The Market Today
Business Confidence Today before Important Inflation (Wed) and Retail Sales (Thu)
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Things Pick Up Midweek After Slow Start: Today’s main report is an update on Small Business Optimism from the NFIB, although the monthly budget statement could make headlines considering the impact that lower revenues from tax reform are having on the Treasury’s bottom line. The NFIB reported another solid month for small business confidence in October, as the index ticked down 0.5. Even after the unexpected decline, economists were expecting a 0.1-point increase, the index is better than its 12-month average and near the top of its series’ range that reaches back to the 1970s. Most of the underlying indices saw little (four subcomponents) or no (four subcomponents) change. The index tracking how businesses feel about expanding dipped 3 points while the earnings trends eased by 2 points. After reporting a budget surplus for September, the Treasury is expected to show a monthly deficit of $100.0B for October. That would be the largest for an October since 2015. There are three Fed officials scheduled to make remarks today – Kashkari, Brainard, Harker – at conferences that are focused outside of the monetary policy sphere. However, there is always the chance of a policy question in a Q&A session or afterwards with reporters.
The Rest of the Week: The biggest data released will come tomorrow with October’s CPI inflation report and Thursday with October’s retail sales release. Core inflation is expected to rise 0.2% MoM which would hold the YoY rate at 2.2%. While still above the Fed’s target, some of the inflation data has been weaker than expected recently which could enhance the market’s response to a miss in either direction. After two strong quarters for the consumer, Thursday’s retail sales release will be a first glance at 4Q’s start. Headline sales are expected to have risen a solid 0.5% last month while core activity is expected to have registered another strong month, estimated to have risen 0.4% after September’s 0.5% gain.
There will also be several regional Fed surveys released for November and comments from several regional Fed presidents. Most meaningful could be comments from Fed Chair Powell tomorrow evening.
Overnight – Trade Talks Take Some of the Sting Out of Yesterday’s U.S. Equity Sell-Off: Global markets were mixed overnight, a positive result considering the pummeling U.S. equities endured yesterday on Wall Street (more below.) Asian markets initially tumbled but ended the day mixed after another volatile session. The Wall Street Journal reported yesterday that Treasury Secretary Mnuchin had chatted by phone last Friday with his peer in China. That conversation, while it didn’t lead to any newsworthy headlines, could be priming the trade topic for when the presidents of the two countries meet later this month. In addition to that report, a couple of top Chinese officials offered some optimistic comments on the U.S.-China trade front. China’s CSI 300 ended up 1.0% after earlier falling as much as 1.4%. Amid the positive murmuring around trade, most national European indices were positive, which has helped to push the Stoxx 600 0.5% higher, despite another monthly decline in economic expectations. A heavily followed survey of Eurozone growth expectations slid for a sixth month to a more-than-six-year low (July 2012). U.S. equity futures had recovered modestly, with the Dow and S&P 500 up 0.4% and the Nasdaq 0.6% higher. Despite higher yields in Europe, Treasury yields were lower, with the 2-year yield down 2.1 bps, the 5-year yield 2.4 bps lower, and the 10-year yield off 1.7 bps.
Yesterday – Tech Concerns, Auto Tariffs, Sliding Oil Price Hit Equities Hard: With the bond market closed in observance of Veteran’s Day, the market focus was solely on another sharp decline for U.S. equities that sent the S&P 500 down 2.0%. Shares of Apple sank to lead the tech sector to a last-place finish after one of its major suppliers cut their forward guidance. Energy companies lost over 2% after crude prices continued their record slide. Adding to those worries and the broad-based nature of the weakness, there was a report that the White House was reviewing a document discussing auto tariffs. With tech again on its back foot, the Nasdaq dropped an even-worse 2.8%. The Dow sank over 600 points, or 2.3%.
ICYMI – November 9, 2018 Weekly Market Recap: The yield curve was hardly changed last week despite some volatility around the U.S. Midterm Elections, an as-expected decision from the Fed, and bit of weakness from stocks later in the week. The U.S. House went to the Democrats while the Senate stayed with the Republicans. The three major economic releases – October’s ISM Non-manufacturing index, September’s JOLTS report, and November’s University of Michigan Consumer Survey – were a bit softer, but remained solid. The Fed left its target range at 2.00-2.25% but said it still expects further gradual rate increases as the economy remains strong despite some softer business spending. Thoughts of additional Fed tightening added to pressure from a record slide for oil prices and a late-week drop for global equities. Despite slipping in the final two sessions, U.S. equities finished up more than 2% for the week. Click here to view the full recap.