Monthly Archives: August 2018

Market Insights 8/30/2018

U.S. equities finished lower in choppy trading amid continued uneasiness toward emerging markets and the omnipresent trade uncertainty.

Treasury yields and gold declined, while the U.S. dollar and crude oil prices were higher.

The Markets….

The Dow Jones Industrial Average fell 138 points (0.5%) to 25,987

The S&P 500 Index declined 13 points (0.4%) to 2,901

The Nasdaq Composite lost 21 points (0.3%) to 8,088

In moderate volume, 615 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil jumped $1.74 to $70.25 per barrel and wholesale gasoline was up $0.01 at $2.01 per gallon

The Bloomberg gold spot price lost $6.14 to $1,200.46 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% higher at 94.75

Personal income and spending nudge higher, jobless claims rise slightly more than expected

Personal income rose 0.3% month-over-month in July, versus the Bloomberg forecast to match June’s unrevised 0.4% gain. Personal spending gained 0.4%, in line with estimates to match June’s unrevised increase. The July savings rate as a percentage of disposable income was 6.7%.

Weekly initial jobless claims rose by 3,000 to 213,000, versus estimates calling for 212,000, with the prior week’s figure unrevised at 210,000. The four-week moving average dipped by 1,500 to 212,250, while continuing claims fell by 20,000 to 1,708,000, south of estimates of 1,725,000.

Treasuries were higher, as the yields on the 2-year and 10-year notes decreased 2 basis points to 2.65% and 2.86%, respectively, while the 30-year bond rate dipped 1 bp to 3.01%.

The U.S. dollar is rebounding somewhat from a recent soft patch that was exacerbated by yesterday’s jump in the British pound on renewed hopes of a positive Brexit deal. However, the U.S. stock markets have rallied back to record high territory, courtesy of the solid earnings and economic foundation and expectations that the Fed will remain gradual in its rate hike campaign. The markets continue to grapple with global trade uncertainty, with NAFTA negotiations appearing to be progressing as Mexico and the U.S. reached a bilateral deal earlier this week and Canada now at the table, while a deal between China and the U.S. remains a major source of uncertainty.

Tomorrow’s economic calendar will round out with the Chicago Purchasing Managers Index, anticipated to decline to 63.0 for this month from the 65.5 posted in July, as well as the final University of Michigan Consumer Sentiment Index, with economists expecting the measure to be revised to 95.5 from the 11-month low of 95.3 preliminarily reported, but below July’s final read of 97.9.

Europe and Asia lower on trade and emerging market focus

European equities finished lower, even as the euro dropped versus the U.S. dollar. Festering trade uncertainty, despite some signs of progress regarding NAFTA negotiations, appeared to foster a slight retreat in the U.S. from record highs, as China and U.S. relations remains a key source of uncertainty.

Plus, the flare-up in Argentinian crisis concerns exacerbated uneasiness toward emerging markets that were already wobbly in the wake of the Turkish turmoil. The British pound moved lower, paring some of yesterday’s spike that came as the European Union’s (EU) chief Brexit negotiator said the EU was prepared to offer Britain an unprecedented partnership.

There are some reasons to think that the probability of a repeat of a past crisis has eased, while the changes we have seen should help reduce the vulnerability of the global system to shocks like those of the past. However, risk has not been entirely eliminated from the system. Bond yields in the region were mixed as data showed German consumer price inflation rose in line with expectations, though reads on Eurozone economic and business sentiment came in a bit shy of estimates.

Stocks in Asia finished mostly lower despite the extended rally yesterday in the U.S. to record highs on signs that a NAFTA deal could be in the offing, though a deal between the U.S. and China continued to be in question. Also, the markets may have treaded cautiously ahead of tomorrow’s key manufacturing and services sectors data.

Stocks in mainland China and Hong Kong fell sharply, and those traded in Australia finished flat, as a disappointing read on the nation’s building approvals and lingering political uncertainty was countered by a major merger announcement in the telecom sector.

Markets in both India and South Korea dipped, with the emerging markets remaining choppy amid continued turmoil in Turkey and Argentina.

Market Insights 8/29/2018

The U.S. equity markets continued higher, with the S&P 500 and Nasdaq steadily notching record highs, amid trade optimism with the U.S. and Canada beginning NAFTA talks on the heels of an agreement between the U.S. and Mexico reached earlier in the week.

Treasuries pared early losses to finish nearly flat following reports that showed an unexpected upward revision to Q2 GDP and more cooler-than-expected housing data, and the U.S. dollar added to a recent slide on a decisive jump in the British pound.

