The Market Today

Congress is Back in Washington, the Economic Calendar Calms, North Korea Keeps Markets in Risk-Off Mode


by Craig Dismuke, Dudley Carter

This Week’s Calendar – Congress is Back in Washington, the Economic Calendar Calms: Compared with last week’s exhaustive economic calendar, this week’s calendar should be a whisper. At 9 a.m. CT, the July factory orders report is expected to show a 3.3% pullback at the headline level. The expected headline weakness should be the result of the big decline in civilian aircraft orders reported in the advance release of July’s durable goods orders data a couple of weeks ago. This report will also revise the initial estimates of capital goods orders and shipments in July which showed solid momentum heading into the third quarter. By the end of the day today, we will also have the latest comments from three key Fed officials (Brainard, Kashkari, and Kaplan), all of whom vote on policy this year. Congress returns to Washington today with the clock ticking on a deal to raise the debt ceiling and approve a spending bill to fund the government for the upcoming fiscal year.

 

Wednesday’s economic releases will include August’s trade balance (deficit expected to widen slightly), August’s ISM non-manufacturing report (expected to rebound after July’s disappointment), and the Fed’s Beige Book in advance of its next policy meeting in two weeks.

 

On Thursday, the focus will be on monetary policy with the greatest interest likely in the ECB’s latest decision. While the expectation is for no substantive changes in the official statement, markets will tune in to President Draghi’s post-meeting press conference for any hints on the plan for the ECB’s QE program. The program is set to expire in December but no one expects it to end then. As such, markets are looking for insight into if it will be extended at its full 60B Euro-per-month pace, or if it will be further tapered. Here at home, second quarter productivity should rebound given the stronger GDP report from last week and the Fed’s Mester, Dudley, and George will make remarks throughout the day.

 

Friday’s calendar is quiet. Philadelphia Fed President Harker is scheduled to make remarks on the consumer before markets open. There will also be two data releases Friday: July’s whole inventories and trade data and consumer credit activity.

 

Overnight Activity – Another North Korea Threat Keeps Market Sentiment Subdued: While U.S. markets were closed Monday in observance of Labor Day, markets in the rest of the world responded with caution to news of North Korea testing a hydrogen bomb on Sunday. A hint of Monday’s risk-off bias remains in markets Tuesday after North Korea’s U.N. ambassador promised “more ‘gift packages’”, a reference to the recent missile and other military tests, “as long as [the U.S.] relies on reckless provocations and futile attempts to put pressure on the DPRK.” European markets initially shook off Monday’s malaise early Tuesday but reversed back towards break even on the ambassador’s remarks. The Yen strengthened but gold was essentially unchanged. Treasury yields have been volatile overnight but are currently trading at their lows of the day. The 2-year yield is down 3.2 bps to 1.31% with the 5-year (1.69%), 7-year (1.94%), and 10-year (2.11%) notes down more than 5 bps. U.S. equity futures are off more than 0.2%

 

ICYMI – September 1, 2017 Weekly Recap: Yields fell sharply overnight Monday and into Tuesday morning after North Korea launched a missile over Japan and into the Pacific Ocean. However, by the time U.S. markets closed Tuesday that risk-off sentiment had eased notably. Yields were relatively stable on Wednesday and Thursday ahead of a bout of Friday volatility. The knee-jerk rally in Treasurys to a softer-than-expected August payroll report quickly faded and yields rose for the remainder of the day. When all the dust settled Friday, the net effect was a Treasury curve that was hardly changed. The more interest market moves were in energy commodities. Gasoline prices rallied as the flooding from Hurricane Harvey shuttered U.S. oil refiners and created a supply concern. At the same time, expectations of weaker near-term demand from those refiners for crude oil weighed on U.S. crude prices. The economic calendar was also heavy, growing in significance each day until a Friday apex. Click here to see the full recap.

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