Monthly Archives: July 2019

Market Insights 7/31/2019

U.S. equities finished lower after the Federal Open Market Committee cut the target for its fed funds rate by a quarter-point, as was widely-expected, but comments from Chairman Powell about not having a pre-set path of future cuts hampered sentiment.

Treasury yields turned mixed and the U.S. dollar rose following the Fed’s announcement. Gold fell and crude oil prices were up following a bullish oil inventory report.

The Markets…

The Dow Jones Industrial Average tumbled 334 points (1.2%) to 26,864

The S&P 500 Index declined 33 points (1.1%) to 2,980

The Nasdaq Composite lost 98 points (1.2%) to 8,175

In heavy volume, 1.2 billion shares were traded on the NYSE and 2.6 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.53 to $58.58 per barrel and wholesale gasoline was up $0.01 at $1.86 per gallon

The Bloomberg gold spot price fell $17.39 to $1,413.49 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.6% higher at 98.61

Fed cuts as widely expected, private sector job growth slightly above estimates

The Federal Open Market Committee (FOMC) concluded its two-day monetary policy meeting, announcing a 25 basis point cut to its target for the fed funds rate to 2.00%-2.25%, which was widely expected. While the Committee reiterated that the current state of economic growth was “moderate” and that the labor market was “strong,” it cited “implications of global developments for the economic outlook as well as muted inflation pressures” for the change in stance.

The Fed also appeared to leave the door open for future cuts, stating that it will “act as appropriate to sustain the expansion” and it will continue to assess incoming data. Two Members dissented, Esther L. George and Eric Rosengren, who believed rates should remain unchanged. The move marks the first cut in the target for the fed funds rate since Dec. 2008. As well, the Committee chose to end its campaign to unwind its balance sheet two months early. No updated economic projections were released with the decision.

In his scheduled press conference after the statement, Chairman Jerome Powell reiterated that the outlook for the U.S. economy remains favorable, and that today’s action to lower the target for its fed funds rate was to support that outlook and that were no pre-set plan for a series of cuts. Additionally, Powell indicated that the Committee expects job growth to be slower than last year, trade tensions appear to be having a significant impact on the economy, and that a return to its target of 2% inflation may be delayed.

The ADP Employment Change Report showed private sector payrolls rose by 156,000 jobs in July, above the Bloomberg forecast of a 150,000 gain, while June’s increase of 102,000 jobs was revised to a 112,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader July non-farm payroll report, expected to show jobs grew by 165,000 and private sector payrolls also rose by 165,000. The unemployment rate is forecasted to remain at 3.7% and average hourly earnings are projected to rise 0.2% month-over-month, and be up 3.1% year-over-year.

The Chicago PMI Index fell to 44.4 in July from June’s 49.7 level and compared to the expected increase to 51.0. This was the second-straight month in contraction territory (a reading below 50) and the lowest since December 2015 as new orders, employment and production all fell and signaled contraction.

Treasuries were mixed, as the yield on the 2-year note rose 3 bps to 1.87%, while the yield on the 10-year note fell 5 bps to 2.02% and the 30-year bond rate was down 6 bps to 2.53%.

Tomorrow’s economic docket will hold manufacturing data in the form of the July ISM Manufacturing Index, forecasted to rise to 52.0 from June’s level of 51.7, as well as the July Markit Manufacturing PMI Index, with economists projecting it to match June’s level of 50. Weekly initial jobless claims will also be reported, expected to have increased by 9,000 to 215,000, and construction spending will close out the day, anticipated to have increased 0.3% during June.

Europe mixed, Asia lower ahead of Fed decision

European equities were mixed, with the markets digesting some earnings and economic data in the region, while appearing cautious ahead of today’s monetary policy decision out of the U.S. today, which is highly expected to deliver a rate cut. Also, the markets reacted to some softer-than-expected Chinese business activity data and U.S.-China trade talks that concluded with no major breakthrough. German retail sales rose much more than expected m/m in June and Eurozone Q2 GDP growth was slightly higher y/y. The euro dipped versus the U.S. dollar and the British pound pared recent pressure that has come amid heightened Brexit uncertainty in the wake of Boris Johnson being named new Prime Minister. Bond yields in the region were mostly lower.