The Markets…

The Dow Jones Industrial Average advanced 61 points (0.2%) to 26,125

The S&P 500 Index increased 17 points (0.6%) to 2,914

The Nasdaq Composite jumped 80 points (1.0%) to 8,110

In moderate volume, 649 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.98 to $69.51 per barrel and wholesale gasoline was up $0.02 at $2.00 per gallon

The Bloomberg gold spot price gained $5.07 to $1,206.07 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.2% lower at 94.57

Q2 GDP growth revised higher

The second look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of growth of 4.2%, up slightly from the first release’s 4.1% gain, with the Bloomberg forecast calling for a revised 4.0% pace of growth. Q1 GDP grew by an unrevised 2.2% rate. Personal consumption was revised to a 3.8% rise for Q2, from the preliminary 4.0% gain, and versus the expected adjustment to a 3.9% increase. Q1 personal consumption was unrevised at a 0.5% rise.

On inflation, the GDP Price Index was unrevised at a 3.0% increase, matching expectations, while the core PCE Index, which excludes food and energy, was also unadjusted at a 2.0% gain, in line with estimates.

Pending home sales declined 0.7% month-over-month in July, versus projections of a 0.3% gain, and following the upwardly-revised 1.0% increase registered in June. Sales were 0.5% lower y/y, compared to the expected 2.5% drop. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales, which unexpectedly declined in July.

The MBA Mortgage Application Index decreased 1.7% last week, following the prior week’s 4.2% increase. The decline came as a 3.0% drop in the Refinance Index was met with a 0.9% downturn in the Purchase Index. The average 30-year mortgage rate fell 3 basis points to 4.78%.

Treasuries finished nearly unchanged, as the yield on the 2-year note ticked 1 bp higher to 2.68%, while the yields on the 10-year note and the 30-year bond were flat at 2.88% and 3.03%, respectively.

The U.S. dollar has reversed to the downside, continuing a recent soft patch as the British pound has jumped to the upside on renewed optimism regarding progress on the Brexit front. The markets are also eyeing NAFTA trade negotiations, looking to see if Canada will come to an agreement with the U.S., which earlier this week reached a bilateral agreement with Mexico. Also, the Fed appears to be holding steady with its gradual rate hike pace, while earnings and economic growth remain solid.

Tomorrow’s economic calendar will offer a look at July personal income and spending, with both measures expected to have increased 0.4% m/m, matching the prior month’s respective gains, as well as weekly initial jobless claims, forecasted to show a rise of 3,000 claims to a level of 213,000.

Europe and Asia mixed amid trade and Brexit focus

European equities finished mixed, with the global markets eyeing NAFTA trade talks between the U.S. and Canada, after the former reached a bilateral deal with Mexico earlier this week. The euro dipped versus the U.S. dollar and bond yields in the region finished mostly higher. The U.K. markets saw some pressure, exacerbated by a decisive jump in the British pound after the European Union’s (EU) chief Brexit negotiator said the EU was prepared to offer Britain an unprecedented partnership, different from that with any third country, per Bloomberg.

In economic news, German consumer confidence was little changed for September, while France’s consumer spending was a bit lighter than expected m/m for July and the nation reported a 1.7% y/y pace of Q2 GDP growth, matching expectations.

Stocks in Asia were mixed following another record high session in the U.S. yesterday, while the global markets are focused on NAFTA trade talks between Canada and the U.S. Japanese equities nudged higher, with the yen dipping slightly, while South Korean securities gained modest ground. Australian listings advanced as well, aided by some earnings results from the materials sector, and amid some choppy trading as the nation grapples with political uncertainty after announcing a new prime minister.

Stocks in China were mixed, as those traded on the mainland declined and those listed in Hong Kong saw modest gains, amid some caution ahead of Friday’s business activity reads and in the wake of measures taken as of late by the People’s Bank of China to stabilize the yuan.

Markets in India declined, with the nation’s benchmark index slipping from a fresh record high. Emerging markets have seen some increased volatility as of late, with the U.S. dollar earlier this month reaching highs not seen in over a year and the Turkish economic/currency crisis escalating.

Random Thoughts

WT Wealth Management sees a slightly higher 12-month target for the S&P 500 — raising our estimates to 3100 from 3000, implying a sub-6.5% price appreciation in the coming year.

Factors influencing this modest projection include an expected slowdown in U.S. real GDP growth to 2.7% (Q4 2019 over Q4 2018) from the 3.2% anticipated for this year, as comparisons become tougher.

Challenging comps are also causing S&P 500 EPS growth expectations to be halved in 2019 to 10% from more than 20% in 2018. Additional headwinds should include a y/y rise in real CPI to 2.5%, along with at least four more 25 basis-point hikes to the Fed funds rate.

Finally, with the likelihood that the Democrats will regain control of the House, we expect elevated volatility from the unproductive tug-of-war traditionally associated with a gridlocked congress.

