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.