Market Update: Wednesday, February 21, 2018

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Market Recap

  • U.S. markets closed lower, lacked major directional drivers. Bond market supply signals in focus amid Treasury auctions (details below). S&P 500 Index -0.6%, Dow -1.0%, Nasdaq -0.1%, Russell 2000 -0.9%.
  • Technology (+0.3%) only sector to finish higher; consumer staples (-2.3%) dragged lower after disappointing earnings results.
  • Negative breadth on NYSE (2.0:1) trading volume far below average (~85% of 30-day avg.).
  • Treasuries dipped slightly. 10-yr. note yield +1 basis point (+0.01%) to 2.88%.
  • Commodities: WTI crude oil +0.2% to $61.64/bbl., COMEX gold fell on dollar strength -1.9% to $1331/oz.
  • Economic data: Light day for domestic releases. Eurozone consumer confidence well below expectations (0.1 vs. 1.0), but still above long-run average by 12.5 points and is consistent with the best Eurozone growth in years.

Overnight & This Morning

  • Domestic equities bouncing back, after snapping six-day win streak and as traders await FOMC meeting minutes release this afternoon (details below).
  • European stocks down but off session lows following disappointing Purchasing Managers’ Index (PMI) figures from France, Germany, and Eurozone. STOXX Europe 600 -0.1%, DAX -0.4%, CAC 40 flat, FTSE 100 -0.3%.
  • Asian markets reversed early declines, finishing higher. Support found in recent yen underperformance. Nikkei +0.2%, Hang Seng +1.8%, Shanghai Composite closed.
  • Treasury yields holding flat; 10-yr. yielding 2.88%. Dollar continuing strength against major crosses.
  • Commodities: Oil prices dipped (-0.7% to ~$61.33/bbl); gold flat at ~$1331/oz.; industrial metals mostly lower.
  • Economic releases: Eurozone PMI came in at 57.5 vs. 58.5 consensus. Results still indicative of healthy economic activity for the region as a reading over 50 indicates rising output.

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Macro Notes

  • FOMC meeting minutes expected to lean hawkish. The minutes from last month’s Fed meeting, due out at 2:00 p.m. ET, are expected to convey members’ increasing confidence that inflation will move sufficiently higher this year and stabilize near the Fed’s 2% target level over the medium term to support a continuation of its slow and steady rate-hike campaign. Given investors heightened focus on inflation data since the January nonfarm payrolls report showed an unexpected jump in wage growth, we expect today’s release of the Fed minutes to garner more attention than usual as investors continue to assess whether we may see four rate hikes this year instead of three. Though the difference is somewhat marginal, and the market is already absorbing the possibility of four hikes, keep in mind that this meeting took place before the recent volatility, before the recent inflation data, and perhaps more importantly, before the commitment to raise spending an additional $300 billion over the next two years.
  • $179 billion in Treasury auctions sees decent demand. Given the recent debt ceiling expansion, the Treasury is working to raise its cash balance and is auctioning off a total of $258 billion of debt this week. 4-week, 3-month, and 6-month bills were auctioned yesterday, along with 2-year notes. The Treasury will follow this up with sales of 2-year floating rate notes, and 5-year notes today, and finish with an auction of 7-year notes tomorrow. Rates have moved higher in recent weeks, at least partly in anticipation of the extra supply, but the $179 billion in mostly short-term bills and notes issued yesterday still saw decent demand.

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Click Here for our detailed Weekly Economic Calendar

Wednesday

  • Markit Mfg. & Services PMI (Feb)
  • Existing Home Sales (Jan)
  • FOMC Meeting Minutes
  • France: Markit France Mfg. & Services PMI (Feb)
  • Germany: Markit Germany Mfg. & Services PMI (Feb)
  • Eurozone: Markit Eurozone Mfg.  & Services PMI (Feb)
  • UK: Jobless Claims & Unemployment Rate (Jan)

Thursday

Friday

  • Germany: Imports & Exports (Q4)
  • Germany: GDP (Q4)
  • Eurozone: CPI (Jan)
  • Mexico: GDP (Q4)
  • Canada: CPI (Jan)
  • China: Property Prices (Jan)

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The economic forecasts set forth in the presentation may not develop as predicted.

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