Stocks in Asia finished mostly lower with the global markets treading with some caution ahead of today’s monetary policy meeting out of the U.S., while U.S.-China trade talks wrapped up with no major new progress but a pledge to resume negotiations in September. Also, the markets digested some Chinese manufacturing and non-manufacturing reports for July, which showed manufacturing output contracted for a third-straight month and services sector growth continued but at a slower pace than anticipated.

Stocks in mainland China and Hong Kong fell after having to close early due to a tropical storm threat. Meanwhile, Japanese equities declined, with the yen little changed and South Korean securities traded lower, while markets in Australia also finished lower, but shares in India rose modestly.

Fed cuts rates for first time since 2008

The Federal Reserve cut interest rates by 25 basis points, to the 2.0-2.25% range, in its policy-setting meeting on July 31, marking the first time the central bank has reduced the benchmark interest rate since it battled the financial crisis in 2008. The Fed also decided to end its process of shrinking its balance sheet, a process known as quantitative tightening, two months ahead of schedule.

The cut comes as the Fed continues to worry about a possible slowdown in the U.S. economy. The Federal Open Market Committee statement released Wednesday recycled language from its June meeting describing business fixed investment as “soft” and said inflationary pressures “remain low.”

On the labor market, the Fed said job gains are still “solid.” The June jobs report received since the last Fed meeting showed an estimate-beating 224,000 new jobs with unemployment moving up only slightly to 3.7%. The Fed also said the consumer remains a bright spot, with household spending still growing relative to earlier this year.

The Fed reiterated that it will “act as appropriate to sustain the expansion,” adding new language in saying that this priority will be in focus as “the committee contemplates the future path of the target range for the federal funds rate.”

The Fed’s actions Wednesday follow through on market expectations for a 25 basis point cut. Heading into the meeting, federal funds futures markets were pricing in a 79.1% chance of a 25 basis point move, with a 20.1% chance that the Fed would cut by 50 basis points.

On the balance sheet, the Fed had originally planned to stop the roll-off process at the end of September, but cut the process short by two months. The Fed will now hold the asset levels steady beginning August 1, with payments from non-Treasury holdings reinvested in Treasuries. In doing so, the Fed hopes to reduce its holdings of debt and mortgage-backed securities in an effort to neutralize its balance sheet with more plain vanilla assets.

Market Insights 7/30/2019

U.S. equities were modestly lower with investors waiting for the Fed’s monetary policy decision tomorrow, while also digesting a slew of earnings reports and economic data.

On the economic front, personal income and spending rose and Consumer Confidence jumped, while pending home sales were well above estimates.

Treasury yields finished nearly unchanged, as did the U.S. dollar, while crude oil prices jumped and gold also gained ground.

The Markets…

The Dow Jones Industrial Average fell 22 points (0.1%) to 27,199

The S&P 500 Index declined 8 points (0.3%) to 3,013

The Nasdaq Composite lost 20 points (0.2%) to 8,274

In moderate volume, 773 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil rose $1.18 to $58.05 per barrel and wholesale gasoline was up $0.03 at $1.85 per gallon

The Bloomberg gold spot price gained $4.77 to $1,431.57 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 98.06

Personal income and spending rise, Consumer Confidence jumps, ahead of Fed decision

Personal income rose 0.4% month-over-month in June, matching the Bloomberg forecast and versus May’s downward-revised 0.4% rise. Personal spending increased 0.3%, in line with estimates, and following May’s upwardly-revised 0.5% rise. The June savings rate as a percentage of disposable income was 8.1%.

The Consumer Confidence Index rose to 135.7 in July, from June’s upwardly-revised 124.3 level, above estimates of 125.0. The index posted the highest level since November 2018, as the Present Situation Index and the Expectations Index of business conditions for the next six months both improved m/m. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 33.4 from the 28.2 level posted in June.

Pending home sales gained 2.8% m/m in June, versus projections of a 0.5% increase, and following the unrevised 1.1% gain registered in May. Sales were 0.6% lower y/y, compared to the expected 0.7% rise. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.

The conclusion of the Federal Open Market Committee’s (FOMC) two-day monetary policy meeting, will likely garner the lion’s share of attention tomorrow, as it is highly anticipated that the central bank will deliver a rate cut. However, uncertainty continues to linger regarding the size of any reduction. The decision will not be accompanied by updated economic projections but the press conference following the announcement from Chairman Jerome Powell will likely be closely scrutinized for clues to whether further reductions may be in offing for this year.

