Market Update: Wednesday, August 30, 2017

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Yesterday’s Market Activity

  • Markets up slightly after negative open. Korean provocation couldn’t keep domestic markets down. Dow +0.3%, S&P 500 Index +0.1%, Nasdaq +0.3%.
  • Industrials, technology lead; offsetting drags from financials, materials–which fell despite support from precious metals.
  • Treasuries strengthened; 10-year yield -3 basis points (0.03%) to 2.13%.
  • Commodities– COMEX gold reversed positive opening -0.1% to $1314/oz., hurt by U.S. dollar strength; oil (-0.4%) declined reflecting Hurricane Harvey’s effect on domestic refining.
  • Consumer confidence beat with August coming in at 122.9; improving on July’s 120 consensus

Overnight & This Morning

  • Asian stocks closed solidly higher despite continued heated rhetoric with North Korea. Nikkei +0.7%, Hang Seng +1.2%; Shanghai Composite (-0.1%) was the exception. Korean won was essentially flat, suggesting further market stability.
  • Japanese retail sales +1.1% vs. +0.3% expectations. Japanese consumer spending is notoriously lackluster–any one data point has limited value. Still, data showed evidence of continued economic recovery and renewed confidence in the economy.
  • European indexes up across the board; most countries up ~0.5% following business and consumer confidence numbers. Consumer confidence (more important) showed 1.5% decline driven Italy data. Other major European countries showed modest increase.
  • Euro retreating modestly, below psychologically important $1.20 level seen as threshold for significant impact to European companies’ competitiveness.
  • Commodities– oil ($46.01/bbl.) lower by ~1%; gold, copper (-0.5%).
  • U.S. equities modestly higher in early trading, boosted by ADP private payrolls report (+237k vs. +185k expected), biggest gain in five months. Q2 gross domestic product (GDP) revised upward to 3% annualized vs. initial estimate of 2.7%.
  • Treasury prices falling, 10-year yield at 2.15%.

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Key Insights

  • The human issues for the people of coastal Texas and Louisiana should always be the foremost issue when we think about the impact of Hurricane Harvey. Our thoughts continue to be with all of those affected. However, we also must consider the economic and market implications as well. To update our blog post from last night, the impact of Harvey on the refining industry has grown. Approximately 75% of the refining capacity in Texas, and about 10% of the refining capability nationwide, is now temporarily offline. Gasoline prices continue to rise even as crude oil itself is modestly down.

Macro Notes

  • Economic impact of Harvey. Since most economic data tries to capture current activity, losing existing assets such as a home or a car doesn’t have much of an impact on the data despite the very real negative economic impact it has on families and businesses. We do usually see a decline in economic activity in the data due to the trouble associated with storms–businesses are shut down and may not be able to reopen for some time as transportation and shipping tends to delay activity. We’ll likely see that happening in August and into September, which will show up in reports released in September and October. After that we typically see a pick-up in activity as the government, consumers, and businesses start to rebuild.
  • Consumer confidence remains high. In August, the Conference Board’s Consumer Confidence Index rose to its second highest level since 2000, supported by consumers’ evaluation of their current situation. The difference between respondents answering that “jobs were plentiful” and those answering “jobs were hard” continues to advance and reflects the influence of a strong labor market on confidence levels.
  • ADP reports jobs growth. ADP, the nation’s largest payroll processing reform, estimated that the economy had added 237,000 jobs in August, well ahead of expectations of 185,000. While the report has not been a reliable forecaster of Friday’s official jobs number, it confirms continued labor market strength. Current expectations for Friday’s report is that the economy added 180,000 jobs in August following 209,000 jobs added in July.
  • Second quarter GDP revised upward to 3.0%. Second quarter real GDP growth was revised upward from initial estimate of 2.6% to 3.0%, ahead of expectations of 2.7%. Stronger consumer spending was the main driver, although an upward revision to business investment was also a positive sign.

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Wednesday

Thursday

  • Personal Income and Spending (Jul)
  • Chicago Area PMI (Aug)
  • Pending Home Sales (Jul)
  • France: CPI (Aug)
  • Eurozone: Unemployment Rate (Jul)
  • Eurozone: CPI (Aug)
  • Canada: GDP (Jun)
  • South Korea: GDP (Q2)
  • India: GDP (Q2)
  • Japan: Housing Starts (Jul)
  • Japan: Nikkei Japan Mfg. PMI (Aug)
  • China: Caixin China Mfg. PMI (Aug)

Friday

 

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