Market Update: Thursday, May 11, 2017

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  • Asia-Pacific equity indexes slightly higher, including Japan’s Nikkei +0.3%, Hong Kong’s Hang Seng +0.4%, China’s Shanghai Composite +0.3%. Media focused on China’s ongoing efforts to constrain liquidity and avoid adding to debt problem and prevent overheating.
  • European markets are mostly lower late in the session (Stoxx 600 -0.6%).
  • Bank of England held interest rates and its bond purchasing program unchanged as expected, while cutting 0.1% off its previous forecast for 2.0% GDP growth in 2017; 2018 and 2019 forecasts were raised slightly.
  • European Commission slightly raised Eurozone economic forecasts for 2017 (1.6% to 1.7%); 2018 remained unchanged at 1.8%.
  • Jobless claims fell 2K to 236K, below 245K consensus and at multi-decade lows.
  • Oil continues higher (+1.3% to $47.93/barrel) on follow-through from bullish inventories, reports of Saudi export cuts to Asia, and optimism regarding an extension of the OPEC-Russia production agreement; U.S. production increases and still-high gasoline inventories remain overhangs.
  • Producer price index data for April came in stronger than expected (+0.5% vs. 0.2% consensus; core ex food and energy +0.4% vs. +0.2%); gradual uptrend in inflation largely intact and supports two more Federal Reserve (Fed) rate hikes in 2017 in our view.
  • Uptick in VIX measure of implied stock market volatility rises above 10, but remains historically low.
  • U.S. stocks are trending downward this morning; all three major indexes are lower by more than 0.6% as weak retailer earnings weigh.

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Key Insights

  • Major indexes continue to hover near all-time highs, with the Nasdaq Composite daily win streak reaching 5 yesterday; earnings continue to support stocks and offset any Washington-related dampening of sentiment.
  • FBI Director Comey’s dismissal sparks speculation that policymakers may get bogged down with Russia and other distractions, pushing out the healthcare and corporate tax reform timetable. We think the practical impact is manageable.
  • Puerto Rico bankruptcy the largest in U.S. municipal history, but not likely to have meaningful incremental negative impact on the high-yield muni market given how long the filing was in the works and the sharp discounts to market prices.

Macro Notes

  • Jobless claims. Weekly jobless claims posted an unexpected drop to 236k, while the four-week average ticked up marginally; continuing claims are at levels last seen in 1988. Overall, the data is still consistent with a healthy labor market and continued economic growth.
  • Small daily ranges continue. The S&P 500 managed to close at a new all-time high yesterday, even though it gained 0.11% on the day. Incredibly, the S&P 500 has closed at a new all-time high two of the previous three days, and it gained only 0.27% the previous three days – suggesting how small the daily ranges continue to be. Last, the S&P 500 has traded in a daily range of less than 0.5% for 14 consecutive days, the longest streak ever. The previous record was six consecutive days.

 

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Click Here for our detailed Weekly Economic Calendar

Thursday

  • Initial Jobless Claims (May 6)
  • PPI (Apr)
  • Eurozone: European Commission Economic Forecasts
  • UK: Bank of England Rate & Inflation Report
  • ECB: Publishes Economic Bulletin

Friday

  • CPI (Apr)
  • Retail Sales (Apr)
  • Germany: GDP (Q1 Prelim.)
  • Germany: CPI & PPI (Apr)
  • Eurozone: Industrial Production (Mar)

Past performance is no guarantee of future results.

The economic forecasts set forth in the presentation may not develop as predicted.

 The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

 Stock investing involves risk including loss of principal.

 Investing in foreign and emerging markets securities involves special additional risks. These risks include, but are not limited to, currency risk, political risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.

 Treasury Inflation-Protected Securities (TIPS) are subject to interest rate risk and opportunity risk. If interest rates rise, the value of your bond on the secondary market will likely fall. In periods of no or low inflation, other investments, including other Treasury bonds, may perform better.

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