Europe down on earnings and Brexit, Asia higher as BoJ holds steady

European equities finished with solid losses, with the markets digesting a mixed bag of earnings results in the region. Sentiment in the region remained hampered by exacerbated U.K. Brexit uncertainty and the British pound saw some pressure versus the U.S. dollar.

The euro was little changed versus the greenback and bond yields in the region were mostly lower after economic reports showed eurozone economic confidence slipped by a smaller amount than expected in July, German consumer price inflation was a bit hotter than expected this month and French consumer spending unexpectedly dipped in June. The global markets also eyed tomorrow’s monetary policy decision in the U.S., with a rate cut highly-expected, and resumed trade talks today between the U.S. and China.

Stocks in Asia finished mostly to the upside, with the global markets focusing on resumed trade talks between the U.S. and China today, while digesting earnings season and awaiting tomorrow’s monetary policy decision out of the U.S. Meanwhile, the Bank of Japan held its monetary policy steady, but noted that it will not hesitate to take additional easing measures. The decision came as Japan’s industrial production fell more than expected in June. Stocks fell in Japan gained ground, even as the yen firmed a bit late in the session, while South Korean securities advanced.

Chinese equities and those traded in Hong Kong moved to the upside, and shares in Australia were higher, but markets in India fell, extending recent weakness amid some apparent caution ahead of tomorrow’s Fed decision.

Market Insights 7/29/2019

With a busy week that includes the mid-week monetary policy decision from the Federal Reserve, as well as a plethora of earnings and economic data, investors seemed content to fence-sit to see where the chips will fall.

Treasury yields were lower and the U.S. dollar was little changed following a read on regional manufacturing that continued to depict a contraction in activity, while crude oil prices were mixed and gold gained ground.

The Markets….

The Dow Jones Industrial Average rose 29 points (0.1%) to 27,221

The S&P 500 Index decreased 5 points (0.2%) to 3,021

The Nasdaq Composite fell 37 points (0.4%) to 8,293

In moderate volume, 743 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.67 to $56.87 per barrel and wholesale gasoline was unchanged at $1.82 per gallon

The Bloomberg gold spot price added $7.89 to $1,426.79 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat at 98.01

Regional manufacturing remains in contraction to kick off heavy economic week

The July Dallas Fed Manufacturing Index improved but remained at a level depicting contraction (a reading below zero), rising to -6.3 from -12.1 in June, and versus the Bloomberg expectation of an increase to -5.0. The index came off the lowest level in three years as growth in new orders, volumes and employment all accelerated but company outlooks, finished goods and unfilled orders contracted.

Treasuries were higher, as the yields on the 2-year and 10-year notes were down 2 basis points to 1.85% and 2.06%, respectively, while the 30-year bond rate was flat at 2.59%.

U.S. stock indexes reached new highs but we are concerned that the potential good news is already mostly reflected, while the potential bad news is being largely ignored. Earnings season started with reduced expectations, leading to the possibility of upside surprises.

The Fed seems likely to cut rates, but the impact may be diminished, while recent economic data shows reason for concern. Earnings, especially for financial companies, could differ between the United States and international regions due to diverging global central bank actions.

Europe mixed as heavy week shoves off

European equities finished mixed, with M&A activity heating up to kick off a busy week for the global markets, headlined by resumed U.S.-China trade talks, monetary policy decisions out of the U.S., U.K. and Japan, as well as Chinese manufacturing data and the U.S. employment report.

The euro was little changed versus the U.S. dollar but the British pound fell on exacerbated Brexit concerns on the heels of Boris Johnson’s recent victory to become the new U.K. Prime Minister. Bond yields in the region were mostly lower.

Stocks in Asia finished mostly to the downside with the markets appearing a bit cautious ahead of a busy week that is expected to see the U.S. and China resume trade talks, a Fed rate cut out of the U.S., and monetary policy decisions out of Japan and the U.K. Also, earnings season is set to hit its apex and economic data will pour in, headlined by manufacturing and non-manufacturing data out of China and the U.S. July non-farm payroll report.

