The Market Today

Business Confidence Remains Strong as Equities Recover Before Quarterly Corporate Earnings Season

by Craig Dismuke, Dudley Carter

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Small Business Confidence Remains Strong, Job Openings:  The June Small Business Optimism index from the NFIB was fractionally stronger than expected but pulled back from 107.8 (highest level since 1983) to 107.2 (fifth highest reading since 1983).  Small business owners’ expectations for sales pulled back 5 points but plans to hire rose 2 points.  As jobs are increasingly hard to fill, compensation plans ticked up 1 point.  The number of respondents saying it is a good time to expand remains over 2 standard deviations above the 30-year median.  According to a statement from NFIB CEO Juanita Duggan, “Small business owners continue to report astounding optimism as they celebrate strong sales, the creation of jobs, and more profits… The first six months of the year have been very good to small business thanks to tax cuts, regulatory reform, and policies that help them grow.”


At 9:00 a.m. CT, the May JOLTs Job openings and Labor Turnover report is expected to show job openings pullback from their highest level on record.



Yesterday – Stocks Joined Global Rally as Tariffs Become Last Week’s News: U.S. equities joined in on Monday’s global rally that had lifted markets across Asia and Europe earlier in the day. The Dow outperformed, adding 320 points on greater-than-2% gains by financials and industrials. Boeing, Goldman Sachs, Caterpillar, and JPMorgan Chase combined for a 150 points of the total gain. Those sectors also finished in the top two spots of the S&P 500 which rose a solid 0.9%. As stocks gained, Treasury yields edged higher with the 2-year yield closing up 2.3 bps to 2.56% and the 10-year adding 3.5 bps to 2.86%. The curve steepened for two consecutive days for just the second time in a month. The Dollar, which had weakened overnight, recovered on a couple of news clippings from Europe. The euro slipped after Draghi said the projected inflation path appears to be self-sustained but continued to stress that the ECB must be patient, persistent, and prudent. Also, the British pound sank after a second cabinet member from Prime Minister May’s government resigned in the face of U.K. parliament agreeing to a Brexit proposal that will attempt to salvage close ties with the EU.


Overnight – Investors Stick with Stocks: Yesterday’s major market trends have carried over into Tuesday’s session with investors still in favor of taking on more risk. European equities were stronger, the Stoxx Europe 600 had added 0.4%, and U.S. equity futures firmed up around 0.2% after another solid start in Asia. The global quarterly corporate earnings season begins this week and seems to have provided a positive distraction from the recent trade concerns. The energy sector was leading equity gains in Europe as oil prices moved back near their highest levels since late 2014. On the sovereign screens, core country yields were higher with U.K. gilts out in front. The recent tilt towards a more friendly Brexit has relieved some of the political-risk pressure for now. German yields also rose despite disappointing economic data from the EU’s largest economy. A popular confidence survey weakened more than expected in July as the current asset declined for a sixth consecutive month to its lowest level since 2016. More concerning, the index tracking future expectations slipped to its lowest level since August 2012. That helped drag down the EU-wide expectations index which also fell to a six-year low. The Euro weakened against the Dollar. The Treasury curve had risen just under 1 bp from Monday’s finish.



Consumer Credit Growth Accelerated in May, Further Supporting 2Q Rebound Story: Non-mortgage consumer credit grew in May by the most since last November on notable increases in both the revolving and non-revolving categories. Total credit outstanding grew at an annualized 7.6% rate to a total outstanding balance of $3.9 trillion. Revolving credit, primarily credit cards, jumped an annualized 11.4% and non-revolving debt, the major groupings being student loans and auto notes, rose a slightly smaller 6.2%. After slowing through the first quarter, credit growth accelerated in both April and May, a trend consistent with the pick-up across other spending data that has led to stronger 2Q GDP estimates.

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