Market Update: Thursday, January 25, 2018

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Market Recap

  • Stocks retraced early gains to finish mostly lower. String of mixed earnings, subpar reading on existing home sales among detractors; S&P 500 Index -0.1%, Dow +0.2%, Nasdaq -0.6%, Russell 2000 -0.7%.
  • Financials led; technology lagged on earnings, semiconductor weakness.
  • Negative breadth on NYSE (1.3:1) amid high volume (~120% of 30-day avg.).
  • 10-yr. Treasury yield closed at 2.65%, a level not seen since March 2014.
  • Commodities: WTI crude oil +2.3% to $65.61/bbl. on mixed inventory data, COMEX gold +1.6% to 1357/oz., industrial metals higher.
  • Economic data: Markit Flash Purchasing Managers’ Index (PMI) showed improvement in manufacturing, though composite data and services fell; existing home sales in December missed expectations due to low inventories.

Overnight & This Morning

  • Major domestic indexes opened higher but quickly turned choppy.
  • European stocks turn lower midday. Weakness follows U.S. open. STOXX Europe 600 +0.3%, DAX +0.2%, CAC 40 0.5%.
  • Asia moved lower overnight; yen gained on the heels of the Bank of Japan leaving monetary policy unchanged. Shanghai Composite -0.3%, Hang Seng -0.9%, Nikkei 225 -1.1%.
  • Treasuries flat; 10-yr. yield -2 basis points (-0.02%) to 2.63%.
  • Commodities: Oil continues to rise, sitting near three-year high on bullish DOE inventory data (+0.9% to $66.21/bbl.), gold flat near 1357/oz., industrial metals mostly higher.
  • Dollar weakness continues after hitting three-year lows yesterday.
  • Economic data: Building permits came in stronger than expected, weekly initial claims slightly below consensus (233k vs. 235k), leading indicators topped (0.6% vs. 0.5%), new home sales missed (625k vs. 675k).

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Key Insights 

  • Treasury Secretary defends weak dollar comments. The U.S. Dollar Index slid to more than three-year lows after U.S. Treasury Secretary Steve Mnuchin commented yesterday at the World Economic Forum that a weak dollar is good for the country. This morning, he stood by his comments, noting: 1) a weak dollar is good for the United States “as it relates to trade and opportunities;” 2) the United States is not concerned “where the dollar is in the short term;” and 3) there are “advantages and disadvantages of where the dollar is in the short term.” Though a weak dollar does make U.S. goods more attractive to overseas consumers, one of the potential drawbacks is the unfavorable impact it has had on U.S. asset valuations for foreign investors, particularly as it relates to the Treasury market. However, the stance is consistent with President Trump’s messaging, and may bode well for U.S. corporate earnings.

Macro Notes

  • ECB stands pat. The European Central Bank (ECB) released the results of its latest monetary policy meeting this morning, and the statement was basically a repeat of December’s minutes. There were no changes to forward guidance on quantitative easing (still expected to end in September, or beyond if necessary), and no changes to rates as expected. Euro strength has continued to be a topic of interest for markets in recent months, and investors will be watching the post-meeting press conference closely to see if ECB President Draghi will address the recent strength, especially given yesterday’s comments from U.S. Treasury Secretary Mnuchin regarding a weaker dollar.
  • Global PMIs remain strong. Yesterday saw the release of Markit PMI data for the United States and the Eurozone. In the United States, the manufacturing PMI beat expectations, while the services missed, though both remain firmly in expansionary territory. In Europe, the story was reversed, with services beating and manufacturing declining slightly from the 21-year high seen last month. Japan’s Nikkei Manufacturing PMI was also released and continued its recent upward trend. All of the data continue to point toward strong global growth.
  • Crude breaks $65. WTI settled at its highest level since December 2014 yesterday, after another inventory decline. Meanwhile, Brent followed suit and also made a new three-year high. U.S. dollar weakness (down 3% this month already) has also played a part in the surge in crude. The recent drop in supply comes at the same time the global economy improves and demand for oil remains high.
  • Lucky 13? Should the S&P 500 finish at a new all-time high today, it would be the thirteenth new high so far this month. This is already the most new highs ever during the month of January (the previous record was 11 in 1964) and it could be the first month since February 1998 to see 13 new highs. The most ever new highs for any month was June 1955 at 16. With five days left in the month, will it happen?

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Click Here for our detailed Weekly Economic Calendar

Thursday

  • Wholesale Inventories (Dec)
  • Advance Goods Trade Balance (Dec)
  • New Home Sales (Dec)
  • LEI
  • Germany: Consumer Confidence (Feb)
  • Germany IFO Business Climate (Jan)
  • Italy: Industrial Orders & Sales (Nov)
  • Canada: Retail Sales (Nov)
  • ECB: Main Refinance Rate
  • ECB: Marginal Lending & Deposit Facilities
  • BOJ: Minutes of Policy Meeting
  • Japan: CPI & PPI (Dec)

Friday

 

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