Stocks in Japan declined, with the yen paring an advance and even as the nation’s retail sales in June rose more than expected. Mainland Chinese equities dipped and those traded in Hong Kong fell sharply amid ongoing social unrest in the region as protests continued over the weekend. Indian securities traded lower, and South Korean listings dropped. However, markets in Australia advanced amid a broad-based gain across the major sectors ahead of the nation’s ramp-up of earnings season.

Random Thoughts

On Friday, July 26, the BEA (Bureau of Economic Analysis) issued its preliminary reading of Q2 2019 GDP growth.

As a result, the current economic expansion has seen a 49% rise in nominal GDP over the past 10 years and was accompanied by a 22% increase in inflation, as measured by headline CPI.

Despite its age, this expansion’s cumulative growth of nominal GDP was equal to the average for all 11 prior expansions since WWII, even though these 11 saw an average expansion duration of only 58 months.

The second-longest expansion, which started in 1991, posted nominal GDP growth of 76%, while the greatest growth was 91%, recorded by the 106-month expansion that started in February 1961.

The weakest was during the 12-month expansion that began in July 1980, increasing only 14%. In addition, the current expansion’s 22% rise in headline CPI compares favorably with the 21% increase during the average expansion since WWII. Yet it pales in comparison with the post-Vietnam war expansion starting in March 1975 that saw a 52% surge in CPI. The expansion of April 1958 recorded the lowest rise in CPI at 2%.

Even though global economic activity is slowing in 2019 relative to 2018, we see Real GDP growth improving slightly in 2020. As a result, this expansion may not run out of steam anytime soon. Besides, with the Fed and ECB expected to begin a new easing cycle once again, along with a possible restart of quantitative easing, it appears as if these central bankers will indeed fulfill their promise to do “whatever it takes.”

Market Insights 7/26/2019

U.S. equities finished higher, with the S&P 500 and Nasdaq notching more record highs along the way, as upbeat sentiment following a stronger-than-expected Q2 GDP report was kept in check with uncertainty surrounding how the Fed may comprehend the data with its highly-anticipated policy meeting looming next week.

News on the equity front surrounded earnings, as Dow member McDonald’s, along with Google parent Alphabet and Starbucks, posted positive results, while Amazon offered a mixed report.

Treasury yields were mixed, as were crude oil prices, while the U.S. dollar and gold were higher.

The Markets…

The Dow Jones Industrial Average rose 52 points (0.2%) to 27,192

The S&P 500 Index increased 22 points (0.7%) to 3,026

The Nasdaq Composite jumped 92 points (1.1%) to 8,330

In moderate volume, 736 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.18 higher to $56.20 per barrel and wholesale gasoline was down $0.01 at $1.82 per gallon

The Bloomberg gold spot price added $2.29 to $1,416.87 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—gained 0.2% to 98.00

Markets were higher for the week, as the DJIA increased 0.1%, the S&P 500 Index rose 1.7% and the Nasdaq Composite advanced 2.3%

First look at Q2 GDP tops forecasts

The first look (of three) at Q2 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter annualized rate of expansion of 2.1%, after the unrevised 3.1% expansion in Q1, and above the 1.8% growth forecasted by Bloomberg. Personal consumption gained 4.3%, north of forecasts of a 4.0% rise, and following the upwardly-adjusted 1.1% increase recorded in Q1. Along with the strong personal consumption, government spending also was a notable positive contribution in Q2, partially offset by negative contributions from private inventory investment, exports, nonresidential fixed investment and residential fixed investment.

On inflation, the GDP Price Index came in at a 2.4% rise, above expectations of a 2.0% gain and the upwardly-revised 1.1% increase seen in Q1, while the core PCE Index, which excludes food and energy, moved 1.8% higher, south of expectations of a 2.0% increase, and following the downward-adjusted 1.1% advance in Q1.

Treasuries were mixed, as the yield on the 2-year note ticked 1 basis point higher to 1.87%, while the yield on the 10-year note was flat at 2.07%, and the 30-year bond rate lost 1 bp to 2.59%.

Europe mixed on earnings, U.S. data and following yesterday’s ECB decision

European equities finished mixed, with the markets digesting the stronger-than-expected Q2 GDP report in the U.S., which comes ahead of next week’s monetary policy decision from the Fed with expectations running high that a rate cut will be announced. The decision will follow yesterday’s unchanged monetary policy decision from the European Central Bank and dovish commentary from President Mario Draghi. The euro and British pound came under some pressure versus the U.S. dollar, with earnings reports in the region mixed and a read on French consumer confidence ticking higher for this month. Bond yields in the region were mixed.

