The Market Today

TODAY’S CALENDAR

Import, Export Prices Reflect Little Inflation Pressure: Import prices were firmer than expected in September while export prices fell short of estimates. The headline import index rose 0.5% MoM, easily clearing the 0.2% estimate, and the fastest increase since May. However, stripping out a 4.1% increase in the cost of petroleum imports, the net cost of the remaining basket of goods was unchanged. Prior to September, the price of imports, excluding petroleum, had declined for three consecutive months. Food prices were up 2.0% from August while the price of industrial supplies rose 1.5%. Capital goods and autos were flat and consumer goods, excluding autos, fell 0.1%. The export price index was also unchanged in September and showed similarly subdued pressures in the underlying details.

 

The Rest of the Day: At 8:30 a.m. CT, Chicago Fed President Evans will speak on the economy. On Wednesday, he sounded an upbeat tone on growth and inflation trends and noted he believes the Fed “could move to a slightly restrictive policy stance,” which he pegged somewhere above 3%.

 

At 9:00 a.m. CT, the University of Michigan will release its preliminary October consumer sentiment survey. Confidence is expected to rise to its third highest level since 2004.

 

At 11:30 a.m. CT, Atlanta Fed President Bostic will offer his second round of remarks for the week. On Wednesday Bostic said he expects the U.S. economy will remain strong for the rest of the year and noted that the stock market sell-off won’t distract him from the strong underlying fundamentals.

 

After the markets close, Fed Governor Quarles will speak in Bali.

 

TRADING ACTIVITY

Yesterday – Stocks Tumble for a Second Consecutive Session: Uncertainty and nervousness continued to overhang U.S. markets as stocks stumbled anew just a day after the biggest sell-off since February. The Dow followed up Wednesday’s 3.2% (831-pt) drop with another 2.1% (546-pt) decline. The index ended down 6.6% from last Wednesday, when a surge in Treasury yields cast a cloud over valuations of riskier assets. The S&P 500 tacked another 2.1% drop to Wednesday’s 3.3% slide. After declining for six consecutive days, the longest losing streak since before President Trump was elected, the index is down 6.7% since last Wednesday. The Dow, S&P 500, and Nasdaq all closed below their 200-day moving averages. All 11 S&P 500 sectors weakened and over half dropped by more than 2%. Energy companies fell the most, dropping 3.1% as crude prices tumbled. Oil prices fell more than 3% Thursday as the general risk-off mood weighed, the U.S. reported a larger-than-expected inventory build, and OPEC questioned the outlook for global demand. There was momentary reprieve for equities early in the session after September’s CPI inflation missed estimates, giving Treasury yields reason to pull back. However, yields quickly recovered and stocks responded by giving up their gains. For a second day, as stocks retreated in the afternoon longer Treasury yields moved back down before the close. The 10-year yield fell 1.3 bps on the day to 3.15%. Shorter yields were less impacted and the 2-year Treasury added 0.6 bps to 2.85%.

 

Overnight – Equities Recover and Rates Rise as Earnings Seasons Gets Underway: Global equities rebounded overnight as indices across Asia and Europe notched solid gains and U.S. futures signaled a bounce at the open. U.S. equities have been battered over the last couple of days as fears of higher interest rates plagued riskier assets, creating concerns about whether it was the beginning of a protracted market correction. Friday’s bounce will be heavily watched to see if it’s fleeting zeal or a more meaningful bottom. The turn higher also comes just in time for the beginning of corporate earnings season. According to FactSet, earnings are expected to have grown 19.2% in 3Q, another solid quarter but down from the roughly 25% rate seen in the first two quarters of 2018. As always, some of the largest U.S. banks will kick it off and could set the tone for what to expect over the coming weeks. First up, JPMorgan posted better-than-expected revenue and earnings results, a smaller-than-estimated provision for loan losses, and 6% YoY loan growth. As equity sentiment has recovered, the recent balancing act with bond yields has continued. Ahead of this morning’s less-important import and export inflation data, the 2-year yield was 1.3 bps higher at 2.86% while the 10-year yield had risen 1.5 bps to 3.17%.

 

NOTEWORTHY NEWS

ICYMI – Vining Sparks on Fox Business: Vining Sparks’ Chief Economist appeared on Fox Business Thursday morning discussing the recent rise in interest rates, the consequent swings in the stock market, and if the Fed is to blame for the increased volatility. Click here to watch the interview.

 

October Bloomberg Survey of Economists: After interest rates spiked in the week preceding the October Bloomberg Survey of Economists, economists reacted by raising their interest rate projections but made few changes to their growth forecasts. Click here to view the survey.

 

George Expects Gradual Rate Increases to Continue In Response to Solid Outlook: Kansas City Fed President George (2019 voter) told listeners in Tulsa on Thursday that “By nearly every measure, the U.S. economy is performing well,” and that “With accommodative financial conditions, elevated levels of confidence and solid labor markets, it seems reasonable to expect economic growth slightly above trend with low and stable inflation for the next few years.” She noted “inflation has been remarkably stable even as the unemployment rate has fallen sharply. That said, the accommodative stance of monetary policy that has prevailed, even as the unemployment rate has fallen below estimates of its long-run sustainable level, could push inflation somewhat higher over the next couple of years.” She concluded that “there is good reason to expect continued moderate growth” which “will likely require further gradual increases in the FOMC’s target interest rate, although the pace and extent of future actions remain a key aspect of the Committee’s deliberations.”

 

White House Weighs in Again on Fed Policy: For a second day in a row, President Trump vocalized his displeasure with the Fed’s recent rate increases and their projections of more to come. When asked about the recent stock market volatility, President Trump told reporters “It’s a correction that I think is caused by the Federal Reserve, with interest rates.” He added, “we have interest rates going up at a clip that’s much faster than certainly a lot of people including myself would have anticipated. I think the Fed is out of control. I think what they’re doing is wrong, …I think the Fed is far too stringent. And they’re making a mistake. And it’s not right.” When asked about Chair Powell’s future, he replied “No, no I’m not going to fire him. I’m just disappointed at the clip. I think it’s far too fast.” Earlier in the day, President Trump’s top economic adviser Larry Kudlow was less frank on CNBC, saying “I don’t want to second guess the Fed. They are independent.” As for the President’s remarks, he noted “The president has, you know, his own views. He’s stated them many times. …the President is not dictating policy to the Fed.” He too addressed the recent market swings, saying “it’s a normal correction in a bull market, …the economic numbers are superb, …If you have a strong economy that will provide confidence for stocks but corrections come and go.”