Market Update: Thursday, August 9, 2018

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Daily Insights

  • More sanctions for Russia. The U.S. announced new sanctions on Russia in response to the Russian government’s involvement in a March 4 chemical attack. The sanctions, expected to take effect on August 22, limit U.S. exports to Russia that could be used for military purposes, according to news reports. Russia then threatened to retaliate in response to the new sanctions, driving the ruble to its lowest point since 2016 vs. the U.S. dollar. While these latest sanctions would be a small drop in a bucket in the context of trade discussions, any geopolitical headlines could inject volatility into the stock market.

  • Watching paint dry. Speaking of volatility (or the lack thereof), U.S. equities have had a boring couple of days. Through yesterday, the S&P 500 Index just missed out on its first five-day win streak since February. In fact, the past two days have been the smallest and third smallest intraday ranges of the year. Adding to the low volatility theme, the CBOE Volatility Index (VIX) closed at its lowest level since the second week of the year. With the S&P 500 less than 1% away from new highs, it sure appears to be resting before the next move.

  • Producer price growth slower than expected, but some internal pressure evident. The producer price index (PPI) remained unchanged month over month in July, missing consensus estimates for a 0.2% gain. Excluding food and energy, PPI rose 0.1% month over month (vs. consensus expectations for a 0.2% gain). Price changes for intermediate goods, however, remain elevated. Intermediate goods are those sold to businesses that are then used production. Prices of processed intermediate goods were up 6.8% from a year ago and unprocessed goods up 8.2%, indicating some potential inflationary pressure building in the system. The data confirm anecdotal evidence of price pressures in the Federal Reserve’s (Fed) latest Beige Book. Despite an early warning signal from this narrow category, consumer price inflation remains well contained. We’ll get further insight on consumer prices in tomorrow’s Consumer Price Index report, released at 8:30.

  • Jobless claims fall. Applications for unemployment benefits fell to 213k last week, below consensus estimates for 220k. While the 3-week rolling average rose to 216k amid slight uptick in jobless claims at the end of July, it still sits near its lowest point of the economic cycle. Declining claims confirm our view that the labor market is solid, and sits at or near full employment.

  • Policy mistake? In a vacuum, the U.S. macroeconomic backdrop supports the Fed’s gradual approach to raising rates. However, domestic and global crosswinds have muddled the case for this approach. Today on the LPL Research blog, we examine these crosswinds, including tepid inflation, global stability, and the Fed’s balance sheet unwind.

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Thursday

  • PPI Final Demand MoM (Jul)
  • Wholesale Inventories MoM (Jun)
  • Japan: PPI (Jul)
  • Japan: GDP (Q2)
  • China: Money Supply (Jul)

Friday

  • CPI MoM (Jul)
  • CPI YoY (Jul)
  • CPI Ex Food & Energy MoM
  • CPI Ex Food & Energy YoY
  • France: Industrial Production (Jun)
  • UK: Industrial Production (Jun)
  • UK: GDP (Jun)

 

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Index data obtained via FactSet

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