Stocks in Asia finished mixed on the heels of yesterday’s flood of mixed global economic and earnings data, which came ahead of next week’s monetary policy decisions in the U.S. and Japan, with the former highly-expected to announce a rate cut. The markets also digested yesterday’s unchanged monetary policy decision and dovish commentary from the European Central Bank.

Japanese equities declined even as the yen fell yesterday and with consumer price inflation in Tokyo for this month coming in mixed. Stocks in mainland China rose modestly, but those traded in Hong Kong declined, as exports in the latter fell much more than expected for June. Meanwhile, markets in Australia and South Korea both traded lower, but shares in India ticked higher, snapping a string of losses. stocks.

Stocks mostly higher as earnings and economic data pour in

U.S. stocks finished the week positively, with the S&P 500 and Nasdaq moving back into record high territory, as Q2 earnings season kicked into high gear to join some relatively upbeat economic data. Dow member Coca-Cola Company, along with United Parcel Service Inc. and Texas Instruments Incorporated, were some standout winners on their results and preceded Friday’s cheered reports from Google parent Alphabet, Starbucks and McDonald’s.

However, the Dow lagged behind, bogged down by results from Boeing Company, Caterpillar Inc.and Dow Inc., while the auto sector was hampered by disappointing reports from Ford Motor Company and Tesla Inc. With earnings season almost halfway completed for the S&P 500, about 59% have topped revenue expectations and nearly 78% have bested earnings estimates, per data compiled by Bloomberg. Although not as robust, the economic front did contribute somewhat to the stock market advance, with Friday’s Q2 GDP report being preceded by a stronger-than-expected June durable goods orders report that showed business investment trounced expectations.

The U.S. dollar moved higher and Treasury yields were relatively quiet, though ticked up on the short-end of the curve, with the markets digesting ECB President Mario Draghi’s suggestion that the central bank stands ready to adjust “all” instruments amid the backdrop of slowing economic growth and subdued inflation. Crude oil prices moved higher following a larger-than-expected drop in oil inventories and amid lingering elevated geopolitical concerns.

Trump decides against currency intervention after meeting about ways to weaken dollar

President Donald Trump has decided not to intervene in U.S. currency markets after convening Cabinet officials and top-level economic advisors to discuss the issue, according to Larry Kudlow and two other people familiar with the meeting.

Two senior administration officials, who declined to be named, said the primary discussion at the meeting of trade principals was on ways to weaken the dollar.

President Donald Trump has decided not to intervene in U.S. currency markets after convening Cabinet officials and top level economic advisors Tuesday to discuss the issue, according to Larry Kudlow and two other people familiar with the meeting.

Among the ideas debated, the officials said: Implementing capital controls — an idea viewed as extreme by most participants in the meeting – or having Mnuchin and Kudlow actively “jawbone,” or talk down, the dollar on television.

The anti-interventionists in the room were “armed to the teeth,” according to a source.

People briefed on the meeting said it broke without a decision to pursue a concerted new currency policy. They acknowledged, however, that the president hopes media appearances continue to help his cause.

Mnuchin, who opposes market intervention, and Kudlow, who has touted the value of a strong dollar throughout the course of his career, appeared on CNBC and acknowledged the issue. Kudlow confirmed White House principals opted not to intervene during a recent meeting.

Mnuchin told CNBC on Wednesday that, while Treasury secretaries traditionally have extolled a strong dollar at all times, “a stable dollar is very important. And over the long-term period of time — again, the long term — I do believe in a strong dollar.”

However, pressed by CNBC anchors as to whether he shares the president’s penchant for a weaker currency at present: Mnuchin clarified, “I am not going to advocate a weak dollar policy near term as Treasury secretary.”

The West Wing’s anti-interventionist voices have been able for more than a year to keep the president’s impulses on currency at bay. This week, tensions flared between Navarro, a well-known hardliner within the administration, and Philipson, the White House’s newly appointed CEA chair, who vehemently voiced a desire to let the market forces behave independently of administration action, the officials said.

