Market Insights 10/10/2018

The U.S. equity markets saw solid declines amid the continued rise in global bond yields, while trade concerns continue to ratchet higher with worries of how it could affect results and guidance with the unofficial start to Q3 earnings season around the corner.

Lingering political uncertainties across the pond added another layer to the anxiety.

Treasuries were mixed and the U.S. dollar lost some ground, even as wholesale price inflation rebounded, while crude oil prices pared a recent rally that has also contributed to the global uneasiness, and gold was modestly higher.

The Markets…

The Dow Jones Industrial Average tumbled 832 points (3.2%) to 25,599,

The S&P 500 Index fell 95 points (3.3%) to 2,786, and

The Nasdaq Composite plunged 316 points (4.1%) to 7,422

In heavy volume, 1.1 billion shares were traded on the NYSE and 3.0 billion shares changed hands on the Nasdaq

WTI crude oil lost $1.79 to $73.17 per barrel and wholesale gasoline shed $0.06 to $2.02 per gallon

The Bloomberg gold spot price rose $3.40 to $1,193.17 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% lower at 95.54

Wholesale price inflation rises, mortgage applications dip

The Producer Price Index (PPI) showed prices at the wholesale level in September rose 0.2% month-over-month matching the Bloomberg forecast, and compared to August’s unrevised 0.1% dip. The core rate, which excludes food and energy, was up 0.2% m/m, in line with expectations, and versus August’s unrevised 0.1% decline. Y/Y, the headline rate was 2.6% higher, versus projections of a 2.7% gain and August’s unrevised 2.8% rise. The core PPI rose 2.5% y/y last month, matching estimates, and compared to August’s unrevised 2.3% increase.

The MBA Mortgage Application Index decreased 1.7%, following the prior week’s flat reading. The decline came as a 2.6% drop in the Refinance Index was met with a 1.1% fall in the Purchase Index. The average 30-year mortgage rate jumped 9 basis points (bps) to 5.05%.

Wholesale inventories were revised higher to a 1.0% m/m rise for August from the preliminary estimate of a 0.8% gain, where it was expected to remain. July’s figure was unrevised at a 0.6% increase. Sales were up 0.8% m/m, compared to July’s upwardly-revised 0.2% gain, and versus estimates of a 0.5% rise. The inventory-to-sales ratio—the amount of time it would take to deplete inventories at the current sales pace—remained at July’s 1.26 months rate.

Treasuries finished mixed, as the yield on the 2-year note was 2 bps lower at 2.87%, while the yield on the 10-year note rose 1 bp to 3.21% and the 30-year bond rate gained 2 bps to 3.39%. The global markets have been unnerved by the recent rise in bond yields, led by a rally in Treasury rates to multi-year highs and some momentum gained for the U.S. dollar.

The moves have come amid expectations that the Fed will continue to tighten monetary policy, lingering trade uncertainty, higher oil prices, festering political uneasiness in Europe, and the ongoing skittishness toward emerging markets.

The second installment of September inflation data will come tomorrow in the form of the Consumer Price Index (CPI), forecasted to match August’s reading of a 0.2% m/m increase, while excluding food and energy, prices are also projected to have risen 0.2% m/m following the prior month’s 0.1% increase. Rounding out the economic calendar will be weekly initial jobless claims, expected to remain unchanged from last week’s 207,000 figure.

Europe lower as concerns continue, Asia mostly higher though caution remained

European equities finished lower as losses in the U.S. markets intensified with bond yields continuing to gain ground to exacerbate the skittishness toward the impact of higher borrowing costs that has roiled the markets as of late. Also, the euro and British pound gained ground on the U.S. dollar.

Luxury goods makers saw some pressure, with shares of LVMH Moet Hennessy Louis Vuitton SE dropping after the French company’s sales figures garnered some scrutiny by analysts and the company also confirmed that China is enforcing customs rules more strictly amid the heightened trade tensions, per Bloomberg.

Italy’s budget fight with the European Union and festering U.K. Brexit uncertainty also continued to hamstring conviction. In economic news, U.K. and French industrial and manufacturing production results came in mixed, the U.K. trade deficit widened more than expected, and U.K. GDP growth for August came in flat.

Stocks in Asia finished mostly to the upside, but caution continued in the face of the recent rise in global bond yields, lingering European political uncertainties, and festering skittishness toward emerging markets.

Japanese equities nudged higher, with the yen holding onto yesterday’s advance and as the nation reported an unexpected jump in core machine orders—a gauge of capital investment—for August.

Chinese securities and those traded in Hong Kong also ticked higher, along with Australian stocks, while markets in India rallied following a recent pullback that has come from the aforementioned rise in bond yields and emerging market concerns, exacerbated by the jump in oil prices and the nation’s lingering banking system uneasiness.

Stocks in South Korea fell sharply in a return to action following yesterday’s holiday break when stocks in the region saw some pressure.