We remain resolute on the direction of equity prices in the year ahead but think an adjustment to the trajectory is warranted.

U.S. second-quarter GDP growth raised to 4.2 percent

U.S. economic growth was a bit stronger than initially thought in the second quarter, notching its best performance in nearly four years and putting the economy on track to hit the Trump administration’s goal of 3 percent annual growth.

Gross domestic product increased at a 4.2 percent annualized rate, the Commerce Department said on Wednesday in its second estimate of GDP growth for the April-June quarter. That was slightly up from the 4.1 percent pace of expansion reported in July and was the fastest rate since the third quarter of 2014.

The slight upward revision to growth last quarter reflected more business spending on software than previously estimated and less imports of petroleum. Stronger software spending and a smaller import bill offset a downward revision to consumer spending.

Compared to the second quarter of 2017, the economy grew 2.9 percent instead of the previously reported 2.8 percent. Output expanded 3.2 percent in the first half of 2018, rather than the 3.1 percent estimated last month. The Trump administration has set a target of 3 percent annual growth, which economists say is unsustainable because of structural constraints.

Robust growth in the second quarter was driven by one-off factors such as a $1.5 trillion tax cut package, which provided a jolt to consumer spending after a lackluster first quarter, and a front-loading of soybean exports to China to beat retaliatory trade tariffs.

There are signs some of the momentum was lost early in the third quarter. The government reported on Tuesday that the goods trade deficit jumped 6.3 percent to $72.2 billion in July as a 6.7 percent plunge in food shipments weighed on exports.

While consumer spending has remained strong early in the third quarter, the housing market has weakened further with homebuilding rising less than expected in July and sales of new and previously owned homes declining.

The Trump administration’s “America First” policies, which have led to an escalation of a trade war between the United States and China as well as tit-for-tat tariffs with the European Union, Canada and Mexico, pose a risk to the economy.

Economists had expected second-quarter GDP growth would be revised down to a 4.0 percent pace. The economy grew at a 2.2 percent rate in the January-March period.

The U.S. dollar held near a session high against a basket of currencies after the data. U.S. stock index futures were largely flat while prices of longer-dated U.S. Treasuries were slightly higher.

INCOME GROWTH SLOWS

An alternative measure of economic growth, gross domestic income (GDI), increased at a rate of 1.8 percent in the second quarter, slowing from the first quarter’s brisk 3.9 percent pace.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 3.0 percent rate in the April-June period. That followed a 3.1 percent growth pace in the first quarter.

The income side of the growth ledger was restrained by after-tax corporate profits, which grew at an 2.4 percent rate last quarter, decelerating from the 8.2 percent pace logged in the first quarter.

Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was lowered to a 3.8 percent rate in the second quarter instead of the previously reported 4.0 percent pace. Consumer spending increased at a 0.5 percent pace in the first quarter.

Soybean exports were accelerated in the second quarter to beat Chinese tariffs that took effect in July. Overall exports rose at a 9.1 percent rate in the second quarter instead of the previously estimated 9.3 percent pace.

Imports declined at a 0.4 percent rate, with petroleum accounting for much of the drop. The decrease in imports was the biggest since the fourth quarter of 2015. Imports were previously reported to have grown at a 0.5 percent pace in the second quarter.

The drop in imports sharply narrowed the trade deficit. Trade added 1.17 percentage points to GDP growth in the second quarter rather than the previously reported 1.06 percentage points.

Market Insights 8/28/2018

U.S. stocks finished the regular trading session slightly higher, holding a mild advance amid subdued trade concerns following yesterday’s announced bilateral agreement between the U.S. and Mexico, with Canada joining negotiations today.

Consumer Confidence jumped to its highest level in nearly 18-years and the advance goods trade balance widened much more than forecasted.

Treasury yields were higher, while gold, the U.S. dollar and crude oil prices declined.

The Markets…

The Dow Jones Industrial Average advanced 14 points (0.1%) to 26,064

The S&P 500 Index increased 1 point to 2,898

The Nasdaq Composite gained 12 points (0.2%) to 8,030

In moderate volume, 617 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.34 lower to $68.56 per barrel and wholesale gasoline was down $0.01 at $2.08 per gallon

The Bloomberg gold spot price shed $10.13 to $1,201.25 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.1% lower at 94.72

Consumer Confidence unexpectedly rises to near 18-year high

The Consumer Confidence Index surprisingly improved to 133.4—the highest since October 2000—in August, from July’s upwardly-revised 127.9, and versus the Bloomberg estimate of 126.6. The Present Situation Index and the Expectations Index of business conditions for the next six months both increased solidly. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 30.0 from the 28.0 level posted in July.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 6.3% y/y gain in home prices in June, versus forecasts of a 6.4% rise. Month-over-month, home prices were up 0.1% on a seasonally adjusted basis for June, below expectations of a 0.2% gain.

