Market Update: Friday, September 30, 2016

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  • U.S. stocks advance after Europe-focused selloff yesterday. Domestic markets opened higher this morning even as investors grapple with headline issues out of the European banking sector. The S&P 500 dipped 0.9% yesterday as healthcare (-1.8%), financials (-1.5%), and utilities (-1.5%) led the decline, while energy (-0.1%) outperformed as it has for much of the last week thanks to an ongoing rally in crude. European shares are mostly down, though well off of session lows, as concerns mount about the risks that Deutsche Bank may pose to the European banking system. In Asia, the Nikkei (-1.5%) sank amid a slew of economic reports, and the Hang Seng also lost ground; the Shanghai Composite finished with modest gains. Elsewhere, WTI crude oil ($48.15/barrel) is up half a percent this morning after climbing to fresh 3-week highs yesterday. Meanwhile, there is mild weakness in Treasuries as the yield on the 10-year note is up to 1.58%, while COMEX gold ($1325/oz.) sits near the middle of its range for the month.

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  • European bank concerns grow. The largest bank in Germany, Deutsche Bank, dropped nearly 7% yesterday on a report from Bloomberg that a number of funds that clear derivatives with the bank have lowered excess cash and reduced positions with the bank. This news came out midday and it sparked the sell-off in U.S. markets. How concerned should you be around the European banking problem? Here’s the catch, this is nothing new. Many European banks were down significantly over the past year, well before yesterday’s news hit. Today on the LPL Research blog, we will take a look at this very important development.
  • Another big daily swing. The S&P 500 dropped 0.9% yesterday, for its largest daily drop since September 13. The Deutsche Bank worries sparked the equity weakness, with financials and healthcare the big underperformers on the day. All 11 S&P 500 sectors were lower, with energy (down 0.1%) the strongest. One thing is certain though, it is late September and volatility continues to increase. As we’ve been noting, the last few weeks of September until late October are historically the most volatile time of the year, and that is playing out so far. Technically, the S&P 500 found trouble near its flattening 50-day moving average and this was the seventh straight day the S&P 500 closed higher or lower by half a percent. That is the longest streak since eight in a row in late January.
  • Private sector stability in China. The Caixin Purchasing Managers’ Index (PMI) for manufacturing in August was released at 50.1, consistent with expectations. The Caixin index is important, as it is a private sector company that works with smaller and midsized companies in the country, companies that are not heavily influenced by the government. This survey gives insight into the true situation in China. The data show stability, but not reacceleration of the Chinese economy.
  • Week ahead. The September jobs report (due out Friday, October 7) concludes a busy week of data and events as markets gauge the health of the economy as Q3 ended and Q4 began. The September Institute for Supply Management (ISM) reading and vehicle sales will be closely watched as well, ahead of the start of Q3 earnings reporting season, which begins in mid-October. There are 10 more Federal Reserve Bank (Fed) speakers on the docket next week (after 13 this week), including an appearance from Fed Vice Chair Fischer. Overseas, China will release its PMI data for September over the weekend, and central bankers in India and Australia will meet next week. Japan’s key Tankan data for Q3 is due out over the weekend, so markets will already be reacting to it as trading resumes on Monday, October 3.

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Friday

  • Chicago Area PMI (Sep)
  • Eurozone: CPI (Sep)
  • China: Official Mfg. PMI (Sep)
  • China: Official Non-Mfg. PMI (Sep)

Saturday

  • Start of New Fiscal Year and Potential US Government Shutdown

Sunday

  • Japan: Tankan Survey (Q3)

Click Here for our detailed Weekly Economic Calendar

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