Market Update: Thursday, September 7, 2017

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Yesterday’s Market Activity

  • Stocks got a lift from debt ceiling deal Wednesday while North Korea tensions remained high. S&P 500 Index +0.3%, Nasdaq +0.3%, Dow +0.3%.
  • Risk-on dynamic in play as cyclical sectors outperformed, Treasuries weakened (10-year yield +4 basis points (0.04%) to 2.11%; COMEX gold, yen fell.
  • Federal Reserve (Fed) Vice Chair Fischer’s retirement announcement sparked speculation on future makeup of the Fed. Talk of next Fed Chair heating up.
  • Energy sector led on oil’s ~1% gain, improved demand prospects after some refineries impacted by Harvey restarted amid talks of an extension of Russia-Saudi production caps

Overnight & This Morning

  • U.S. stocks little changed as ECB leaves policy unchanged, markets digest debt limit deal.
  • Little news driving Asian equity markets. KOSPI gained 1.1%, perhaps on temporary cessation of the war of words regarding Korea’s nuclear program. Nikkei +0.2%, Shanghai Composite -0.6%.
  • European equities slightly higher following ECB statement, euro slightly weaker. STOXX Europe 600 +0.2%.
  • Treasuries up (10-year yield at 2.06%), weighing on U.S. dollar, supporting gold (+0.4%).
  • Hurricane Irma expected to be one of the strongest hurricanes to hit Florida. Latest drop in bond yields likely reflects some temporary hurricane-related economic softness.
  • Economic calendar today includes weekly jobless claims (298K vs. 245K consensus and 236K the prior week), spike due to Harvey’s impact; unit labor cost, productivity for Q2.

 

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Key Insights

  • Kicking the can. The risk associated with the debt ceiling and fiscal budget is not over but has been postponed after President Trump agreed to a proposal from Democratic leadership to push the government funding and debt limit debates out to December 15, breaking with Republicans who had pushed for a longer extension. We expect the deal to impact tax reform efforts as divisions between Republican leadership and President Trump appear to be widening as a result of the President’s compromise, which could make GOP-led tax reform tougher to get done (though tax cuts by early 2018, at a minimum, remain our base case).However, The odds of bipartisan cooperation on other fiscal items such as taxes and infrastructure may have slightly increased (though remain low).
  • The European Central Bank (ECB) made no change to monetary policy (as expected), but also provided very little guidance for how policy will be amended in the future. The official ECB statement, issued at 7:45 am ET today, suggested that the current program of purchasing 60 billion euro in bonds per month will continue until the end of December, “or beyond, if necessary,” and that the ECB “stands ready to increase the program in terms of size and/or duration.” Overall, this is about as dovish a statement as they could craft without explicitly committing to future policy. Initial market reaction was a slightly weaker euro (though the euro had run up this morning before the speech) and a very modestly higher tone to European equities.

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Click Here for our detailed Weekly Economic Calendar

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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