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.