Yesterday’s Market Activity
- Another quiet session. S&P 500 -0.24%, Dow -0.15%, breaking 10-day win streak, Nasdaq -0.21%. Session was especially quiet until North Korea saber-rattling escalated.
- Treasuries ended slightly lower, 10-year Treasury yield one basis point (0.01%) higher at 2.27% on tug-of-war between supply (Treasury auctions) and North Korea-driven safe haven demand.
- Evidence of safe haven buying in COMEX gold (+0.3%), utilities (+0.4%), and the dollar (DXY Index +0.2%), but gains in copper (+1.2%) and outperformance, albeit slight, of cyclical sectors (consumer discretionary, technology, energy and financials) pointed in the other direction.
Overnight & This Morning
- U.S. stocks are lower (S&P 500 -0.4%) as geopolitical tensions weigh on sentiment. Some disappointing earnings reports in media and internet areas also contributing to weakness as second quarter reporting season winds down.
- Overseas markets feeling brunt of the risk aversion, with Europe and Asia down about 1% overnight. Yen strength weighed on Japan (Nikkei -1.3%)
- WTI crude oil (+0.6% to $49.45/bbl.) getting a lift from private sector inventory data Tuesday evening, ahead of this morning’s government data.
- Treasuries are higher, consistent with risk-off bias-10-year Treasury yields down 3 basis points (0.03%) to 2.23%. Gold up 1.4% to $1280, yen is higher, euro is lower, also consistent with risk off bias.
- Today’s economic calendar includes mortgage applications (+3%), productivity (+0.9% year over year vs. 0.8% consensus), unit labor costs (+0.6% vs. 1.3% consensus), and wholesale inventories. China inflation data largely in line and benign.
- Tensions with North Korea are beginning to rattle financial markets, but the impact thus far has been fairly minor. Korean stocks were down 1.1% overnight, with the Korean Won falling about 1% as well, though it has rallied off the overnight lows. Until the past few days, the markets had been relatively unconcerned by the heightened rhetoric. While open warfare on the Korean peninsula still appears very unlikely, and certainly not being presaged even by last night’s activity, market sentiment is growing more cautious.
- Tensions with North Korea dominated the news from Asia overnight. The Japanese yen rose about 1% yesterday. This is surprising, as countries possibly being pulled into war do not usually see currency appreciation. However, the yen has for years been considered a “safe haven” currency in times of global unrest. Japanese stocks sold off 1.3%, though its hard to say if this is due to fears of a Korea attack, or simply a reaction to the higher yen. Chinese shares were down modestly overnight, with Chinese consumer inflation coming in at 1.4% annually, slightly less than the 1.5% expected.
- European stocks were down across all countries and sectors early this morning, with broad market indices down 1.2% and many markets down more. European equities appearing more rattled by the prospect of conflict in Korea than those countries directly involved. Traditional safe havens like utilities and staples provided some relative protection, though those sectors were still down over 75 basis points. The euro itself traded down about 70 basis points last night and has been relatively stable since then.
- Putting the Dow win streak in perspective. The Dow finally closed lower yesterday, ending a 10-day win streak and streak of 9 consecutive record closes. This was the second 10-day win streak for the Dow this year (had a 12 day win streak in February), making this the first year since 1959 to have multiple 10-day win streaks. Here’s the catch, the Dow gained only 2.8% during the win streak, making this the weakest 10-day win streak ever (out of 17 since 1896). Additionally, the S&P 500 was only up 0.4% and higher 6 of the 10 days – again the weakest ever during a Dow 10-day win streak. Today on the LPL Research blog we take a closer look at this phenomena and explain why it happened and what it might mean.
- MBA Mortgage Applications (Aug 4)
- Non-Farm Productivity & Unit Labor Costs (Q2)
- Wholesale Trade & Inventories (Jun)
- Italy: Industrial Production (Jun)
- Japan: Machine Tool Orders (Jul)
- Japan: PPI (Jul)
- China: New Loan Growth & Money Supply (Jul)
- PPI (Jul)
- Monthly Budget Statement (Jul)
- France: Industrial & Mfg. Production (Jun)
- Italy: Trade Balance (Jun)
- UK: Industrial & Mfg. Production (Jun)
- UK: Trade Balance (Jun)
- UK: NIESR GDP Estimate (Jul)
- CPI (Jul)
- Germany: CPI (Jul)
- France: CPI (Jul)
- Italy: CPI (Jul)
- Russia: GDP (Q2)
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