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.