The Market Today
Treasury Yields Reopen Lower as Global Equities Remain Mixed, Oil Crash Gets Worse
by Craig Dismuke, Dudley Carter
Quiet Friday for the Data: Today’s economic calendar is light, with Markit’s preliminary November PMIs the sole post-Thanksgiving reports. Economists expect the data, which is similar in nature to the more popular ISM reports, to show little change in overall economic activity from October. October’s 54.9 print equaled the average level for the index since last summer.
Overnight – Similar Backdrop With Equities Mixed, Oil Weak, Treasury Yields Testing Low-End of Recent Range: U.S. markets will reopen to a similar backdrop to the one they left behind as traders left for the Thanksgiving holiday. Global equities were mixed on Friday, crude prices’ downside volatility continued, and Treasury yields were lower but relatively stable considering the uncertainty-related swings in other markets. Chinese shares sank more than 2% in a day of partial participation in the region (Japan and India were closed). A WSJ report cited sources claiming the U.S. was encouraging foreign friends and allies to stop buying telecommunication equipment from Huawei, a Chinese telecom conglomerate. The report will be yet another headwind for talks between Presidents Trump and Xi at next week’s G-20 summit. In Europe, where Brexit developments remain the major focus, the Stoxx 600 ticked higher by just under 0.2%. After a Brexit divorce deal was reached last week and drew mixed market reaction, a leaked version of terms of the future relationship has pushed yields in the U.K. down 4 bps amid continued uncertainty about successful passage. The remaining EU countries will hold a summit Sunday to discuss the most recent developments. The Euro was also weaker, down nearly 0.5% after Markit reported a larger-than-expected drop in the Eurozone’s composite PMI to the weakest level in almost four years. U.S. futures have been lower for all of the overnight session, earlier trading down nearly 0.7% and near their lows of the day. While tech weakness was leading losses, energy companies will likely also weigh at the open. Crude prices extended their slide overnight, with U.S. WTI down 7% to below $51 per barrel. Continued concern about less demand and more supply has pushed the commodity down 33% from its peak in early October to a 14-month low. The Treasury curve flattened lower in response to Friday’s uncertainty, with the 2-year yield down 0.9 bps and the 10-year yield dropping 2.2 bps to 3.04%, a new low since mid-September.
Trading Activity – Stocks Give Up Early Gains as Traders Leave for Thanksgiving Break: U.S. stocks mostly rose Wednesday as several of Tuesday’s biggest sector losers recovered, but selling in the afternoon significantly pared the move higher. The Dow gave up gains to end unchanged as the S&P 500 added 0.3%. Both remained in negative year-to-date territory for a second day. The Nasdaq jumped a stronger 0.9% to take its year-to-day result back up to 1%. Within the S&P 500, energy companies were the best performers as crude rebounded modestly from a tumultuous 6% plunge on Tuesday. Crude’s gains evolved despite a larger-than-expected build in U.S. inventory amid growing concerns of a global supply glut. The report showed a net draw in total stocks thanks to lower inventories of refined products. Despite the weekly swings in equities and oil, Treasurys continued to struggle for direction. After rising overnight Tuesday, yields ended the day little changed. The 2-year yield added 1.0 bps while the 10-year yield ended flat.
Existing Home Sales Rose for First Time in Seven Months: Existing home sales finally broke out of their mid-year slump with a slightly firmer-than-expected 1.4% MoM increase. October’s gain was the first since March and just the third for all of 2018. Looking at the data regionally, three of the four regions saw a rebound from notable drops in September, including a 1.9% gain in the South, the biggest contributor to total sales. While October’s gain is an obvious positive for a sector struggling for any good news, it will take more than a single data point to break the downtrend and shift the narrative away from expectations of slower sales. The 5.2MM SAAR sales pace was the second weakest since 2016.