Market Update: Wednesday, June 21, 2017

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Yesterday’s Market Activity

  • Stocks pulled back from record highs on falling oil prices, energy sector weakness (S&P 500 -0.7%). Media, retail weakness also contributed. Biggest single-day drop since  May 17 (-1.7%).
  • WTI crude oil (-2.1%) under more pressure on reports of higher production in Libya, Nigeria; ongoing domestic inventory glut; strong U.S. production. Energy (-1.3%) the worst performing S&P sector. Biotech, pharmaceuticals, homebuilders were bright spots.
  • Treasuries rallied with 10-year yield -4 basis points (0.04%) to 2.15%.
  • Copper fell for sixth time in seven sessions as dollar rose. COMEX gold ($1243/oz.) down 8 of 10 sessions.
  • More attention on Washington. House Speaker Paul Ryan promoted tax reform, though comments elicited little market reaction. Senate healthcare vote expected Thursday.

Overnight & This Morning

  • Markets flat on weakness overseas. Despite earnings support, S&P 500 near flat this morning.
  • European markets under pressure. Ongoing energy weakness, concerns about feasibility of proposed U.K. political alliance weighing on sentiment. France and German markets down 0.5% to 1% in midday trading overseas.
  • Asian markets mixed. Shanghai Composite +0.5% on favorable MSCI announcement (details below). Nikkei -0.5%, Hang Seng -0.6%.
  • Oil trying to regain footing. Slightly bigger-than-expected crude inventory draw from private data source providing little help for oil, little changed this morning near $43.65/bbl.
  • Treasuries firm as 10-year yield up 2 basis points (0.02%) to 2.17%.
  • Republicans won special elections, though more of a political story. Regardless, Republicans will try to achieve as much of their agenda (healthcare and tax reform) as possible before midterm election campaign season heats up in early 2018.
  • Today’s light economic calendar includes existing home sales (10 a.m. ET), weekly crude inventories (10:30 a.m. ET).

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Key Insights

  • Don’t get too excited about MSCI China news. Only a very small portion of the Chinese A-share market is being added to the MSCI EM Index. Meaningful additions, should they occur, will take place over a very long period of time. Nonetheless, we continue to like emerging markets.
  • Oil enters a bear market. Today, on the LPL Research blog we will take a closer look at what this bear market could mean for crude oil (details below).
  • Happy first day of summer. Sell in May hasn’t worked so far, as the S&P 500 Index rose in May and is up June to date. That said, a pullback is probably overdue given almost a year has passed since the S&P 500 fell 5% or more.

Macro Notes

  • MSCI approves Chinese A share inclusion in EM index. After three years of rejection, MSCI announced it will add 222 Chinese A-Share securities into the MSCI Emerging Markets (EM) Index in 2018, more than the initially anticipated (169) but still only a small fraction of the overall market. At its initial weight, these securities will represent just 0.7% of the index, which likely explains the relatively muted reaction in local Chinese equity markets-the Shanghai Composite gained +0.5% overnight. Long term, as governance and liquidity presumably improve, China’s EM Index weight-now Hong Kong listing dominated-could potentially rise well beyond the current 26%.
  • Crude oil moves to a bear market. The weakness in crude oil continued yesterday, as the commodity moved to a fresh nine-month low and officially closed in a bear market of more than 20% beneath the 52-week high. The last time crude oil was in a bear market was early August 2016, which puts this as one of the longest streaks without a bear market in crude ever. Today on the LPL Research blog we will take a closer look at what this bear market could mean for crude oil.

 

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Click Here for our detailed Weekly Economic Calendar

Wednesday

 Thursday

  • LEI (May)
  • Eurozone: Consumer Confidence (Jun)
  • Japan: Nikkei Japan Mfg. PMI (Jun)

 Friday

  • Markit Mfg. & Services PMI (Jun)
  • New Home Sales (May)
  • France: GDP (Q1)
  • France: Markit France Mfg. & Services PMI (Jun)
  • Germany: Markit Germany Mfg. Services PMI (Jun)
  • Eurozone: Markit Eurozone Mfg. & Services PMI (Jun)
  • Russia: GDP (Q1)
  • Canada: CPI (May)

 

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