The Market Today
Chinese Stocks, Italian Yields Stood Out Overnight Ahead of Quiet Daily U.S. Calendar
by Craig Dismuke, Dudley Carter
THIS WEEK’S CALENDAR
Today’s Calendar – Chicago National Index Cools: The Chicago Fed’s National Activity Index, the only report scheduled for Monday, was slightly softer than expected in September and almost in line with its level from a year ago (0.18). At 0.17, the index was the weakest since a big decline in May and the second weakest since another drop in January. Of the 85 indicators tracked, 46 were accretive to the positive headline index while 39 served as a drag. The three-month average is presumed to dampen some of the month-over-month volatility and serve as a stronger indicator of economic and inflation trends. Following an expansion, levels of -0.7 (increased likelihood the economy is in a recession) and +0.7 (increased likelihood inflation is accelerating) are considered to be key. In September, the three-month average cooled from 0.27 to 0.21.
The Rest of the Week:
Tuesday: October Richmond Fed Manufacturing Survey; Comments from Fed’s Kashkari, Bostic, Kaplan, and George
Wednesday: August FHFA House Price Index; October Markit PMIs; September New Home Sales; Fed’s Beige Book; Comments from Bostic, Mester, and Brainard
Thursday: ECB Policy Decision; September Goods Trade Balance; September Inventories; September Durable Goods Orders; September Pending Home Sales; October Kansas City Fed Manufacturing Survey; Comments from Fed’s Clarida and Mester
Friday: 3Q GDP; October University of Michigan Consumer Sentiment Survey
Overnight – Overnight Standouts Were Chinese Equities, Italian Yields: In a rather calm overnight session, Chinese stocks stood out among global equities while moves in Italian yields were notable relative to more modest shifts in other sovereigns. China’s CSI 300 rallied 4.3% overnight to register its biggest daily gain since November 2015. The positivity was a carryover from last Friday after several government officials talked up efforts to stabilize the markets and the economy and set off a 3.0% rally to close the week. Those efforts continued over the weekend and were accompanied by details of the Chinese government’s plan to cut individual income taxes. Elsewhere, moves were more modest but the tone remained upbeat. U.S. futures were well into positive territory and European stocks had risen more than 0.5%. After another up-and-down period of trading overnight, Italian yields were notably lower. Moody’s lowered the country’s credit rating but kept it (barely) in the investment-grade tranche. The Baa3 rating was accompanied by a “stable” outlook. Also, government officials overnight remarks on the budget discussions with the EU have also had a calming effect. Heading into U.S. trading, equity futures were being led higher by strength in tech while Treasury yields were slightly lower. The 2-year yield was down 0.4 bps from Friday’s cycle-high 2.91% while the 10-year yield had slipped 0.9 bps.
ICYMI – October 19, 2018 Weekly Market Recap: The yield curve ended last week modestly higher and flatter after the Fed Minutes showed growing support for policy potentially needing to become restrictive. Yields barely budged early in the week but broke higher after the Fed’s September Minutes leaned a little more hawkish than expected. After describing growth as “strong” and saying they expected inflation would be sustained “near 2 percent”, they signaled support for “further gradual [rate] increases”. More interestingly, there appeared to be more officials who favored restrictive policy than opposed it. Stock volatility neutralized that effect on Thursday but yields recovered slightly on Friday. While they had little effect on the markets, there were numerous other reports released during the week. Despite a slight bounce in home builder confidence, housing continued to look shaky based on larger-than-expected declines in housing starts, building permits, and existing home sales. Consumer spending continued to look strong based on solid core retail sales and should remain so as long as the labor market remains hot. The August JOLTS report showed another record high for job openings and for a sixth month in a row there were more open positions than unemployed workers. Click here to view the full recap.