The Market Today
Quiet Economic Calendar, Markets Look to Bounce Back from Historic Christmas Eve Losses
by Craig Dismuke, Dudley Carter
Quiet Economic Calendar with Home Prices and Richmond Fed Report: At 8 a.m. CT, the S&P CoreLogic Case-Shiller update on home price trends is expected to show the 20-city index rose 0.3% MoM in October, resulting in a seventh consecutive deceleration of YoY gains. If as expected, the report would result in the YoY increase slowing from 5.15% to 4.75% marking the slowest annual increase since January 2015. At 9 a.m. CT, the Richmond Fed will release its December manufacturing activity index which economists expect to reflect a one-point recovery to close out 2018. The index had slipped to a seven-month low of 14 in November.
Christmas Eve Activity – Correction Deepened on Christmas Eve’s Short Session: Markets sold off again Monday, with the S&P 500 closing down another 2.7% following last week’s sell-off that was the steepest since 2011. Monday’s tumble registered as the index’s worst Christmas Eve performance in history and inched the S&P 500 ever closer towards a bear market (-19.8% from September’s all-time high.) Through Monday, the S&P 500 was down 14.8% for the month and on pace for its worst December since 1931; through Christmas Eve of 1931 the index had posted a 16.2% month-to-date loss. Following Sunday’s discussion between Treasury Secretary Mnuchin and CEOs of the country’s six largest banks, members of the President’s Working Group on Financial Markets, known also as the Plunge Protection Team, told Mnuchin markets were operating normally throughout the turmoil. While both meetings were presumably intended to calm the market’s nerves, some said they only added to the angst. Oil prices tumbled too, with U.S. WTI notching a 3.3% decline to $44 per barrel, the lowest since July 2017. As risk-off retained its grip on the markets, Treasury yields steadily declined to end near the lows of the day. The 2-year yield shed 8.0 bps of yield and ended at 2.56%, the lowest since early July. The 10-year yield fell another 5.2 bps and even further below the technically-important 2.80% level. At 2.738%, the benchmark note closed at its second lowest level since early February.
Overnight – U.S. Equities Look for Post-Christmas Comeback: U.S. equity futures perked up Wednesday after a mixed day across Asia and with most major European markets closed for a holiday. China’s CSI 300 slipped 0.5%, its eighth decline in the last nine tries, while Japan’s Nikkei staged a late-afternoon recovery that salvaged a 0.9% gain for the day. The small gain occurred after a 5% plunge on Christmas Day sent the Japanese index into a bear market and to its lowest level since April 2017. That sell-off was spurred by U.S. equities posting their worst Christmas Eve on record. However, early futures activity showed the U.S. indices are likely to fight back with an opening bounce. Contracts on the S&P 500 for March settle were up roughly 1% as the broad equity index attempts to avoid a bear market. The Christmas Eve losses left the index down 19.8% from its September peak. On Tuesday, President Trump answered “Yes I do, very talented guy, very smart person,” to a question about whether he had confident in Treasury Secretary Mnuchin. A call from Mr. Mnuchin to CEOs of major U.S. banks on Sunday was partly blamed for Monday’s market decline. The president also reiterated he believes the Fed’s tightening too fast but thinks “they will get it pretty soon.” Also being watched by investors is a partial shutdown of the federal government. President Trump said, “I can’t tell you when the government’s going to be open. I can tell you it’s not going to be open until we have a wall or fence.” Treasury yields were mixed but little change during the low-volume overnight session.