Yesterday’s Market Activity
- Stocks largely in “wait and see” mode but end positive on late-day boost. S&P 500 +0.18%, Dow +0.18%, and Nasdaq +0.36%. Few were willing to make big moves one way or the other ahead of Thursday’s barrage of potentially market-moving developments, though initial reaction to Comey’s testimony late in the session pushed the major averages into the green.
- Bearish inventory data punished energy. WTI crude oil fell 5.1% after an unexpected crude and gasoline inventory build in the government’s weekly petroleum report. Energy sector lost 1.4% while no other sector lost more than 0.1%.
- Rates rose, boosting financials. Financials topped Wednesday’s sector rankings with a nearly 1% gain as the 10-year Treasury yield rose 0.03% to 2.18%.
Overnight & This Morning
- Stocks marginally higher in early trading as initial reaction to Comey testimony has been positive. The ECB announcement and impending U.K. election are influencing early trading. It can turn quickly but the positive open is encouraging.
- ECB stays accommodative as expected. The central bank indicated it expects rates to remain at current levels for an extended period of time (dropping statement that rate cuts were possible). At the same time the ECB reiterated that it would increase the size or duration of its bond-buying program if the economic data deteriorates. U.K. stocks down slightly. Euro and British pound are weaker. Q1 2017 gross domestic product (GDP) in Eurozone +0.6% (not annualized), better than expected (+0.5%).
- Treasuries are selling off a bit this morning, sending the 10-year yield up 0.02% to 2.20%.
- Crude oil malaise continues. Not seeing any bounce after yesterday’s sharp decline. Buying opportunity may soon emerge in energy but we suggest patience.
- Asian markets mixed overnight. Japan’s Nikkei fell 0.4% after Japanese GDP rose 1% annualized in Q1 2017, below expectations. Our 2% is Japan’s 1% as that economy continues to struggle to drive faster growth. Hang Seng and Shanghai Composite both up modestly. Solid Chinese trade data.
- Another reminder of heightened geopolitical risk. North Korea fired a series of short-range missiles.
- Jobless claims of 245K were slightly above consensus (240K). Still nowhere near levels that would suggest any deterioration in the labor market.
- Big day. Investors will dissect Comey’s testimony, the European Central Bank (ECB) policy announcement, and U.K. election results over the next 12 hours or so in what the media is calling “Super Thursday.” Based on Comey’s testimony released Wednesday afternoon, the market’s confidence in the Trump administration’s ability to enact its agenda may rise. We expect Theresa May’s Conservative Party will win today’s U.K. election (initial results due out after U.S. market close) and strengthen her position. And ECB policy remains very accommodative but the next move is tighter, not easier.
- Trump agenda on track? On the margin, markets have increased the odds that the Trump administration will be able it implement a meaningful portion of its agenda, though confidence is still not very high. Early 2018 remains our base case timetable for tax changes; timing remains dependent on healthcare efforts.
- Sense of urgency in Washington, D.C.? Continued skepticism around the White House agenda is evident in recent market performance, including small cap and financials underperformance, dollar weakness, falling interest rates and the flattening yield curve. It’s tough to assign odds, but we see a reasonable possibility of a positive surprise, given Republicans’ need for a win and the amount of agreement on taxes.
- Bullish global trends. U.S., developed international, and emerging markets (EM) equity benchmarks remain above their upward sloping 50- and 200- day moving averages, a positive signal for U.S. equities over the next 6-9 months.
- Germany: Industrial Production (Apr)
- UK: General Election, 2017
- ECB: Draghi
- Japan: Machine Tool Orders (May)
- China: CPI & PPI (May)
- Wholesale Sales & Inventories (Apr)
- France: Industrial Production (Apr)
- UK: Industrial Production (Apr)
- UK: Trade Balance (Apr)
- China: Money Supply and New Yuan Loans (May)
Past performance is no guarantee of future results.
The economic forecasts set forth in the presentation may not develop as predicted.
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