Yesterday’s Market Activity
- U.S. stocks managed slight gains yesterday, pushed higher by technology. Dow 30 flat; S&P 500 Index +0.2%; Nasdaq +0.7%. Technology still best performing sector year to date. Semiconductors led, chip sales up 22% year-over-year.
- Energy (-1.6%) was the worst performer, pulled lower by WTI crude oil (-4.0%), to $45/bbl., ending eight-day rally as oversupply issues resurfaced.
- FOMC members seem divided on rate increases, balance sheet reduction in Fed minutes from its June policy meeting.
- Market reaction muted as 10-year Treasury yield held near 2.33%. Perhaps investors are now numb to policy obfuscation. Markets still expect one more hike this year, most likely in December.
Overnight & This Morning
- Asian stocks mostly lower. Japan hit by yen strength as political rhetoric escalated with North Korea missile, U.S. and Poland defense deal ahead of Trump-Putin meeting at G-20 tomorrow.
- MSCI Asia Pacific Index (-0.2%), lower for fourth time in five days.
- European Central Bank (ECB) released minutes of their June meeting, which indicated policymakers considered removing pledge to increase bond-buying program if needed. Improvement in economic data, removal of several political risks, argued for removal of easing bias. Nonetheless, policymakers only changed wording on rates. Like the Fed, officials are very concerned about disinflation, messaging, and its impact on markets.
- European stocks down ~1% while German bund yield +3 basis points (0.50%).
- Euro holding steady around $1.13 USD.
- Commodities – After selling off yesterday, WTI oil +1.5% after industry data showed U.S. crude, gasoline stockpiles declined.
- COMEX Gold -0.2% to $1224/oz. on several bearish forecasts; copper +0.4%.
- U.S. stocks lower in early trading following President Trump’s speech in Warsaw, as investors grew skittish relative to combination of geopolitical risks, valuations.
- Treasury yields climbing ahead of Friday’s jobs report. Forecasts suggest +175k for June; 2-year yield 1.41%, 10-year 2.35%.
- ADP Private Payrolls Report showed +158K in June, below forecasts for +188k and May’s +235k.
- Little reaction to Fed minutes. The minutes of the Federal Reserve’s (Fed) June 13-14, 2017 meeting were released at 2 p.m. ET yesterday. Market reaction was limited as there weren’t many surprises. We discuss the key things markets were looking for: additional detail surrounding the Fed’s inflation expectations, the start date of balance sheet normalization, and the future path of rate hikes, in more detail on the LPL Research blog.
- We remain bullish on emerging markets after recent news and data out of China. Both public and private sector Purchasing Managers’ Index (PMI) data came in ahead of expectations and previous month figures; though growth in services is slowing, particularly from private sector sources. Overall, however, the Chinese economy seems to be growing at an acceptable rate, and without the heavy state intervention seen earlier this decade.
- Europe. PMI data in Europe continues to look strong, with data in both Germany and France better than expected. In Italy, the bailout of a number of Italian financial companies is now complete, with both the Italian government and the ECB stepping in to improve solvency for the firms acquiring assets from the failed institutions. Rules were put in place to protect taxpayers from bank failures, but these were largely ignored. Bank stocks in Europe have rallied more than 5% in the past two weeks, in part because of higher interest rates, but the potential end to bank crises in Italy (and Spain, which had a similar bailout last month) are likely contributors.
- Events. The G20 summit begins in Hamburg, Germany on Friday, July 7. Heading into the meeting there is a sharp contrast in policy, with a heavy degree of trade skepticism from the Trump administration, compared to the expected announcement of a new EU-Japan trade deal. Steel is a major issue with respect to German exports of steel to the U.S., as well as Chinese steel exports, against which the administration has been reportedly speaking to other delegations about curtailing. The U.S. imports very little Chinese steel directly, but the degree to which China exports steel impacts the global price, and therefore can adversely impact U.S. steel companies. This comes against the backdrop of the need to engage with China over the North Korean issue. Natural resource investors, including steel, iron ore, coal, and related mining companies, will closely watch this summit. Steel stocks have been rising sharply since mid-June, due in part to partial protectionist measure.
- ADP Employment (Jun)
- Initial Jobless Claims (Jul 1)
- Trade Balance (May)
- Germany: Factory Orders (May)
- ECB: Account of the Monetary Policy Meeting
- Mexico: Central Bank Monetary Policy Minutes
- Japan: Labor Cash Earnings (May)
- Change in Nonfarm, Private & Mfg. Payrolls (Jun)
- Unemployment Rate (Jun)
- Average Hourly Earnings (Jun)
- Average Weekly Hours (Jun)
- Labor Force Participation & Underemployment Rates (Jun)
- Germany: Industrial Production (May)
- France: Industrial Production (May)
- Italy: Retail Sales (May)
- UK: Industrial Production (May)
- UK: Trade Balance (May)
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.
Bank loans are loans issued by below investment-grade companies for short-term funding purposes with higher yield than short-term debt and involve risk.
Because of its narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Commodity-linked investments may be more volatile and less liquid than the underlying instruments or measures, and their value may be affected by the performance of the overall commodities baskets as well as weather, disease, and regulatory developments.
Government bonds and Treasury bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value. However, the value of fund shares is not guaranteed and will fluctuate.
Investing in foreign and emerging markets debt securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical and regulatory risk, and risk associated with varying settlement standards.
High-yield/junk bonds are not investment-grade securities, involve substantial risks, and generally should be part of the diversified portfolio of sophisticated investors.
Municipal bonds are subject to availability, price, and to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rate rise. Interest income may be subject to the alternative minimum tax. Federally tax-free but other state and local taxes may apply.
Investing in real estate/REITs involves special risks such as potential illiquidity and may not be suitable for all investors. There is no assurance that the investment objectives of this program will be attained.
Currency risk is a form of risk that arises from the change in price of one currency against another. Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged.
This research material has been prepared by LPL Financial LLC.
To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial LLC is not an affiliate of and makes no representation with respect to such entity.
Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit
Securities and Advisory services offered through LPL Financial LLC, a Registered Investment Advisor
Tracking # 1-623151