Market Update: Thursday, August 17, 2017

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Yesterday’s Market Activity

  • Small gains in stocks. Dow (+0.1%) rose for fourth day in a row, clearing psychological level of 22,000. S&P 500 +0.1%,Nasdaq +0.2%
  • Two CEO advisory boards (Manufacturing Council, Strategy and Policy Forum) disbanded creating tension in White House and markets, but equities found footing late day post Fed Minutes release.
  • Materials (+1.0%) led as many base metals continued to rise. Telecommunications (+0.5%), consumer discretionary (+0.5%), utilities (+0.4%) outperformed. Financials (-0.2%) fell with yields, while drop in crude pushed energy (-1.0%) lower .
  • Treasuries weaker across curve, with 10-year yield -4 basis points (-0.04%) to 2.22%; largest drop in three weeks.
  • Zinc hit 10-year highs. Base, industrial metals rise continues; copper also surged to multi-year highs.
  • U.S. Dollar Index (-0.3%) down after Fed minutes, which were seen as dovish.
  • WTI crude oil -1.4% as U.S. production hit a new high. COMEX Gold (+1.0%), dollar weakened (-0.3%).

Overnight & This Morning

  • U.S. stocks slightly lower; quiet morning as most digesting yesterday’s Fed Minutes.
  • Europe broadly lower (STOXX Europe 600 -0.3%); FTSE 100 (-0.3%), DAX (-0.2%), CAC 40 (-0.2) all in the red.
  • Asian stocks mostly mixed, Nikkei (-0.1%), Shanghai Composite (+0.7%).
  • Treasuries slightly weaker, 10-year yield rebounding, +2 basis points (0.02%).
  • Commodities – mixed picture with crude oil (-0.4%); gold (+0.7%), industrial metals still rising.
  • Today’s economic calendar includes weekly Initial Jobless, Continuing Claims, August Philadelphia Fed at 8:30 a.m. ET, followed by July Industrial Production, Capacity Utilization at 9:15 a.m. ET, while July Leading Indicators out at 10:00 a.m. ET.

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Key Insights

  • The Federal Reserve (Fed) minutes showed that most Fed officials want to wait until the next meeting to reveal details of balance sheet unwind. The Fed also discussed surprisingly low inflation readings, with a few officials noting that the Fed could be patient before raising interest rates again. The bottom line is, until inflation begins to pick up, it could be very tough for them to raise interest rates again. The odds of a balance sheet normalization announcement in September currently remains low. One of the big takeaways was Fed Governor Williams saying the Fed is halfway through the tightening cycle.

Macro Notes

  • Fed and ECB meeting minutes released. The Fed’s July meeting minutes were released yesterday at 2 pm, and as expected there was a lot of discussion around the fact that inflation continues to trend below the Fed’s 2% target, and what that means for the future path of rate hikes. The European Central Bank (ECB) also released the minutes of their July meeting this morning, and they were also dovish, with the central bank showing some concern about recent Euro strength, and the fact that it could reduce efforts to restore price stability (or put more simply, keep downward pressure on inflation). We will discuss these central bank minutes in more detail today on the LPL Research blog.

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