Yesterday’s Market Activity
- S&P 500, Dow +0.2%, Nasdaq +0.1%. S&P 500 up four straight days since last Wednesday’s steep decline
- Financials (+0.8%) led, consumer discretionary (-0.4%) the only decliner. Most sectors ended in a narrow range, but rising rates helped bank-led financials. Consumer discretionary weighed down by retail and homebuilders.
- 10-year Treasury yield up 0.03% to 2.28%. Treasury auctions were cited for the move
- Housing data not as weak as appeared. April new home sales missed estimates (569K vs. 605K expected) and well below revised March levels (642K); importantly, upward revisions to prior months more than made up for the April shortfall. We still think the housing market is in good shape.
Overnight & This Morning
- U.S. equities near flat; largely shrugging off the China news (see below for more information). Retail sector earnings a drag (recurring theme during the last few weeks of earnings season)
- European markets little changed in midday trading; small gain in U.K., slight losses in Germany, France. Key headlines: Draghi speech at 8:45am ET at a conference in Madrid, the elevated terror threat level in the U.K., and continued stream of earnings
- Asian markets closed slightly higher, matching Tuesday’s modest gains in the U.S. Big story overnight was Moody’s ratings downgrade of China. Chinese equity markets, after initial 1% selloff, rallied back to end fractionally higher.
- WTI crude oil down slightly. Smaller-than-expected drawdown in private sector inventory data putting pressure on crude oil (-0.1% near $51.42/bbl.). Today’s government data and two-day OPEC meeting starting today are keys to near-term outlook.
- Treasuries, U.S. dollar little changed
- Today’s economic calendar includes: existing home sales, mortgage applications, home prices, and oil inventories
- Fed-watchers get something to watch today. The Federal Open Market Committee (FOMC) minutes are due out today at 2pm ET and are unlikely to move our-or the-market’s expectations for a rate hike at the June meeting (fed funds futures pricing in >80% probability of a hike). Markets will be looking for the committee’s latest thoughts on recent softer data, fiscal policy potential, and balance sheet normalization. See our current Weekly Economic Commentary, “Inflation Watch Update” for our latest insights on how inflation may impact the Fed’s rate hike path.
- Markets take China news well. Global markets are largely shrugging off the China ratings downgrade news, suggesting it was not particularly surprising, and the debt issues facing China are hardly a secret. We don’t know when these problems will affect Chinese and global markets, but they likely will at some point. Still, overall we see the emerging markets equities backdrop as favorable and maintain allocations.
- China debt downgrade. Moody’s Investor Service downgraded Chinese sovereign debt overnight, citing concerns about excessive leverage within the country. The issue of excesses in the Chinese debt market are long standing, the downgrade isn’t really “news,” it’s more a confirmation of what the markets already know. The yuan sold off after the announcement, only to strengthen shortly thereafter, quite likely do to government intervention in the market. Though the government has announced measures to limit leverage, no major change in policy is expected until after the Communist Party meeting in October.
- Do you own any stocks? A recently released Gallup poll found that only 54% of U.S. adults are invested in the stock market, which is near a 20-year low. This was as high as 65% in 2007, ahead of the financial crisis, but has steady trended lower since. What does this mean? Do you need average investors to finally come back into equities before a major market peak can take place? Today on the LPL Research blog we will take a closer look at these questions.
- Markit Mfg. PMI (May)
- Markit Services PMI (May)
- Existing Home Sales (Apr)
- FOMC Meeting Minutes (May 3)
- France: Markit Mfg. & Services PMI (May)
- Germany: Markit Mfg. & Services PMI (May)
- Eurozone: Markit Mfg. & Services PMI (May)
- Canada: BOC Rate Decision (May 24)
- Advance Goods Trade Balance (Apr)
- Wholesale Inventories (Apr)
- Initial Jobless Claims (May 20)
- UK: GDP (Q1)
- Italy: Industrial Orders & Sales (Mar)
- Japan: CPI (Apr)
- Japan: Tokyo CPI (May)
- GDP (Q1)
- Personal Consumption (Q1)
- Durable Goods Orders (Apr)
- Capital Goods Shipments & Orders (Apr)
- Italy: Business Confidence in the Mfg. Sector (May)
- Italy: G7 Leaders Meet in Sicily
- BOJ: Kuroda
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