Market Insights 1/7/2019

U.S. equities finished higher to begin the week, as trade talks between Chinese and U.S. officials were in focus, and as last week’s strong labor report and dovish comments from Fed Chairman Jerome Powell continued to aid sentiment.

Treasuries were lower, despite a larger-than-expected decline in domestic services sector activity, and as the U.S. government shutdown entered its third week.

The U.S. dollar was lower, gold was higher and crude oil prices added to a recent rally.

The Markets….

The Dow Jones Industrial Average rose 98 points (0.4%) to 23,531

The S&P 500 Index added 18 points (0.7%) to 2,550

The Nasdaq Composite increased 85 points (1.3%) to 6,823

In heavy volume, 1.0 billion shares were traded on the NYSE and 2.5 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.56 to $48.52 per barrel and wholesale gasoline was $0.01 lower at $1.34 per gallon

The Bloomberg gold spot price gained $2.23 to $1,288.28 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—declined 0.5% to 95.71

Non-manufacturing data lower, below expectations

The December Institute for Supply Management (ISM) non-Manufacturing Index decreased to 57.6 from November’s 60.7 level, and versus the Bloomberg forecast of a drop to 58.5. A reading above 50 denotes expansion. New orders remained at levels north of 60, while business activity expansion moved slightly south of 60, and employment growth dipped to 56.3. Prices declined to 57.6. Non-manufacturing activity accounts for a large majority of U.S. economic output and the ISM said, overall the respondents noted that there is still is concern about tariffs, despite the hold on increases by the U.S. and China.

Treasuries were lower, as the yield on the 2-year note increased 4 basis points (bps) to 2.54%, the yield on the 10-year note gained 3 bps to 2.69%, and the 30-year bond rate ticked 1 bp higher to 2.99%.

Tomorrow’s economic calendar will hold the National Federation Independent Business (NFIB) Small Business Optimism Index, anticipated to decline to a level of 103.0 during December from November’s 104.8 level, as well as the Job Openings and Labor Turnover Survey (JOLTS), with the measure of unmet demand for labor expected to increase during November to indicate 7.10 million jobs were available to be filled from October’s 7.08 million figure.

Europe mixed, Asia higher as trade talks between the U.S. and China begin

European equities finished mixed with optimism after the start of vice-ministerial level trade talks with the U.S. and China in Beijing appearing to be offset by oil price concerns, in tandem with global economic growth worries.

European markets continued to digest last week’s comments from Fed Chair Jerome Powell that the Federal Reserve will be patient and flexible with rate hikes, tweaking its debt-laden balance sheet and watching incoming data. Brexit anxiety remained within the periphery as the British Parliament prepares to debate Prime Minister Theresa May’s Brexit withdrawal agreement, with reports of a vote on January 15.

The euro and British pound were higher versus the U.S. dollar, while bond yields in the region were mostly lower.

Stocks in Asia finished higher to kick off the week, with the start of a new round of talks between the U.S. and China buoying sentiment on the heels of the People’s Bank of China cutting its reserve ratio, positive U.S. jobs and manufacturing reports, as well as dovish comments from Fed Chair Jerome Powell. Stocks in Japan surged on the U.S. data and Fed Chair statements, despite p the country’s services data dipping slightly.

Mainland Chinese equities and those traded in Hong Kong advanced, as Washington and Beijing began vice-ministerial level trade talks that will carry over through Tuesday, with reports that both parties have expressed a willingness to work together.

The markets are awaiting the ramp up of global earnings season, with concerns about a slowing global economy adding to the volatility in stocks as of late. Meanwhile, markets in Australia, South Korea and India all traded higher.