Market Update: Thursday, August 31, 2017

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Yesterday’s Market Activity

  • U.S. stocks rose, S&P 500 Index +0.46%, Nasdaq +1.05%, Dow +0.1%. Strong data (ADP jobs, revised Q2 GDP) and tempered, yet increased optimism toward budget, tax deals buoyed sentiment.
  • Technology topped sectors on semiconductors strength. Materials, biotechnology also strong; energy, telecommunications, utilities lagged.
  • Treasuries weakened marginally, 10-year yield ended at 2.14% on good data.
  • Strong data helped U.S. dollar (+0.4%), weighed on gold (-0.4%).
  • Oil (-1% to $46/bbl.) slide continued despite bullish inventory data.

Overnight & This Morning

  • U.S. stocks up early. S&P 500 opened +0.2% after Wednesday’s strong data, amid greater attention on tax reform and North Korean fears ebb.
  • Asian markets mixed, KOSPI -0.4%; Nikkei +0.6% despite industrial production down more than expected, Shanghai Composite -0.3% as Chinese Purchasing Managers’ Index (PMI) rose to 51.7, ahead of expectations (details below).
  • European equities solidly higher following generally upbeat Consumer Price Index reports; STOXX Europe 600 +0.8%.
  • Crude oil +0.6% to $46.23/bbl. after yesterday’s inventory drawdown; market focused on Harvey’s impact on demand, timetable to restart refinery operations (details below).
  • Treasuries little changed. 10-year yield +1 basis point (0.01%) to 2.15%.
  • Dollar rebounding vs. euro, yen as geopolitical tensions wane, domestic data reassures, and recent weakness attracts bargain hunters.

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Key Insights

  • We expect a budget deal to be reached and for the debt limit to be raised, though the road to get there by the September 29 deadline may be bumpy. Disaster relief funds may be used as a political chip to secure a budget and/or debt limit deal; a narrative that made its way around Wall Street yesterday.
  • Tomorrow is a big day for data watchers, with the jobs report and manufacturing ISM for August both slated to be released. Consensus for payrolls is +180K (vs. 209K in July) and +2.6% growth in average hourly earnings year over year (vs. 2.5% in July). Hurricane Harvey may impact next month’s jobs numbers but through July, the overall job picture remained healthy.

Macro Notes

  • Oil prices have held relatively steady, despite a larger than expected drawdown of U.S. oil inventory, based on data collected before any impact from Hurricane Harvey. Though the U.S. market is beginning to normalize, it is still oversupplied relative to historical standards. Gasoline prices continue to soar, though some refineries in Texas have started to come back online, and no refineries in Louisiana have reported a shutdown. A major pipeline of both diesel and gasoline from the Gulf to the East Coast closed, which has already led to higher prices at the pump in many parts of the east. It has been reported that 20 tankers have been booked from Europe to the U.S. East Coast to meet demand, about double the normal ship traffic for this time of year.
  • Better than expected China PMI. China’s official manufacturing PMI rose to 51.7 in August, ahead of the Bloomberg consensus (51.3) and up from July’s 51.4 reading. This was the 11th straight month of expansion in the Chinese manufacturing sector, and most of the growth was domestically driven, rather than lead by exports. China’s economy continues to perform well, as evidenced by recent economic data and recent strength in industrial metals. The non-manufacturing PMI slipped to 53.4 compared with 54.5 in July.

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Click Here for our detailed Weekly Economic Calendar

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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