- U.S. equities failed to hold early gains in quiet trading; late-day selling pushed S&P 500 Index (-0.2%) lower for second straight session; small caps lagged the broader market: Russell 2000 Index -0.4%, Dow -0.1%, Nasdaq -0.2%.
- Energy led sectors on modest rebound in WTI crude oil; healthcare underperformed on reports White House is poised to issue executive order tied to ACA, which weighed on hospitals and related services.
- Negative breadth on NYSE amid low volume (~73% of 30-day avg.).
- Fixed income market closed for Columbus Day. 10-year note yielding 2.35%.
- U.S. dollar weakened, notably vs. pound sterling.
- Commodities – Oil +0.5% to $49.52/bbl.; COMEX gold (+1.0% to $1287/oz.) extended Friday rally, industrial metals weakness continued.
Overnight & This Morning
- Major U.S. indexes opened +0.2%, trading expected to pick up after yesterday’s holiday.
- Asian stocks closed higher, with many returning from holiday. KOSPI +1.6%, Hang Seng +0.6%, Shanghai Composite +0.3%, Nikkei +0.6%–near levels last seen in 1996.
- Yuan strength continues; the Chinese currency jumped to its highest level since September.
- European stocks slightly lower with all eyes on Catalonia. DAX -0.2%, CAC 40 -0.1%, STOXX Europe 600 -0.3%.
- Treasuries are unchanged as multiple Federal Reserve (Fed) members are due to speak today, while U.S. dollar fell vs. other currencies.
- Commodities – Oil (+1.2%) moving higher for second consecutive day; gold +0.8% to $1294/oz. on U.S. dollar weakness; industrial metals are mixed.
- A better sign for active? In today’s Wall Street Journal, an article reports that the one-month implied correlation for the largest 50 U.S. stocks fell to an all-time low at 9%–well below the 44% average going back nearly 20 years. As we’ve seen this year, there has been more dispersion in sectors, making this a much better environment for active management versus passive management. After seeing many markets historically correlated over the past few years, it was a tough environment for active, but we think this could only be the beginning of the dispersion and active will benefit as we move into 2018 and potentially beyond.
- 10-year Treasury holds above its 200-day moving average, potentially providing support for the recent pickup in interest rates. The 200-day moving average can be a useful indicator in gauging directionality of the price or yield of a security or the strength of a recent move. The 200-day moving average for the 10-year Treasury has become more relevant as of late, as we are just over 200 trading days since the large pickup in interest rates that occurred post-election day.
- The increase in U.S. yields since September has outpaced most other developed nations. Only the U.K. has seen rates move higher faster, but some of that move has been due to increased inflation and rate hike odds due to Brexit. Canada has also seen a strong move higher on stronger economic growth, while Spain has seen yields move higher in response to contention regarding Catalonia’s proposed secession. We discuss these issues and the impact for U.S. fixed income investors in this week’s Bond Market Perspectives, due out later today.
- Inflation expectations pick up slightly, despite oil’s decline on the week. The 10- and 30-year breakeven inflation rates both notched up slightly, though still below the Fed’s 2% inflation target. Inflation expectations are not explicit readings of inflation, but they can be important drivers of inflation, counterintuitively. For instance, if consumers believe inflation is set to rise, they may make purchases now that they may otherwise have made in the future, helping to pressure actual inflation higher.
- December rate hike odds increase, pushing short-term rates higher on the week. Fed speakers did little to dissuade markets from believing a December rate hike was coming, helping to push market-implied chances of a rate hike up to near 80% last week. Long-term rate hike expectations have increased as well, with the market implying 1.3 rate hikes in 2018 (the highest ever) and 0.6 rate hikes in 2019 (the highest since mid-August), based on the fed funds futures market. The potential for Kevin Warsh to become Fed chair may be helping move these expectations higher, as Warsh is seen as marginally more hawkish than other potential candidates like Jerome Powell and current Chair Janet Yellen.
- How is Europe looking? Although Europe has lagged the U.S. for years now, and is lagging again so far this year, a positive technical development is taking place for the Euro STOXX 50. Today on the LPL Research blog we will take a closer look at Europe and show why better times could be ahead.
- This isn’t the Catalonia wine mixer. The drama between Spain and Catalonia continues, as Catalan President Carles Puigdemont has a key address to the regional parliament later today, where he is expected to announce a gradual move to independence. There is growing pressure to drop plans for independence, but this can change quickly.
- NFIB Small Business Optimism (Sept)
- Kashkari (Dove)
- Kaplan (Hawk)
- Germany: Trade Balance (Aug)
- Germany: Current Account Balance (Aug)
- Germany: Imports & Exports (Aug)
- France: Industrial Production (Aug)
- Italy: Industrial Production (Aug)
- UK: Industrial Production (Aug)
- UK: Trade Balance (Aug)
- UK: GDP Estimate (Sept)
- Japan: Core Machine Orders (Aug)
- MBA Mortgage Applications (Oct 6)
- Jolts Job Openings (Aug)
- FOMC Meeting Minutes (Sept 20)
- Evans (Dove)
- Williams (Dove)
- BOJ: Outright Bond Purchase
- Japan: Machine Tool Orders (Sept)
- Japan: PPI (Sept)
- PPI (Sept)
- Initial Jobless Claims (Oct 7)
- Powell (Dove)
- Brainard (Dove)
- Continuing Claims (Sept 30)
- Monthly Budget Statement (Sept)
- France: CPI (Sept)
- Eurozone: Industrial Production (Aug)
- ECB: Draghi
- Bank of England: Credit Conditions & Bank Liabilities Survey
- China: Trade Balance (Sept)
- China Imports & Exports (Sept)
- CPI (Sept)
- Core CPI (Sept)
- Real Average Weekly & Hourly Earnings (Sept)
- Retail Sales (Sept)
- Evans (Dove)
- Kaplan (Hawk)
- Powell (Dove)
- Germany: CPI (Sept)
- Germany: Wholesale Price Index (Sept)
- Italy: CPI (Sept)
- China: Foreign Reserves (Sept)
- Business Inventories (Aug)
Past performance is no guarantee of future results.
The economic forecasts set forth in the presentation may not develop as predicted.
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