Treasuries finished lower, with the yield on the 2-year note rising 2 basis points to 2.67%, the yield on the 10-year note gaining 3 bps to 2.88%, and the 30-year bond rate increasing 4 bps to 3.03%.

The U.S. dollar remained in retreat after hitting a 14-month high earlier this month, as the global markets grappled with solid domestic economic and earnings growth, and preserved Fed rate hike expectations, while trade optimism ticked higher as U.S. and Mexico reached a bilateral deal yesterday, and Canada took a seat at the negotiation table today in hopes to reach a revised NAFTA deal.

Tomorrow, the U.S. economic calendar will bring the second look (of three) at Q2 GDP, forecasted to show annualized quarter-over-quarter growth of 4.0% and personal consumption to have risen 3.9% q/q, after registering 4.1% and 4.0%, respectively in the first read. The docket will also deliver some housing data in the form of pending home sales, expected to have ticked 0.3% higher m/m for July, as well as the release of the weekly MBA Mortgage Applications report.

Europe mixed on Brexit and Italian uncertainty and trade optimism, Asia mostly higher

European equities finished mixed, amid lingering U.K. Brexit uncertainty and festering Italian budget concerns, though trade optimism carried over after yesterday’s agreement between Mexico and the U.S., which set the stage for talks with Canada and a potential new NAFTA deal. Autos and materials issues led to upside, while energy stocks saw some pressure as crude oil prices slipped.

The euro gained ground on the U.S. dollar, while the British pound dipped and bond yields in the region finished mostly higher. The U.K. markets moved higher after yesterday’s holiday break when the global markets nudged higher on the trade progress and measures taken by China to stabilize its currency.

With the markets choppy in the face of a host of uncertainties,there are some reasons to think that the probability of a repeat of a past crisis has eased, while the changes we have seen should help reduce the vulnerability of the global system to shocks like those of the past. However, risk has not been entirely eliminated from the system.

Stocks in Asia finished mostly higher, amid some trade optimism as the U.S. and Mexico reached a bilateral agreement, paving the way for talks with Canada and a potential new NAFTA agreement. Japanese equities ticked higher, with the yen slipping late in the day, while Australian securities gained ground, though the markets continued to grapple with the nation’s recent political shakeup.

Stocks trading in mainland China dipped while those trading in Hong Kong rose, in the wake of yesterday’s rally that came from the measures taken by the nation to try to stabilize the yuan. South Korean shares advanced and Indian equities finished higher, with emerging markets appearing to get a reprieve from the recent run in the U.S. dollar.

Emerging markets have seen some increased volatility as of late, with the U.S. dollar earlier this month reaching highs not seen in over a year and the Turkish economic/currency crisis escalating.

Market Insights 8/27/2018

U.S. stocks extended record high runs amid an announced agreement between the U.S. and Mexico to revise portions of the North American Free Trade Agreement and after the People’s Bank of China declared measures aimed at stabilizing the yuan.

Treasury yields rose and gold and crude oil prices also ticked higher, while the U.S. dollar declined.

The Markets…

The Dow Jones Industrial Average advanced 259 points (1.0%) to 26,050

The S&P 500 Index increased 22 points (0.8%) to 2,897

The Nasdaq Composite gained 72 points (0.9%) to 8,018

In moderate volume, 709 million shares were traded on the NYSE and 2.3 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.15 higher to $68.87 per barrel and wholesale gasoline was up $0.02 at $2.09 per gallon

The Bloomberg gold spot price added $5.35 to $1,210.71 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.4% lower at 94.77

Treasury yields higher to begin the week, trade optimism gets a boost

The Dallas Fed Manufacturing Activity Index declined to 30.9 in August from July’s unrevised 32.3 level and versus the Bloomberg forecast of 30.0, with a reading above zero denoting expansion.

Treasuries were lower, with the yield on the 2-year note rising 2 basis points to 2.64%, while the yields on the 10-year note and the 30-year bond increased 4 bps to 2.85% and 3.00%, respectively.

This week, with the earnings front yielding to the economic docket, the health of the all-important U.S. consumer will be in focus, courtesy of the releases of Consumer Confidence, the first revision of Q2 GDP, personal income and spending, and the revised University of Michigan Consumer Sentiment Index.

U.S. economic growth is strong; but it’s time to look at the signs we may be facing a “second derivative” change, or inflection point in growth. Many feel that complacency abounds—about growth, volatility, inflation and trade, while pointing out that when it comes to the relationship between economic fundamentals and stock market behavior, “better or worse matters more than good or bad.”

