- Domestic markets continued advance, buoyed by energy bounce-back, tax reform hopes. S&P 500 Index 0.1%, Dow flat, Nasdaq +0.3%.
- Energy sector led markets higher, aided by strengthening oil/natural gas prices. Telecommunications, consumer staples significant laggards.
- Positive breadth on NYSE (1.4:1), above average volume (107% of 30-day avg).
- 10-year Treasuries held flat, yielding 2.32%; dollar mostly lower against major crosses.
- Commodities– WTI crude oil ran higher (+3.0%) to $57.30/bbl., COMEX gold +1.0% to $1281/oz.
Overnight & This Morning
- Domestic markets opened near flat with all eyes on corporate earnings, House tax reform plan issues.
- European equities lower despite lack of directional driver. STOXX Europe 50 -0.2%, Germany’s DAX -0.1%, France’s CAC 40 -0.1%, Spain’s IBEX -0.2%.
- Asian markets higher; follows U.S. gains, weakening yen. Nikkei +1.7%, Hang Seng +1.4%, KOSPI -0.1%, Shanghai Composite +0.8%.
- 10-year Treasury near flat at 2.33%.
- U.S. Dollar bouncing, significantly outperforming the yen, euro.
- Crude giving back some recent gains (-0.1% to $57.27/bbl.) after hitting highest level since 2015 as turmoil in Saudi Arabia continues to grow.
- Commodities- mainly lower on the U.S. strength with gold (-0.3% to $1277/oz.) Industrial metals mixed.
- Economic calendar – September JOLTS–10 a.m. ET, Sept Consumer Credit–3 p.m. ET.
- Yield curve steepness at cycle low, but other indicators tell a different story. U.S. yield curve steepness, as measured by the difference between 10-year and 2-year Treasury yields, moved lower last week, hitting a new cycle low of 0.7% on Monday. A flattening yield curve hasn’t historically been a good predictor of recessions, but an inverted yield curve has; however, while the yield curve has been flattening for most of this year, it still remains far from inversion. Several key indicators, including stock market earnings, the performance of copper versus gold, and stronger oil prices suggest to us that the growth picture may in fact be improving, though we will keep a close eye on the yield curve moving forward.
- 10-year Treasury gives up recent gains. The 10-year Treasury rose nearly 20 basis points (0.2%) from mid-October to the end of the month as markets priced in the potential for a more hawkish Fed chair (John Taylor), a potential slowdown in bond buying from the European Central Bank (ECB), and a potential rate hike from the Bank of England (BOE). Two out of three of these events happened, with the ECB tapering, and the BOE hiking rates, but both central banks did so in a dovish way. The ECB left open the possibility of bond purchases beyond their suggested September 2018 end date, and also noted that they would continue reinvesting proceeds of maturing bonds, while the BOE softened language about the path of future rate hikes. And of course in the U.S., Jerome Powell was nominated as the next Fed chair, a decidedly less hawkish choice than either John Taylor or Kevin Warsh would have been. The dovish nature of these events had led the 10-year Treasury yield, as well as sovereign yields in many other nations, lower in recent weeks.
- High-quality bonds saved by the bell. High-quality fixed income was on track for a negative month heading into the last week of October, as the rise in rates from mid-month pushed prices lower. However, a dovish taper from the ECB and falling odds of a hawkish Fed chair appointment led yields lower and allowed the Bloomberg Barclays U.S. Aggregate Bond Index to eke out a positive return (0.1%) for the full month. We discuss this chain of events in more detail in this week’s Bond Market Perspectives, due out later today.
- More new highs across the board. The S&P 500, Dow, and Nasdaq all closed at new all-time highs yesterday; marking the 26th time in 2017 that all three major indexes closed at a new high on the same day. This is officially the most occurrences ever for one calendar year, topping the previous record set in 1995. Additionally, as we noted on the LPL Research blog yesterday, 2017 has seen the most new highs ever for the Nasdaq, while the S&P 500 has now gone 44 consecutive days without a 0.5% close lower; tying the longest streak since ’95.
- The Halloween indicator. With the S&P 500 up more than 15% year to date as of the end of October, one might suspect that some weakness during the historically bullish final two months of the year could be coming. Well, going back to 1950, there have been 17 previous times the S&P 500 was up 15% as of the end of October, and the final two months closed higher 16 times with an average gain of 4.9% versus an average final two-month return of 3.2%. We will take a closer look at this phenomena later today on the LPL Research blog.
- JOLTS Job Openings (Sept)
- Consumer Credit (Sept)
- Quarles* (Hawk)
- Germany: Industrial Production (Sept)
- Italy: Retail Sales (Sept)
- Eurozone: Retail Sales (Sept)
- Bank of Canada: Poloz
- BOJ: Outright Bond Purchase
- BOJ: Funo
- China: Imports & Exports (Oct)
- China: Trade Balance (Oct)
- MBA Mortgage Applications (Nov 3)
- France: Trade Balance (Sept)
- BOJ: Summary of Opinions at Oct 20-21 Meeting
- Japan: Leading Econmioc Index (Sept)
- Japan: Core Machine Orders (Sept)
- China: CPI & PPI (Oct)
- Japan: Current Account Balance (Sept)
- Japan: Trade Balance (Sept)
- Japan: Economic Watchers Survey (Oct)
- Weekly Jobless Claims
- Wholesale Sales & Inventories (Sept)
- Germany: Trade Balance (Sept)
- Germany: Imports & Exports (Sept)
- UK: Industrial Production (Sept)
- UK: Trade Balance (Sept)
- UK: Nat’l Institute of Economic & Social Research GDP Estimate (Oct)
- ECB: Economic Bulletin
- ECB: Villeroy de Galhau
- Japan: Money Supply (Oct)
- Japan: Tertiary Industry Index (Sept)
- China: New Loan Growth & Money Supply (Oct)
- Monthly Budget Statement (Oct)
- of Michigan Sentiment (Nov)
- France: Industrial Production (Sept)
- Italy: Industrial Production (Sept)