The Market Today
Small Business Remains Steady in August
by Craig Dismuke, Dudley Carter
Today’s Calendar – Small Business Optimism Steady in August: After rising in July for the first time in 2017, the NFIB’s August small business optimism index was essentially unchanged. The index added just 0.1 points to 105.3 matching its third strongest level since 2004. Within the details, there were mixed results for the multiple component indices. The number of small businesses who reported plans for capital expenditures in the next three to six months rose 4% points to 32%. That was the strongest level since 2006. The number reporting expectations for an increase in sales improved for a second month to the second-best reading of the year and more businesses believe now is a good time to expand. Hiring plans fell from July’s level but remained at their third strongest level since 2003. As has been the case with other indicators, plans for inventory accumulation looked somewhat softer compared with July. The number expecting the economy to improve was unchanged.
At 9 a.m. CT, the BLS’s July JOLTS report is expected to show a pullback in the number of current job openings from June’s series record high. The previous report, for the month of June, also showed a modest slowing in the pace of hiring and employee quits while the number of layoffs edged higher. Overall, the trends in the JOLTS data has been consistent with other labor market indicators – the U.S. labor market remains strong and continues to tighten.
Overnight Activity – Global Equities Extend Monday’s Record Finish: Global equities added to Monday’s gains overnight keeping sovereign yields moving higher in response. The only red on the global equities screen colored a 0.22% loss for the U.K.’s export-focused FTSE 100. Stocks in the U.K. erased an early gain after a string of August inflation measures registered stronger than expected and boosted the British Pound. Headline inflation returned to a 2.9% YoY pace matching the fastest pace since 2012. Core consumer prices were up 2.7% which was the fastest since 2011. Indices tracking retail and producer prices showed similar strength. While the Pound has strengthened against the Dollar in 2017, it remains weaker against the Euro. The Bank of England – who continues to be faced with currency-driven inflation – will announce its latest policy decision Thursday. The bank last lowered its forecast for growth and wages in early August. Also in the U.K., parliament passed a bill that is the first step in removing the authority of EU law. Looking at U.S. markets, U.S. equity futures have strengthened and near session highs and the Dollar clung to Monday’s gains. Treasury yields have increased with the 2-year yield 1.0 bps higher at 1.33% and the 10-year yield 2.6 bps higher at 2.16%.
Yesterday’s Trading Activity – S&P Reaches Record as Treasury Yields and the Dollar Rebound: U.S. stocks leveraged overnight strength in Asia and Europe to rally sharply Monday and push global equities to all-time record highs. The lack of weekend military action in North Korea (to mark the anniversary of its day of founding) spurred a relief rally for global equities as Asian trading opened. U.S. futures spiked early as well and that overnight strength persisted throughout Monday’s session. The gains were broad based and the Dow’s 1.2% bested 1.1% gains for the Nasdaq and S&P. The S&P’s sector performance showed, however, that the relief related to North Korea was only part of the story. Financial companies finished atop the index with all 11 sectors gaining and the S&P closing at 2,488, its 31st record close of 2017. Insurance companies rallied after Irma’s devastation appeared not to rise to worst-case levels feared or previously priced in and banks cheered a climb in Treasury yields. With funds flowing back into equities, Treasury yields remained under pressure and extended their overnight rise. The 2-year yield rose 5.7 bps (1.32%) in the biggest single-day increase since February. The 5-year yield rose 7.6 bps (1.71%), the biggest daily jump since January 18. The 10-year yield closed up 8.0 bps (2.13%) and the Dollar rebounded from Friday’s 32-month low.