The U.S. dollar extended last week’s retreat from a 14-month high reached earlier this month, while the markets grappled with a continued solid economic and earnings foundation, intact expectations that the Fed will raise rates again next month but maintain its gradual tightening campaign, as well as festering trade uncertainty. China and the U.S. concluded low-level talks last week that yielded no new breakthroughs but President Donald Trump and Chinese President Xi appear set to meet in November.

In addition to the aforementioned read on Consumer Confidence, tomorrow’s U.S. economic calendar will yield the advance goods trade balance, expected to show the deficit widened to $69.0 billion in July from the $68.3 billion shortfall in June, and preliminary wholesale inventories, anticipated to have increased 0.2% m/m in July after ticking 0.1% higher the month prior.

Europe mostly higher to begin the week

European equities finished mostly higher, even as the euro and British pound gained ground on the U.S. dollar, with the markets finding support from China announcing further measures to help stabilize its currency. Moreover, global sentiment seems to be buoyed by Friday’s speech from Fed Chairman Jerome Powell at the Central Bank’s annual gathering in Jackson Hole, Wyoming, that held expectations regarding the Fed’s rate hike campaign in check.

Trade optimism also got a boost as Mexico and the U.S. announced a bilateral trade agreement, paving the way for the U.S. to begin negotiations with Canada. A stronger-than-expected read on German business sentiment despite the festering trade uncertainty added to the positive backdrop. Bond yields in the region finished higher. However, volume was lighter than usual, with U.K. markets closed for a holiday, while gains for Italian stocks were stunted amid continued political and fiscal policy uncertainty.

Germany’s DAX Index rose 1.2%, France’s CAC-40 Index gained 0.9%, Spain’s IBEX 35 Index advanced 0.7%, Switzerland’s Swiss Market Index increased 0.5%, and Italy’s FTSE MIB Index nudged 0.3% higher.

Stocks in Asia finished higher, led by Chinese markets after the People’s Bank of China announced measures to try to stabilize the yuan. Sentiment appeared to also be buoyed by Friday’s continued run to record highs for the U.S. markets after Fed Chairman Jerome Powell continued to suggest the Central Bank’s tightening campaign will remain gradual.

Japanese equities gained ground, even as the yen moved a bit higher, while stocks trading in mainland China and Hong Kong rallied. Australian securities nudged to the upside on the heels of last week’s flare-up in political uncertainty as the nation appointed a new Prime Minister.

Emerging markets have seen some increased volatility as of late, with the U.S. dollar earlier this month reaching highs not seen in over a year and the Turkish economic/currency crisis escalating.

Random Thoughts

The current bull market recently set the duration record and posted its first new all-time high since January 26.

As a result, the S&P 500’s performance in August has deviated from the norm, as it gained 2.1% in price through the 24th, vs. the average decline of nearly 1% typically endured in volatile and uncertain midterm election years.

Yet this positive performance has continued a trend-bucking pattern witnessed by investors since the start of the “Sell in May” period on April 29. This bodes favorably for the S&P 500’s performance in September, which has recorded more price declines than advances.

Yet regardless of what the market has done in the months leading up to the midterm election, the post-election period has traditionally delivered a pop in prices. Despite knowing full well that history is a guide and never gospel, investors have been encouraged by the S&P 500’s track record of gaining an average 7.5% in the 4th quarter of midterm years and seeing an increase in price nearly 90% of the time.

Even better, the “500” jumped an average of almost 17% in the 12-months after the election and did so 100% of the time. History aside, we see the S&P 500 rising modestly over the coming year. Factors influencing this outlook include:

The forecast of expanding global and domestic real GDP

A 10% increase in S&P 500 operating EPS in 2019, on top of the 22% growth projected for 2018

The modest uptick in core CPI to an average of 2.5% next year from 2.3% this year

The expectation that the Fed will maintain its accommodation monetary policy even as it gradually hikes rates in the months ahead.

Market Insights 8/24/2018

U.S. stocks finished the week in strong fashion as market participants seemingly had a dovish take on Fed Chairman Jerome Powell’s Jackson Hole speech and as business spending reportedly rose for the fourth-straight month.

Treasury yields ticked to the downside, gold and crude oil prices advanced and the U.S. dollar declined.

