Market Update: Wednesday, February 7, 2018

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Market Recap

  • Stocks whipsaw, close largely higher. After dropping sharply in early trading, U.S. equities rebounded throughout the day, closing higher for the first time since last Wednesday. S&P 500 Index +1.8%, Dow +2.3%, Nasdaq +2.1%.
  • Advance was led by technology and materials stocks, both climbing 2.8%. Real estate and utilities were the only sectors to end the day negative.
  • Treasury yields fell for a second consecutive day. 10-year yield -2 basis points (0.02%) to 2.77%.
  • Commodities: COMEX gold’s recent drop continued (-0.5% to $1329.50/oz.) as the precious metal couldn’t benefit from continued volatility. WTI crude oil fell as well, -1.2% to $63.39/bbl.
  • Economic data: Yesterday’s calendar was light, though the December JOLTS report showed job openings declined 2.8% from November, though still +4.9% year over year.

Overnight & This Morning

  • Major indexes clinging to early gains, as volatility continues to fall.
  • European equities rebounding following Tuesday gains in U.S., economic data mixed; German government parties agreed on coalition (details below). STOXX Europe 600 -2.4%, DAX -2.5%, CAC 40 -2.8%, FTSE 100 (-2.6%) bucked trend on lackluster housing data, negative Brexit headlines.
  • Asia mixed overnight. Nikkei (+0.2%) gained despite yen strength. Shanghai Composite -1.8%, Hang Seng -0.9%.
  • Treasury yields higher; 10-yr. note yield +3 basis points (-0.02%) to 2.80%.
  • Commodities: Oil ticking up (+0.4% to $63.66/bbl.), gold -0.2% to $1326/oz., industrial metals mostly lower.
  • Economic data: China FX reserves below consensus ($3,161b vs. $3,170b), Japan Leading Index 107.9 vs. 108.1 expected, German industrial production down more than expected (-0.6% vs. -0.5%).
  • Fedspeak: San Francisco’s Williams speaking at 5:20 p.m. ET, Kansas’ George speaks at 9:00 p.m. ET.

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Macro Notes

  • Senate pursues two-year budget deal ahead of deadline. Multiple reports out of Washington suggest congressional leaders are nearing an agreement that would boost defense and nondefense spending over 2018 and 2019. Despite President Trump commenting that he would “love to see a shutdown” if the Senate does not back his immigration proposals, the issue has been largely separated from talks as Senate Democrats appear content with Republican Mitch McConnell’s promise to bring an immigration bill to the Senate floor at a later time. The government will run out of funding Thursday if a deal is not reached, though it is important to remember that this has historically been a non-event for equities.
  • Germany on the cusp of grand coalition. After much debate and negotiation, German Chancellor Angela Merkel’s Christian Democratic Union (CDU) party has agreed in principle with the Social Democratic Party (SPD) and Christian Social Union (CSU) on a coalition deal, but SPD members still must vote to approve the terms. The deal comes after months of talks because September’s election failed to produce a majority for any of the parties. Some of the key issues during the negotiations included health insurance, labor market contracts and initiatives, immigration, and arms exports. Reports indicate that the deal, if approved, would likely ensure that Merkel remains Chancellor for a fourth term and put her CDU party in charge of the Economy Ministry, in exchange for relinquishing control of the influential interior and finance ministries to the CSU and SPD, respectively. In addition to finance, the SPD would also gain control foreign affairs and labor. Market reaction has been somewhat muted pending the SPD vote; though a failure to back the deal would result in another election, which would likely result in another trip back to the drawing board.
  • Did Powell spark the recent weakness? There are many reasons for the recent selloff, but did you know that markets have a funny way of testing new Fed chairs? Today on the LPL Research blog we will take a look at this interesting phenomena. Going back to the first Fed chair in 1914, the Dow is down more than 15% on average at the lows within six months of taking office. The good news is we see a more than 20% bounce the year after those lows are made. Be sure to read out blog due out later today on this subject.
  • The volatility continues. The S&P 500 bounced back, gaining 1.7% on the day for the largest gain since right after the US election in November 2016. This of course comes on the heels of the worst drop since August 2011. This is now three consecutive days of a move of at least 1% (up or down), for the first time since September 2016. There hasn’t been four in a row since Brexit in late 2016.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • Germany: Industrial Production (Dec)
  • France: Trade Balance (Dec)
  • Italy: Retail Sales (Dec)
  • ECB: Nuoy
  • Japan: Leading Index (Dec)
  • China: Imports & Exports (Jan)

Thursday

  • Germany: Trade Balance (Dec)
  • Germany: Imports & Exports (Dec)
  • ECB: Publishes Economic Bulletin
  • ECB: Weidmann, Velleroy, Mersh, Praet
  • BOE: Bank Rate
  • Bank of Mexico: Overnight Rate
  • Japan: Money Supply (Jan)
  • China: CPI & PPI (Jan)

Friday

  • Wholesale Sales & Inventories (Dec)
  • France: Industrial Production (Dec)
  • Italy: Industrial Production (Dec)
  • UK: Industrial Production (Dec)
  • UK: Trade Balance (Dec)
  • UK: NIESR GDP Estimate (Jan)
  • Canada: Unemployment Rate (Jan)
  • Bank of Russia: Key Rate

 

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