- Domestic markets resumed their climb. China’s pushback on claims of reducing U.S. Treasury purchases and strong oil provided tailwind. Dow +0.8%, S&P 500 Index +0.7%, Nasdaq +0.8%.
- Energy and consumer discretionary up soundly; rate-sensitive utilities, REITs continue to underperform.
- Treasury yields moved downwards; 10-yr. yield -2 basis points to 2.54%.
- NYSE breadth widely positive (3.4:1), volume a little light ~98% of 30-day avg.
- Commodities: WTI crude oil started very strong, but closed the day flat at $63.57/bbl., COMEX gold +0.2% to $1322/oz., industrial metals closed mostly higher.
Overnight & This Morning
- U.S. equities opened slightly higher as Q4 earnings season gets underway; German coalition progress buoying sentiment globally.
- European stocks up modestly, driven by news that German Chancellor Merkel has secured a ruling coalition. STOXX Europe 600 +0.1%, DAX +0.1%, FTSE 100 +0.2%.
- Asian markets finished mixed. Hang Seng higher a record 14th straight day. Nikkei -0.2%, Shanghai Composite +0.1%, Hang Seng +0.9%. China’s trade surplus widened on import shortfall–trade surplus with the U.S. rose 13% in 2017, potentially adding to trade tensions. China credit growth slowed in December.
- Treasury yields hold steady; 10-yr. yield little changed at 2.55%.
- Commodities: Oil reversing recent gains (-0.4%) to ~$63.46/bbl., gold up for third straight day on dollar weakness (gold +0.6% to ~$1331/oz. and U.S. dollar -0.4%); copper slightly lower.
- Economic releases: Consumer Price Index (CPI) +0.1% month over month, +2.1% year over year (Dec), both in line with consensus and below prior (+0.4%, +2.2%, respectively). Core CPI +1.8% year over year vs. +1.7% consensus and +1.7% prior. Retail sales +0.4% month over month (vs. +0.5% consensus); +0.4% month over month ex. autos, +5% year over year, in line with consensus, indicating a solid holiday shopping season.
- Earnings season unofficially kicks off today. Several financial companies will report results today, unofficially kicking off fourth quarter earnings season, which will be followed by about 5% of the S&P 500’s market cap reporting next week. The focus for investors will be on company guidance on the impact of the new tax law. We look for the typical upside to current (Thomson) consensus estimates that are calling for an 11.8% year-over-year increase in S&P 500 earnings for the quarter, suggesting a final increase in the 14-16% range, while revenue growth may top 7%. The strong growth is expected to be driven mostly by a strong rebound in energy sector profits, as well as potential double-digit gains for the technology and financials sectors. Pre-announcement trends and recent earnings revisions, in addition to positive global economic surprises, U.S. dollar weakness and higher oil prices, bode well for results.
- China news and Treasury auctions at odds. Headlines on Wednesday claimed that China could be considering reducing or halting U.S. Treasury purchases. Though debunked a day later, following the report the 10-year Treasury yield to hit an intra-day high of 2.59%, its highest level since March. Yields stabilized over the next few days, but we’re monitoring several other potential catalysts that could drive rates higher, which we’ll discuss this afternoon on the LPL Research blog.
- CPI (Dec)
- Core CPI (Dec)
- Retail Sales (Dec)
- Business Inventories (Nov)
- Rosengren (Hawk)
- France: CPI (Dec)
- Italy: Industrial Production (Nov)