The Markets…

The Dow Jones Industrial Average advanced 133 points (0.5%) to 25,790

The S&P 500 Index increased 18 points (0.6%) to 2,875

The Nasdaq Composite gained 68 points (0.9%) to 7,946

In moderate volume, 611 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.89 higher to $68.72 per barrel and wholesale gasoline was up $0.01 at $2.07 per gallon

The Bloomberg gold spot price added $19.79 to $1,205.35 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly 0.6% lower at 95.13

Markets were higher for the week, as the DJIA increased 0.5%, the S&P 500 Index advanced 0.9%, and the Nasdaq Composite jumped 1.7%

Business spending rises for fourth-straight month, Fed Chair Powell keeps rate concerns calm

July preliminary durable goods orders fell 1.7% month-over-month, compared to the Bloomberg estimate of a 1.0% decline, and June’s 0.8% rise was revised to a 0.7% gain. Ex-transportation, orders were up 0.2% m/m, versus forecasts of a 0.5% rise and compared to June’s downwardly-revised 0.1% gain. However, orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, jumped 1.4%, well above projections of a 0.5% gain, and the prior month’s figure was revised higher to a 0.6% increase from the initially reported 0.2% rise.

The report showed orders for aircraft and parts, typically volatile, fell but demand for autos, computers and related products, and machinery gained solid ground. This was the first look at manufacturing orders since the U.S. and China imposed tariffs on each other last month, and the business spending component registered a fourth-straight monthly gain, likely preserving economic optimism and keeping trade concerns in check.

The data set the stage for today’s speech at the Fed gathering in Jackson Hole, Wyoming, from Chairman Jerome Powell, in which he noted the solid economic backdrop but no apparent risk of overheating, and if this continues gradual rate hikes remain appropriate. Powell also added that there is no clear sign of inflation accelerating above the Central Bank’s 2.0% target and “we will do whatever it takes” should inflation expectations drift materially up or down or should crisis again threaten.

The speech and today’s data appeared to foster a positive market takeaway but as the Fed has expressed little concern, but financial conditions have gotten tighter this year, which has implications for markets. Also, economic growth continues to be solid, but the rate of improvement may be leveling off, while trade/tariff concerns and the Fed inject more uncertainty for investors.

The U.S. dollar resumed a recent retreat from last week’s more than 1-year high and Treasuries overcame early losses, with the yield on the 2-year note little changed at 2.62%, while the yield on the 10-year note declined 1 basis point to 2.81%, and the 30-year bond rate dipped 2 bps to 2.96%.

Europe higher and Asia mixed on data, energy, and Fed Chair’s speech

European equities finished higher, despite some strength in the euro and British pound as the U.S. dollar resumed a recent soft patch, exacerbated by today’s speech from Fed Chairman Jerome Powell that seemed to foster a dovish takeaway. Also, the markets appeared to shrug off the conclusion of low-level trade talks between the U.S. and China that ended without a major breakthrough.

Stocks in Asia finished mixed, with the U.S. and China wrapping up low-level trade talks with no major agreements, while consumer price inflation data out of Japan came in a bit cooler than expected, while a political shakeup in Australia garnered attention.

Japanese equities gained ground, extending a recent rally as the yen continued to slide in the wake of the inflation data. Stocks trading in mainland China nudged higher, while those trading in Hong Kong declined. Australian securities pared gains, but ticked higher, in the wake of the ouster of Prime Minister Malcolm Turnbull, with Scott Morrison being named the new leader.

The markets were likely a bit cautious ahead of today’s speech from Fed Chairman Jerome Powell, especially the emerging markets as the gradual pace of rate hikes has underpinned the U.S. dollar this year, exacerbating volatility in the group along with the flared-up Turkish turmoil.

Stocks post modest weekly gain on energy, trade and earnings

Stocks finished higher on the week, returning to near record high territory. The energy sector led the way as crude oil prices rallied and snapped a string of weekly losses amid supply concerns as oil inventories fell decisively and worker strikes in the North Sea threatened production, along with the impact of renewed U.S. sanctions on Iran.

Consumer discretionary issues also contributed to the upside move as the retail sector, highlighted by Target Corporation, put the finishing touches on a strong earnings season. Trade concerns were held at bay, helping tech stocks rebound from last week’s decline and materials issues advance solidly. NAFTA negotiations seemed to show some signs of progress and a meeting between President Donald Trump and Chinese President Xi Jinping appeared to be set for November despite low-level talks this week failing to yield any new developments.

The economic front remained solid, even as concerns toward the housing sector continued to gain traction, as existing and new home sales both surprisingly declined in July. The yield curve continued to flatten and the U.S. dollar continued to retreat from last week’s 14-month high, with the minutes from the Fed’s July/August meeting and Fed Chairman Powell’s Jackson Hole speech offering an upbeat economic assessment but not signaling a change to the Central Bank’s gradual rate hike campaign.

International reports due out next week that deserve a mention include: China—Manufacturing and non-Manufacturing PMI Indexes. Japan—retail sales, Tokyo Consumer Price Index (CPI), and industrial production. Eurozone—economic confidence, consumer confidence, and CPI, along with German business sentiment and retail sales.

