The Market Today
Market Volatility Remains as Trade Threats, Earnings, and Global Headlines Weigh on Optimism
by Craig Dismuke, Dudley Carter
Home Price Gains Slowing but Consumer Confidence Flying High: The S&P CoreLogic Home Price Index is expected to show the YoY pace of home price gains slow from 5.92% to 5.80% at 8:00 a.m. CT. Home price gains continue to moderate as affordability has declined. Also on the calendar, October’s reading on consumer confidence from the Conference Board is expected to show a slight pullback after the September report hit its highest level since 2000. Confidence remains very strong.
Yesterday – Treasury Yields Closed Higher Despite Another Volatile Daily Loss for Equities: As has become the case in recent weeks amid resurgent market volatility, overnight and early-morning trends for U.S. assets proved to be poor indications of Monday’s final closing positions. Stocks jumped after a solid European session lifted sentiment and offset a weaker start in Asia. But the daily peak for the S&P 500 was in early. After rising as much as 1.8% within the first 40 minutes, the index slowly erased those gains tick by tick to fall as much as 2.1%. A last-minute rally in the final half hour, however, limited the day’s losses to just 0.7%. Monday’s finish was the seventh below its 200-day moving average, the longest run since a 48-day stretch that ended in March 2016. Energy companies were the worst performers as crude prices pulled back to their lowest levels since August. S&P 500 tech companies experienced the second largest daily loss, continuing the recent weakness that has helped push the Nasdaq down 13.0% from an August peak to its lowest level since April 25. Industrials, which can be heavily impacted by trade uncertainty, finished two spots out of last place. While equities had already been under pressure, the steepest losses came on a headline that the White House was planning to add tariffs to the remaining balance of Chinese imports if no progress is made when Presidents Trump and Xi meet in November. Treasury yields tracked stocks up and down and then up again to finish Monday higher, despite the disappointing day for equities. The 2-year yield closed up 1.0 bps while the 10-year yield added 0.9 bps.
Overnight – Treasury Yields Tick Up as Stocks Stabilize: Global equities were mixed again Tuesday but the magnitude of the moves was more modest than the swings seen on Monday. Japan’s Nikkei added 1.5% and China’s CSI 300 rose 1.1% to lead a general rebound across Asia. Data showed Japan’s unemployment rate dipped back to 2.3% in September and the number of open jobs per applicant rose to 1.64, the highest since 1973. In China, government officials have commented publicly on multiple occasions attempting to stabilize local markets amid the ongoing trade fight with the U.S., which was escalated further yesterday (more above). Overnight, the China Securities Regulatory Commission issued a statement indicating it has plans to encourage investment and improve liquidity for the markets. On the other hand, the PBOC weakened its currency peg against the Dollar to 6.9574 yuan, the weakest since May 2008. In Europe, the Stoxx 600 was flat after an up-and-down day and the economic data disappointed. Economic confidence in the Eurozone fell for a tenth consecutive month to its lowest level since May 2017. Italian yields jumped after preliminary estimates showed the Italian economy didn’t grow in 3Q. It could also heighten tensions with the EU, considering it makes the current budget proposal appear even more costly. The first estimate of 3Q GDP for the Eurozone as a whole also fell short. The 0.2% QoQ result (expected 0.4%) dropped the YoY rate from 2.2% to 1.7% (expected 1.8%), the slowest since 2014. In the U.S., the 2-year yield was 2.6 bps higher at 2.84% and the 10-year yield was up 3.0 bps to 3.12%. U.S. equity futures firmed up between 0.4% and 0.6%.
Treasury Debt Issuance Projections Show Doubling of Issuance from 2017 to 2018: Treasury reported yesterday that it expects to issue an additional $425 billion in net marketable debt before year-end. This would bring the total in 2018 to $1.34 trillion, a doubling of the 2017 net issuance. The only two years to surpass the $1.34 trillion were 2009 and 2010 ($1.4 and $1.6 trillion, respectively). The only upshot, the October-to-December total issuance was originally expected to be $440 billion.