Market Update: Friday, October 13, 2017

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Market Recap

  • Domestic equities slightly weaker despite fairly well-off bank results kicking off earnings season. S&P 500 Index -0.2%, Dow -0.1%, Nasdaq -0.2%.
  • Industrials, utilities, consumer staples led sector performances; telecommunications down sharply due to cable cutting fears; financials, consumer discretionary also lagged.
  • Slightly positive breadth on NYSE (1.1:1) with near-average volume (~93% of 30-day avg.).
  • 10-year Treasury yields dipped, -3 basis points (0.03%) to 2.32%.
  • Commodities – WTI crude oil slumped (-1.3%) to $50.60/bbl.; COMEX gold held onto gains (+0.5% to $1295/oz.).

Overnight & This Morning 

  • U.S. stocks opened higher with bank earnings, the CPI report, Trump looking to remove Obamacare cost-sharing subsidies, and growing concerns about if U.S. will leave NAFTA.
  • European stocks turn higher midday after struggling most of the session. DAX (+0.1%) making new all-time high in the process.
  • Asia-Pacific markets higher across the board, Nikkei (+1.0%) at highest level in more than two decades. Shanghai Composite +0.1%, Hang Seng +0.1%, ASX 200 +0.4%.
  • Treasuries flat ahead of inflation report, with 10-year yield unchanged at 2.33%.
  • Oil rebounding (+1.9% to $51.63/bbl) on geopolitical concerns, bullish Chinese import data.
  • Dollar mostly higher but lagging vs. yen.
  • Today’s economic calendar includes September consumer inflation and retail sales; preliminary reading of October Michigan Consumer Sentiment. Federal Reserve (Fed) speakers Rosengren, Evans, Kaplan, Powell all speaking.

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Key Insights

  • Consumer Price Index (CPI) and retail sales numbers for September were released this morning, and both saw a strong uptick versus August numbers. However, these stronger reports were mainly driven by hurricane-related factors. Gasoline prices spiked 13.1% in the aftermath of Hurricane Harvey, affecting headline numbers for both CPI (as energy makes up a significant portion of the CPI basket of goods), and retail sales (which measure the dollar value of sales, not the quantity). However, even if hurricane effects are stripped out, core numbers for both CPI and retail sales were in line with recent trends, indicating that the steady pace of economic growth seen in recent months likely hasn’t changed.

Macro Notes

  • European Central Bank (ECB) to halve the size of quantitative easing (QE). Sources have told Bloomberg that the ECB is considering cutting QE in January from 60 billion euros per month to 30 billion euros per month, and intends to keep that active for nine months. With their policy meeting two weeks away (October 26), the rumors will continue to swirl.
  • CPI shows hurricane related bump. The September CPI report was released this morning, and came in at 0.5% month over month, and 2.2% year over year. Most of the increase is due to an uptick in gasoline prices related to refinery shutdowns related to Hurricanes Harvey and Irma. Core inflation, which takes energy and food prices out of the mix, saw a 0.1% gain, and a year-over-year reading of 1.7%, the same as last month. The recently released minutes of the Fed’s September meeting indicated that the Fed expected a temporary increase in inflation due to the hurricanes. Markets are continuing to price in a strong chance of a rate hike in December, but this report is unlikely to have a major impact on the market’s expectations for the future trajectory of rate hikes.
  • Retail sales up on hurricane-related demand. Retail sales jumped 1.6% in September, the largest month-over-month gain since March 2015. The gain was, however, likely overstated due to consumers replacing hurricane-damaged vehicles and higher gasoline prices. Core retail sales, which exclude the impact of autos and gasoline, gained a respectable 0.5%, above expectations of 0.4%.
  • Friday the 13th. Today is the first Friday the 13th in October since 2006, and would you believe this spooky day is also historically weak? We took a look at this phenomenon on the LPL Research blog.
  • Who wins when the Fed hikes in December? If the Fed hikes rates in December, what is the likelihood that stocks move higher?  We take a look at what this means for investors later today on the LPL Research blog.

 

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Click Here for our detailed Weekly Economic Calendar

 

Friday

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)

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