Market Insights 8/23/2018

U.S. stocks closed lower after giving up an earlier advance amid a host of developments.

Trade uncertainty continued as lower-level officials furthered U.S. and China talks while imposing previously announced tariffs on one another.

Treasury yields were mixed, the U.S. dollar traded higher and gold and crude oil prices ticked lower.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 77 points (0.3%) to 25,657

The S&P 500 Index decreased 5 points (0.2%) to 2,857

The Nasdaq Composite dipped 11 points (0.1%) to 7,878

In moderate volume, 621 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.03 lower to $67.83 per barrel and wholesale gasoline was unchanged at $2.06 per gallon

The Bloomberg gold spot price declined $10.15 to $1,185.65 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 95.62

Business activity slips, new home sales unexpectedly drop, jobless claims surprisingly dip

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output slowed more than expected, declining to 54.5 in August from July’s 55.3 figure, and compared to the Bloomberg estimate calling for a dip to 55.0. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector also decelerated more than expected, decreasing to 55.2 from July’s 56.0 figure, versus expectations to edge lower to 55.8. However, readings above 50 for both indexes denote expansion.

New home sales declined 1.7% month-over-month in July to an annual rate of 627,000 units versus forecasts calling for 645,000 units and the upwardly-revised 638,000 unit pace in June. The median home price rose 1.8% y/y to $328,700. New home inventory rose to 5.9 months of supply at the current sales pace from 5.7 months in June. Sales tumbled m/m in the Northeast and were down South, but rose in the Midwest and West. New home sales are based on contract signings instead of closings.

Weekly initial jobless claims declined by 2,000 to 210,000, versus estimates calling for 215,000, with the prior week’s figure unrevised at 212,000. The four-week moving average declined by 1,750 to 213,750, while continuing claims edged lower by 2,000 to 1,727,000, south of estimates of 1,730,000.

The August Kansas City Fed Manufacturing Activity Index unexpectedly fell to 14, from July’s 23 level, where it was forecasted to remain, but a reading above zero denotes expansion.

Treasuries were mixed, with the yield on the 2-year note rising 2 basis points (bps) to 2.61%, the yield on the 10-year note little changed at 2.82% and the 30-year bond rate dipping 1 bp to 2.97%.

The markets dedicated some focus to the start of the Fed’s gathering in Jackson Hole, Wyoming, which will culminate with tomorrow’s speech by Chairman Jerome Powell, and continued to grapple with Chinese and NAFTA trade uncertainties, amid the backdrop of solid earnings and economic growth. Trade concerns were exacerbated in late-morning action as President Donald Trump suggested more focus should be placed on China.

Tomorrow, the U.S. economic calendar will culminate with the preliminary July durable goods orders report, expected to show a 1.0% m/m decline for the headline rate, while ex-transportation and non-defense capital goods excluding aircraft are both anticipated to show a 0.5% m/m rise.

Europe reversed mostly lower amid trade, data and Fed gathering focus, Asia closed mixed

European equities gave up early gains and finished mostly to the downside, even as the euro and British pound saw some pressure as the U.S. dollar recovered from a recent soft patch. The markets appeared to grapple with disappointing economic data on both sides of the pond and festering trade uncertainty.

President Donald Trump offered another dose of tough rhetoric as talks between the U.S. and China continued while both nations imposed previously-announced tariffs on each other. Caution may have lingered as the commencement of the Fed’s gathering in Jackson Hole, Wyoming, is garnering attention and will culminate with tomorrow’s speech by Chairman Jerome Powell.

Markit’s Eurozone Composite PMI Index—a gauge of business activity in both the services and manufacturing sectors—improved slightly for this month, but the manufacturing component of the report surprisingly declined. French business confidence unexpectedly dipped for August. Bond yields in the region finished mixed.

The U.K. FTSE 100 Index and Germany’s DAX Index declined 0.2%, Spain’s IBEX 35 Index dipped 0.1%, and Italy’s FTSE MIB Index fell 0.4%, while France’s CAC-40 Index and Switzerland’s Swiss Market Index finished little changed.

Stocks in Asia finished mixed, as the markets focused on trade talks between China and the U.S. as both nations imposed previously announced tariffs on one another, while the Fed kicked off its central bank gathering in Jackson Hole, Wyoming.

Japanese equities advanced as the yen slipped a bit and South Korean shares also gained ground. Stocks trading in mainland China overcame early losses and finished higher, while listings trading in Hong Kong declined. Australian securities dipped following some mixed earnings reports and as political uncertainty in the nation flared-up. Indian equities finished higher.

Market Insights 8/22/2018

U.S. stocks finished the regular trading session mixed as trade concerns remained subdued, with the Dow declining and the S&P 500 nearly unchanged, fresh off the heels of a four-day rally for the major domestic indexes.

