U.S. equities bounced back from yesterday’s European politically-fueled losses to finish solidly higher, as the concerns that drove the uneasiness appeared to calm somewhat.
Treasury yields rallied, snapping back from a recent plunge to lend support to financials, and the U.S. dollar retreated from its recent run.
In economic news, Q1 GDP growth was unexpectedly revised lower and ADP’s employment report missed forecasts, while the afternoon release of the Fed’s Beige Book indicated continued economic expansion.
Crude oil prices recovered from its current downdraft on a bullish OPEC report and gold was higher.
The Dow Jones Industrial Average rose 306 points (1.3%) to 24,668
The S&P 500 Index increased 34 points (1.3%) to 2,724
The Nasdaq Composite moved 66 points (0.9%) higher to 7,462
In moderate volume, 854 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq
WTI crude oil traded $1.48 higher to $68.21 per barrel and wholesale gasoline was up $0.03 at $2.17 per gallon
The Bloomberg gold spot price was $3.38 higher at $1,302.15 per ounce
The Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.7% to 94.16
Q1 GDP revised lower, ADP employment report misses, Fed business activity data on deck
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 2.2%, down slightly from the first release’s 2.3% gain, with the Bloomberg forecast calling for an unrevised figure. Q4 GDP grew by an unrevised 2.9% rate. Personal consumption was revised to a 1.0% rise for Q1, from the preliminary 1.1% gain, and versus the expected adjustment to a 1.2% increase. Q4 personal consumption was unrevised at a 4.0% rise.
On inflation, the GDP Price Index was revised to a 1.9% increase, versus expectations of an unrevised 2.0% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 2.3% gain, from the forecasted unrevised 2.5% increase.
At 2:00 p.m. ET, the Fed delivered its Beige Book report, an anecdotal 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 13th. The report indicated that the 12 Federal Reserve Districts in late April to early May reported a moderate pace of expansion in economic activity. As well, the report showed that even though companies continue to report shortages of skilled workers, “wage increases remained modest” for most of the Districts. In addition, while the report noted that manufacturing kicked into higher gear, with most Districts reporting increases in activity and a moderate rise in the prices for goods and services, it also indicated concerns over international trade policy.
The ADP Employment Change Report showed private sector payrolls rose by 178,000 jobs in May, below forecasts of a 190,000 gain, while April’s increase of 204,000 jobs was revised to a 163,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader May non-farm payroll report, expected to show headline and private sector jobs grew by 190,000. The unemployment rate is forecasted to remain at 3.9% and average hourly earnings are projected to rise 0.2% month-over-month.
The MBA Mortgage Application Index declined 2.9% last week, following the prior week’s 2.6% decrease. The downturn came as a 4.7% drop in the Refinance Index was met with a 1.9% fall for the Purchase Index. The average 30-year mortgage rate declined 2 basis points to 4.84%.
Treasuries were lower, as the yield on the 2-year note jumped 9 bps to 2.41%, the yield on the 10-year note rose 7 bps to 2.84%, and the 30-year bond rate gained 3 bps to 3.01%.
Treasury yields rebounded from a recent drop that took the 10-year note well below the 3.00% mark, while the U.S. dollar trimmed a rally as of late. Global trade and geopolitical uncertainties remain, while European political turmoil has flared-up to add an extra level of volatility. This May has generally been good for U.S. stocks, although the major indexes still remain within recent ranges. We believe the bull market will continue, but the increased volatility seen earlier this year is likely to reemerge.
Tomorrow’s economic docket will be busy, beginning with personal income and spending for April, forecasted to show income and spending increased 0.3% and 0.4% m/m, respectively, matching the same figures posted in March, followed by weekly initial jobless claims, expected to have decreased by 6,000 to a level of 228,000.
Europe mixed following politically-fueled drop, Asia lower
European equities finished mixed, coming off yesterday’s broad-based drop as political turmoil in Italy and Spain continued to flare-up. Spain’s Prime Minister Rajoy is set to face a no-confidence vote later this week, but Italy has garnered the lion’s share of attention as the attempt to solidify a populist coalition government has hit snags to open up the likelihood of a new election and add to the already heightened political uncertainty.
Italian stock markets rebounded from yesterday’s drop and the nation’s bond yields gave back a recent surge, as a successful bond auction of five-and-ten-year securities appeared to offer some relative relief. The euro and British pound gained ground on the U.S. dollar and bond yields in the major markets mostly rebounded.
In economic news, France’s Q1 GDP growth slightly missed forecasts, German retail sales easily topped expectations in April, and the nation’s consumer price inflation was a bit hotter than expected for this month, while eurozone economic sentiment came in slightly stronger than expected for May.
Stocks in Asia finished lower on the heels of the drops in the U.S. and Europe yesterday, as political concerns in Italy and Spain added to an already skittish global market backdrop. Chinese and U.S. trade uncertainty also lingered to add to the volatility, amid mixed signs of progress regarding relations between the two nations.
Japanese equities declined, with the yen gaining ground for a second day, overshadowing the nation’s stronger-than-expected April retail sales report.
Mainland Chinese securities and those traded in Hong Kong and South Korea fell sharply, while markets in Australia and India also saw losses. For a look at the choppiness in the global markets, check out our article, Late in the Cycle: Market Volatility in Context.