Market Update: Wednesday, August 23, 2017

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Yesterday’s Market Activity

  • Stocks rose Tuesday, S&P 500 +1.0%, Nasdaq +1.4%, Russell 2000 +1.1%. Sentiment supported by reports suggesting progress in Republicans’ tax reform prospects.
  • Technology, materials, healthcare led. Real estate fell slightly; consumer staples, utilities underperformed.
  • Treasuries weaker across the curve, 10-year yield +4 basis points (0.04%) to 2.22%.
  • Higher yields buoyed U.S. dollar (DXY +0.5%) and weighed on COMEX gold (-0.4%).
  • WTI crude oil rose 0.6% ahead of weekly inventory data.
  • Mixed data: Richmond Federal Reserve (Fed) Manufacturing Index beat consensus forecasts while June Federal Housing Finance Agency home prices (+0.1% month over month) softer than expected.

Overnight & This Morning

  • Stocks open lower. S&P 500 -0.3%. Media focused on President Trump’s threat to shut down government if border wall isn’t funded; some skepticism around yesterday’s tax reform optimism.
  • European stocks down modestly despite generally positive economic data. European manufacturing Purchasing Managers’ Index (PMI) was 57.4, besting last month and consensus. Service PMI weaker than expected, but still strong at 54.9. Euro rallied on the news, as investors once again consider possible tapering of European Central Bank’s (ECB) bond buying policy, though market not pricing in meaningful rate hike probability until at least Q4 2018.
  • Asian markets continue summer lull. Japanese manufacturing PMI +52.8, an improvement from last month’s 52.1. Overall markets mixed: Nikkei +0.3%, KOSPI +0.1%, Shanghai Composite -0.1%; Tech stocks in China, Korea underperformed
  • Oil slightly lower near $47.65/bbl. after mixed private inventory data Tuesday (crude draw, gasoline build); higher Libyan production also weighing.
  • Mexican peso -1% after President Trump suggested NAFTA may be scrapped. Dollar down slightly, supporting gold (+0.3%).
  • Treasuries higher, 10-year yield down to 2.19%.
  • Today’s economic calendar: mortgage applications, new home sales, U.S. “flash” PMI, and weekly petroleum inventories. Central bank-a-palooza in Jackson Hole, WY begins tomorrow.

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Key Insights

  • Debt ceiling negotiations may be difficult. Some of us have painful memories of 2011 when we first learned of an arcane piece of federal legislation that led to Standard & Poor’s decision to cut the U.S. credit rating from AAA. Those events drove the S&P 500 Index down 19.4% peak to trough between April and October of that year–just shy of the 20% threshold for ending the bull market. We expect a relatively smooth resolution this time, as we discuss today on the LPL Research blog, and not a repeat of the 2011 market turbulence.

Macro Notes

  • There will be a lot of focus on the ECB’s September 7 meeting. ECB President Mario Draghi is scheduled to speak at the Fed’s Jackson Hole symposium on Friday – attended by representatives from the central banks of more than 40 countries – but his speech is unlikely to include any insights on changes to the ECB’s program of buying 60 billion euro in bonds each month until December. Policy after that remains uncertain. Draghi did speak this morning in Germany where he reiterated his belief that monetary policy has been a success in Europe and called for flexible thinking when confronting economic crisis, but offered no real hint at the future of monetary policy.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

Thursday

  • Existing Home Sales (Jul)
  • Kansas City Fed Hosts Annual Jackson Hole Policy Symposium (8/24-8/26)
  • UK: GDP (Q2)
  • Germany: Import Price Index (Jul)
  • France: Business & Mfg. Confidence (Aug)
  • Bank of Italy: Visco
  • Japan: Leading Index (Jun)
  • Japan: CPI (Jul)

Friday

 

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