Existing home sales unexpectedly declined, weekly mortgage applications rose and the Fed released the minutes from its most recent monetary policy meeting.

Crude oil prices rallied and gold was little changed, while Treasury yields and the U.S. dollar dipped.

The Markets…

The Dow Jones Industrial Average (DJIA) declined 89 points (0.3%) to 25,734

The S&P 500 Index decreased 1 point to 2,862

The Nasdaq Composite advanced 30 points (0.4%) to 7,889

In moderately light volume, 588 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil jumped $2.02 to $67.86 per barrel and wholesale gasoline was $0.04 higher at $2.06 per gallon

The Bloomberg gold spot price gained $0.75 to $1,196.75 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 95.06

Existing home sales unexpectedly decline, mortgage apps rise, and Fed releases minutes

Existing-home sales in July declined 0.7% month-over-month to a 5.34 million annual rate, the fourth-straight monthly decrease, compared to the Bloomberg forecast of a 5.40 million pace, and versus June’s unrevised 5.38 million rate. Sales of single-family homes declined 0.2% m/m, and were 1.2% below year-ago levels, while purchases of multi-family structures dropped 4.8% from June, and were down 3.3% y/y.

The median existing-home price was up 4.5% y/y to $269,600, marking the 77th straight month of gains. Unsold inventory came in at a 4.3-months pace at the current sales rate, unchanged from a year ago. Inventory of homes for sale decreased 0.5% m/m. Sales declined in the South, the Northeast and Midwest, but rose in the West. Existing home sales account for the majority of the housing sales market.

The MBA Mortgage Application Index rose 4.2% last week, following the prior week’s 2.0% decrease. The rebound came as a 6.0% jump in the Refinance Index was met with a 2.9% gain in the Purchase Index. The average 30-year mortgage rate remained at 4.81%.

The Federal Reserve released the minutes from its monetary policy meeting that ended August 1st, where, as expected, it left the target range for the Fed funds rate unchanged at 1.75%-2.00%. The minutes revealed that the Committee had received information indicating that “labor market conditions continued to strengthen in recent months and that real gross domestic product (GDP) rose at a strong rate in the first half of the year.”

It was further noted in the minutes that induced increases in prices of goods affected by the tariff increases, would likely be a source of upward pressure on the inflation rate, although offsetting influences were also noted, and “moreover, wide-ranging tariff increases would also reduce the purchasing power of U.S. households.” Also, the Committee “discussed the economic forces and risks they saw as providing the rationale for gradual increases in the federal funds rate as well as scenarios that might cause them to depart from this expected path.”

Treasuries ticked higher, with the yield on the 2-year note flat at 2.59%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 2.82% and 2.98%, respectively.

Tomorrow, the U.S. economic calendar will expand the current view on the domestic housing market with the release of July new home sales, forecasted to have increased 2.2% m/m to an annual rate of 645,000 units. Additional reports that will likely garner attention tomorrow include Markit’s preliminary business activity reports for August, and weekly initial jobless claims, expected to have ticked higher by 3,000 to a level of 215,000. Rounding out the day will be the August Kansas City Fed Manufacturing Activity Index, with estimates calling for no change from July’s read of 23, with a level above zero denoting expansion.

Europe and Asia mixed on earnings and continued cooling of trade concerns

European equities finished mixed, with global trade concerns continuing to ease as China and the U.S. are set to hold talks today, while reports suggested some positive developments regarding NAFTA negotiations. Also, the markets digested the upbeat earnings results from the U.S. retail sector. However, U.S. political turmoil resurfaced ahead of today’s release of the minutes from this month’s monetary policy meeting in the U.S., while the Fed is slated to hold its central bank gathering in Jackson Hole, Wyoming. The euro and British pound gained ground on the U.S. dollar, which may have kept conviction in check. Bond yields in the region finished mostly higher.

Stocks in Asia finished mixed, on the heels of the continued rally in the U.S. that has taken the markets back to near record high territory.

Trade optimism remained as talks between the U.S. and China are expected to kick off today and reports suggested some progress in NAFTA negotiations. However, the markets appeared a bit cautious ahead of today’s release of the Fed’s August meeting minutes and as the Central Bank is set to hold its gathering later this week in Jackson Hole, Wyoming, while U.S. political turmoil increased.

Japanese equities rose on the heels of yesterday’s decline for the yen, while South Korean shares ticked higher. Stocks trading in mainland China declined, while those trading in Hong Kong finished to the upside, following the past two-sessions of gains on the cooled trade concerns. Australian securities traded lower, bogged down by some weakness in the financial sector. Markets in India were closed for a holiday.