Yesterday’s Market Activity
- Stocks give back ~1/3 of Tuesday’s strong gains. Politics hampered sentiment as President Trump’s speech suggested government shutdown not off the table; though we view as unlikely. Disappointing new home sales, mixed Purchasing Managers’ Index (PMI) data also weighed (details below). S&P 500 Index -0.3%, Nasdaq -0.3%, Dow -0.4%.
- Few sectors gained – REITs led; energy, utilities only other gainers. Energy helped by ~1% rise in WTI crude oil. REITs, utilities benefited from rate decline on safe-haven buying. Industrials, consumer discretionary lagged.
- Bonds, gold rallied modestly. 10-year Treasury yield -4 basis points (0.04%) to 2.17%; COMEX gold up ~0.3% near $1290/oz. U.S. dollar mostly weaker vs. major currencies.
Overnight & This Morning
- Asian markets mixed overnight. Nikkei -0.4%, Shanghai Composite -0.5%; most other Asian markets up. South Korean market has recovered about half of losses incurred during 10-day period when tensions with North Korea were at their highest.
- U.S. stocks turn lower after higher open; S&P 500 -0.1%; small caps faring slightly better (Russell 2000 +0.1%).
- Europe off session highs following U.S. open. STOXX Europe 600 +0.4%. Euro itself at upper end of ~10% trading band that has been in place since early 2015. U.K. pound stable vs. the dollar, but near all-time low vs. euro as Brexit talks slowly continue.
- Commodities – WTI crude oil ($47.74/bbl.) lower by 1.4%, industrial metals outperforming, copper (+0.6%), gold near flat at $1294/oz.
- Rates steady. 10-year Treasury yield 2.18%.
- We continue to see an increased probability of greater market volatility over the next several months, as market participants continue to gauge legislative progress on tax policy. However, before even starting the legislative process on taxes, Congress will need to address the debt ceiling (which we believe is unlikely to cause any major delays) and pass a budget, which will be more challenging due to competing priorities.
- In economic data yesterday, Markit’s preliminary manufacturing PMI for August disappointed, while still indicating expansion. However, the services PMI, which represents a much larger segment of the economy, surprised to the upside. The manufacturing data disagreed with U.S. regional manufacturing data seen over the last month, which has been more upbeat.
- Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi speak at Jackson Hole tomorrow. While expectations are that Yellen and Draghi will largely maintain the course, major addresses by central bank heads always have the potential to move markets, and the speeches will be closely watched. See our recent Weekly Economic Commentary for additional insights on the upcoming symposium.
- 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)
- Durable Goods Orders (Jul)
- Capital Goods Shipments and Orders (Jul)
- Germany GDP (Q2)
- Germany: Ifo (Aug)
- France: Consumer Confidence (Aug)
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