Market Update: Wednesday, September 6, 2017

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Yesterday’s Market Activity

  • Stocks drop on North Korea tensions. Major indexes off ~1% on above-average trading volumes. S&P 500 Index -0.8%, Dow -1.1%, Nasdaq -0.9%.
  • Negative breadth on major exchanges. Decliners outpaced advances >2:1.
  • Energy led sectors on ~3% spike in oil; financials lagged as rates fell.
  • 10-year Treasury yield tumbled 10 basis points (0.10%) to year-to-date lows on broad risk-off sentiment, dovish speeches from two Federal Reserve (Fed) governors.
  • Commodities – Gold up >1% on geopolitical tensions, dollar weakness; industrial metals mostly higher, WTI crude oil’s ~3% advance stemmed from shift in focus to possibility of OPEC production cuts.

Overnight & This Morning

  • Asian markets generally calm overnight. Nikkei -0.1%, Hang Seng -0.5%, Shanghai Composite unchanged.
  • European stocks down modestly ahead of tomorrow’s European Central Bank (ECB) meeting, STOXX Europe 600 -0.1%. Some second tier economic data released, including German factory orders (-0.7%) vs. expectations of a modest gain. August retail sales were positive in most countries.
  • Commodities – Industrial metals outperforming, copper +0.4%, gold unchanged at $1344/oz. Oil (+1.1%) to $49.21/bbl.
  • U.S. indexes rebounding from Tuesday’s losses; S&P 500 +0.3%.
  • Today’s economic calendar includes July trade balance, August ISM Services Index, and Fed’s Beige Book for September.

 

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Key Insights

  • News regarding North Korea continues to dominate headlines (in conjunction with coverage of natural disasters) and receives some of the blame for U.S. market volatility; Asian markets, which would be more directly impacted by any military conflict, have seen some stress but not panic. The Korean won has fallen about 1% since the North Korean nuclear test and the Korean stock market has declined 1.5% but is still up 22.5% for the year in U.S. dollar terms. The Japanese market is down 1.6%. While the conflict with North Korea may have sparked some profit taking overseas, it does not appear to have resulted in wholesale portfolio rebalancing.

Macro Notes

  • Gasoline futures prices are almost back to pre-Harvey levels as most of the refining capacity in Texas is coming back online, though there is still about 1 million barrels/day of refining capacity still shuttered, down from 4.5 million barrels/day of shuttered refining at the storm’s peak on August 30. It will take some time for all this to filter to your local gas pump, but we believe the market should fully normalize within a week or two, somewhat dependent on what happens with Hurricane Irma.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • MBA Mortgage Applications (Sept. 1)
  • Trade Balance (July)
  • Markit Services PMI (Aug)
  • ISM Non-Manufacturing (Aug)
  • Beige Book
  • Germany: Factory Orders (July)
  • Italy: Retail Sales (July)
  • Bank of Canada: Rate Decision (Sept. 6)
  • Japan: Buying Foreign Bonds (Sept. 1)
  • China: Foreign Reserves (Aug)

Thursday

  • Initial Jobless Claims (Sept. 2)
  • Continuing Claims (Aug 26)
  • Non-Farm Productivity (Q2)
  • Unit Labor Costs (Q2)
  • Mester (Hawk)
  • Dudley* (Dove)
  • Germany: Industrial Production (July)
  • France: Trade Balance (July)
  • ECB: Main Refinance Rate (Sept. 7)
  • Japan: Leading Index (July)
  • Japan: Trade Balance (July)
  • China: Trade Balance (Aug)
  • China: Foreign Direct Investment (Aug)
  • Japan: Current Account Balance (July)
  • China: Imports & Exports (Aug)
  • Japan: GDP (Q2)
  • Japan: Economy Watchers Survey (Aug)

Friday

  • Harker* (Hawk)
  • Germany: Trade Balance (July)
  • Germany: Imports & Exports (July)
  • France: Industrial Production (July)
  • UK: Industrial Production (July)
  • UK: Trade Balance (July)
  • Bank of England: Inflation Expectation Survey Next 12 Months
  • China: CPI (Aug)
  • China: PPI (Aug)

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The economic forecasts set forth in the presentation may not develop as predicted.

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