The Market Today

TODAY’S CALENDAR

Quiet Tuesday for the Economic Data: Tuesday’s lone economic report will be released at 9 a.m. CT and is expected to show home builders were marginally less optimistic about business in September. Home sales have slowed in recent months as a lack of supply and higher mortgage rates have negatively impacted affordability. In the prior month’s report for August, foot traffic cooled to a 10-month low (since October 2017), the present sales index edged down to an 11-month low, and the future sales index slipped to a 21-month low (since November 2016).

 

Bank of Japan Meets: Likely to little fanfare, the Bank of Japan began its latest meeting to discuss any needed changes to monetary policy. The subsequent public announcement of their decision will be made overnight tonight.

 

TRADING ACTIVITY

Yesterday – Tariff Threats Took Their Toll on U.S. Equities: U.S. stocks sold off early, stabilized in negative territory for most of the session, but added to those losses in late-afternoon trading to finish near the lows. Tech companies were the weakest, with the Nasdaq more than doubling the S&P 500’s 0.6% fall. The tech-heavy index dropped 1.4% in its biggest single-day decline since July 27 while the Dow slipped a lesser 0.4%. Back within the S&P, the tech sector finished in last place at down 1.4% while consumer discretionary companies sank a similar 1.3%. The retail space was the biggest drag on the latter with particular weakness seen in shares of online merchants. Amazon had its worst day since late April at down 3.2%. The U.S.-China trade dispute remained Monday’s major focus. In a mid-morning interview, top White House economic advisor Larry Kudlow said he expected a tariff announcement would be “coming soon.” With about an hour left in equity trading, President Trump confirmed a post-market tariff announcement was forthcoming, leading to the last leg lower for stocks. As equities sold off, Treasury yields erased an overnight rise that had pushed the 2-year yield to a new cycle high (2.79%) and the 10-year yield to its highest (3.02%) since late May. By the close, the 2-year yield had moved back to unchanged at 2.78% while the 10-year yield had retreated 0.9 bps to 2.99%.

 

Overnight – Markets Largely Unfazed after Announcement that Next Round of Tariffs Set for September 24: President Trump made good on his promise for a post-market tariffs announcement early Monday evening. The President’s official statement explained that tariffs on the next $200B of Chinese imports will be implemented in a two-step phase-in process. The list of affected goods will be tagged with a 10% tariff beginning September 24 and, assuming no trade deal is struck by the end of the year, that rate will increase to 25% beginning January 1. The step-up to 25%, as opposed to starting with the max rate, was aimed to “give people more of a chance to look for alternative supplies…to make adjustments,” according to one administration official. The length of the list was also shorter than originally proposed, an attempt to target “things that were least intrusive on the consumer,” according to Commerce Secretary Ross. The trimmed item count and 10% starting rate were softer than expected, potentially explaining China’s CSI 300 gaining 2% to lead the global session. However, risk of further escalation remains. President Trump’s statement also pledged tariffs on another $267B of goods if China retaliates. While short on the details, China released a statement saying it “will be forced to retaliate simultaneously” and cautioning that the new tariffs have “brought new uncertainty to the bilateral negotiations.” The U.S. Dollar/Chinese Yuan pair was almost unchanged. European stocks were essentially flat Tuesday and U.S. futures were actually stronger. The Treasury curve was steepening on higher yields with the 2-year yield +0.9 bps to 2.79% and the 10-year yield 2.6 bps higher at 3.01%.