The question of currency intervention is coming into closer focus as the Federal Reserve prepares to meet next week and potentially lower interest rates.

2nd Quarter GDP

For months anticipation was building over 2nd quarter GDP. Gross domestic product, the official report card on the economy, grew at a 2.1% annual pace from the start of April to the end of June. GDP slowed from a 3.1% gain in the first three months of the year but surprised many Wall Street analysts some of which had foreseen GDP coming in at less than 2%.

The economy got a jolt of adrenaline in the spring from the biggest increase in household spending in a year and a half, but falling business investment kept a lid on second-quarter growth.

The details of the report show that in some ways the economy was stronger in the second quarter than it was at the start of the year, especially on Main Street.

Yet a loss of momentum among business, especially exporters and manufacturers, suggest the economy could expand more slowly in the second half of the year. The Federal Reserve is prepared to cut already low interest rates as soon as next week to give the economy a mostly symbolic boost.

Americans spent considerably more in the spring compared to the start of the year, when they were recovering from the holiday shopping season, coping with a government shutdown and bearing the brunt of winter weather.

Consumer spending jumped 4.3% after a lackluster 1.1% gain in the first quarter. Households spent more on new cars and trucks, food and drinks and clothing.

The situation was reversed for business. Fixed investment fell 0.8% to mark the biggest drop in three and a half years.

Inflation as measured by the Fed’s preferred PCE index rose at a mild 1.4% clip year over year.

Consumers account for almost 70% of all spending in the economy. Buoyed by steadily rising incomes, more job security and the lowest unemployment rate in almost 50 years, they are spending more than enough to keep the U.S. growing around 2% a year.

It might not be enough, however. Businesses will eventually cut jobs or reduce worker hours if growth doesn’t pick up — a potential threat to the golden goose known as the American consumer.

To prevent that from happening, the Fed is prepared to cut interest rates soon even in the face of record stock prices and the best labor market in decades.

Market Insights 7/25/2019

U.S. equities finished lower, despite more dovish comments from European Central Bank President Draghi following the central bank’s monetary policy decision, as investors were treated to a slew of mixed earnings and economic data.

Treasury yields were higher following a better-than-expected durable goods orders report and an unexpected fall in jobless claims. Crude oil prices gained ground, while the U.S. dollar ticked modestly higher and gold was lower.

The Markets..

The Dow Jones Industrial Average declined 129 points (0.5%) to 27,141

The S&P 500 Index shed 16 points (0.5%) to 3,004

The Nasdaq Composite decreased 83 points (1.0%) to 8,239

In moderate volume, 842 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.14 higher to $56.02 per barrel and wholesale gasoline was up $0.03 at $1.83 per gallon

The Bloomberg gold spot price fell $11.94 to $1,413.92 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 97.82

Durable goods orders top estimates, jobless claims surprisingly fall

June preliminary durable goods orders rose 2.0% month-over-month, compared to the Bloomberg estimate of a 0.7% gain and May’s downwardly-revised 2.3% drop. Ex-transportation, orders were up 1.2% m/m, well above forecasts of a 0.2% rise and compared to May’s upwardly-adjusted 0.5% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, advanced 1.9%, compared to projections of a 0.2% gain, and the prior month’s figure was downwardly-revised to a 0.3% rise.

Weekly initial jobless claims fell by 10,000 to 206,000, versus estimates of 218,000, with the prior week’s figure being unrevised at 216,000. The four-week moving average fell by 5,750 to 213,000, while continuing claims declined by 13,000 to 1,676,000, south of estimates of 1,688,000.

Treasuries were lower, as the yield on the 2-year note rose 3 basis points to 1.85%, while the yields on the 10-year note and the 30-year bond gained 2 bps to 2.07% and 2.61%, respectively.

The week’s economic calendar will culminate tomorrow with the first look (of three) at Q2 Gross Domestic Product -GDP-, forecasted to show a 1.8% quarter-over-quarter annualized growth rate, while personal consumption is expected to have increased 4.0% q/q, and the GDP Price Index and the core PCE Index are projected to have both advanced 2.0% q/q.

Europe gives up early rally, Asia mostly higher

European equities relinquished an early rally, as the markets digested the European Central Bank’s (ECB) unchanged monetary policy decision, and appeared to focus on economic growth concerns on the heels of the press conference by President Mario Draghi.

