continued weakness in the financial sector. Another potential concern for the market is coming in the form of a potential Chinese slowdown, which could lead to a near-term retrenchment in emerging market equities.