The Market Today
Turkey Remains Focus; U.S. Small Business Confidence Soars
by Craig Dismuke, Dudley Carter
Small Business Confidence Rises Again – to Second Highest Level on Record: The July Small Business Confidence index from NFIB rose from 107.2 to 107.9, defying gravity for the time being as it reaches its second-highest level all-time. The only month surpassing the July 2018 read was in September 1983. Almost every sub-component of the report showed improvement. Sales expectations jumped 3 points, plans to hire rose 3 points, and compensation plans rose 1 point. Plans for future capex held at 30, remaining at its second-highest level of this cycle. Finding quality labor to fill open job positions continues to be the biggest obstacle for small businesses.
Import and Export Prices Pull Back in July, Show Less Acceleration than the Spring Data: Also released this morning, import prices for the month of July were unchanged MoM but fell 0.1% when excluding petroleum products. This is the second consecutive monthly read showing a decline in ex-petrol import prices. On a year-over-year basis, headline prices rose 4.8% while the price of exports rose 4.3% YoY, down from a rate of 5.3% in June. At 10:00 a.m. CT, the New York Fed will release its 2Q Household Debt and Credit Report.
Yesterday – U.S. Stocks Failed to Sustain Early Rise as Turkey Proves Too Big of a Concern: U.S. stocks attempted to break with global markets Monday but the uncertainty of the continued stress in Turkish assets proved too much to overcome. U.S. equities rose at the open but peaked just an hour into trading. Treasury yields reversed a more-than-2bp overnight decline and tracked equities to their peak. Tech stocks were the early bright spot but the positive sentiment that buoyed the Nasdaq longer than the other majors ultimately abated. The S&P 500’s energy, materials, and financials sectors all fell more than 1% to lead nine of 11 sectors lower for the day. As equities turned back, Treasury yields edged down from their peak but managed to end the day higher. The 2-year yield rose 0.8 bps while the 10-year added a smaller 0.5 bps. While it hardly registered, the daily flattening between those two curve points was the fourth in a row and pushed the spread to less than 3 bps above its cycle low. Earlier, global equities sank as the Turkish Lira dropped nearly 7% to a new all-time low. While Turkey remained the focal point, investors’ concerns around possible contagion across other emerging markets could be seen in currencies. The Argentine peso dropped 2.4% while the Brazilian real slipped 0.6%.
Overnight – Market Tone Stabilizes as Lira Finds Support: Global risk sentiment recovered Tuesday after several days of weakness driven by worries about a Turkey-driven downward spiral in emerging markets. Japan’s Nikkei gained more than 2% to lead all global indexes, helped out by a fading flight to quality bid that strengthened the country’s currency Monday. The Stoxx Europe 600 was up 0.2% and U.S. futures were firmer by 0.3%. Despite another fiery speech from Turkey’s president, the Lira found support overnight. After sliding 24% over the last four days to an all-time low against the Dollar, the Turkish currency was up over 5% on Tuesday. While the tone was firmer across most major indexes, Chinese equities lagged in negative territory. Overnight, data showed softer-than-expected results for retail sales, industrial production, and fixed investment in China for July. Sovereign yields have also unwound some of Monday’s risk-off response. Core European yield were higher while those on the periphery pulled back. The U.K. unemployment rate dropped to a 43-year low of 4.0% in July, the Eurozone economy grew a firmer-than-expected 0.4% in 2Q (2.2% YoY), and a popular German confidence survey rose for the first time in seven months. Treasury yields were higher by less than 1 bp inside of 30 years.