The ECB head hinted that more stimulus is in the offing, noting that the central bank is determined to act and stands ready to adjust “all” instruments amid the backdrop of slowing economic growth and subdued inflation. Draghi added that a “significant degree” of stimulus is needed and the outlook is “getting worse and worse.” The euro finished higher against the U.S. dollar and bond yields in the region gained ground in volatile action following the ECB’s decision and comments, as the markets appeared to grapple with what instruments the ECB could decide to use to combat the slowdown and the implications on certain asset classes.

The British pound was slightly lower versus the greenback amid some resurfacing Brexit uncertainty in the wake of the recent victory for Boris Johnson as the next U.K. Prime Minister. In other economic news, German business sentiment for July came in softer than expected.

Stocks in Asia finished mostly to the upside, amid the backdrop of a relatively upbeat ramp-up of global earnings season, which helped the S&P 500 and Nasdaq move back into record high territory yesterday in the U.S. The markets also eyed today’s monetary policy decision from the European Central Bank, which precedes next week’s Fed decision in the U.S. and expectations are elevated that the Central Bank will deliver a rate cut.

Japanese equities nudged higher, with the yen giving back some of yesterday’s slide late in the session, while Australian securities gained ground following some comments from the Reserve Bank of Australia that suggested an extended period of low interest rates after the central bank recently cut rates to record lows.

Stocks in mainland China and Hong Kong rose, but shares in India finished little changed amid recently flared-up concerns toward the financial sector and South Korean listings declined on the escalated trade tensions with Japan, which appeared to overshadow the nation’s stronger-than-expected Q2 GDP growth.

Q2 Earnings Season

While most companies are beating estimates, the tone and substance of management commentary is on the cautious side, with uncertainty about global trade a notable headwind.

Total earnings for the 138 S&P 500 members that have reported Q2 results already are up +2.8% on +3.4% higher revenues, with 79.0% beating EPS estimates and 59.4% beating revenue estimates.

The earnings and revenue growth pace for these 138 index members is unsurprisingly very weak relative to other recent periods. The proportion of these index members beating EPS estimates is about in-line with historical trends, but positive revenue surprises are modestly on the low side.

For the Finance sector, we now have Q2 results from 54.5% of the sector’s market cap in the index. Total earnings for these Finance companies are up +4.1% on +3.2% higher revenues, with 71.8% beating EPS estimates and 66.7% beating revenue estimates. The most notable part of the Finance sector results thus far is the favorable momentum on the revenue front, both in terms of growth as well as surprises.

Looking at Q2 as a whole, total S&P 500 earnings are expected to be down -1.3% from the year-earlier period on +4.0% higher revenues. This would follow the -0.1% earnings decline on +4.5% higher revenues in Q1. Q2 earnings growth is expected to be negative for 9 of the 16 Zacks sectors, with Basic Materials and Conglomerates as double-digit decliners, while Technology, and Construction are expected to fall nearly -9%

With a number companies guiding lower, estimates for the current period (2019 Q3) are coming down, with earnings growth for the period currently expected to be a decline of -2.5% on +4.4% higher revenues.

For the small-cap S&P 600 index, we now have Q2 results from 76 index members. Total earnings for these 76 companies are down -5.7% from the same period last year on +2.7% higher revenues, with 68.4% beating EPS estimates and 63.2% beating revenue estimates.

Looking at the quarter as a whole for the small-cap index, total Q2 earnings are expected to be -11.3% below the year-earlier level on +3.0% higher revenues. This compares to -18.2% decline in Q1 earnings on +4.3% higher revenues.

For full-year 2019, total earnings for the S&P 500 index are now barely in positive territory, up +0.3% on +2.3% higher revenues. This would follow the +23.3% earnings growth on +9.2% higher revenues in 2018. Strong growth is expected to resume in 2020, with earnings expected to be up +10.2% that year.

The implied ‘EPS’ for the index, calculated using current 2019 P/E of 18.5X and index close, as of July 23rd, is $162.44. Using the same methodology, the index ‘EPS’ works out to $179.99 for 2020 (P/E of 16.8X). The multiples for 2019 and 2020 have been calculated using the index’s total market cap and aggregate bottom-up earnings for each year.