Market Update

• Markets unchanged as oil jumps. U.S. equities are flat in early trading, despite a 1.9% advance in the price of WTI crude oil ($46.35/barrel) on news that U.S. crude stockpiles plunged 12 million barrels last week. Yesterday’s session saw the major indexes little changed, with technology leading the Nasdaq into slightly positive territory; energy was the top performer, up 0.4%, while consumer staples lagged, down 0.9%. Asian markets closed mixed as well; the Shanghai Composite gained 0.1%, and Japan’s Nikkei lost 0.3% despite second quartergross domestic product (GDP) being revised up. In Europe, the European Central Bank (ECB) released its latest policy statement that left interest rates unchanged and maintained its quantitative easing (QE) program; markets initially took the statement in stride, but are reacting poorly to ECB President Mario Draghi’s news conference, as most indexes have plunged 1% or more since it began. Elsewhere, COMEX gold is up amid dollar weakness, and the yield on the 10-year Treasury is up slightly to 1.56%.

Macro View

• Fed’s latest Beige Book more of the same. Yesterday afternoon, the Federal Reserve Bank (Fed) released itsBeige Book, a qualitative assessment of business conditions nationwide. Our Beige Book Barometer, which calculates strong words minus weak works, ticked down to +55 in September 2016 after the +61 reading in July 2016. At +55, the September 2016 reading is now back in the middle of the range it has been in since early 2012. All of the deterioration in the Beige Book versus July’s came in the three Fed Districts in the nation’s oil patch (Minneapolis, Dallas, and Kansas City), despite a pickup in oil production in the past few months. Our Oil States Barometer moved from +21 in July to just +7 in September, matching the average reading in the 8 Beige Books ending in June 2016, which coincided with the worst of the declines in oil production and prices. The +7 reading in September was even more disappointing given that the +21 reading in July put sentiment in these districts back to a level not seen since prior to the peak in oil prices in June 2014. Please see yesterday’s blog post and our nextWeekly Economic Commentary (September 12, 2016) for more insights into the Beige Book.
• Claims remain near 40-year lows. New claims for unemployment insurance came in at 259,000 for the week ending September 3, 2016, slightly better than the consensus expectations of 264,000. Claims are up 6,000 from their level 26 weeks ago. In the past, claims need to rise more than 75,000 over a six-month (26-week) period to indicate a recession, so there is no recession signal from claims.
• ECB stands pat. The ECB left monetary policy unchanged at this morning’s meeting. That rates were unchanged was not surprising, though many economists were predicting that the ECB would announce an extension of its QE program that is scheduled to end in March 2017. The assumption is that an extension of the policy will be announced at the bank’s December meeting. Markets were modestly disappointed with this, stocks slightly down and the euro modestly positive.
• China trade data improve. Chinese trade data was better than expected, both imports and exports. Exports increased on an annual basis by 5.9%, better than the 2.9% expected. Imports rose 10.8%, far better than the 0.7% expected increase. Trade data are important for several reasons. They are more easily verifiable than transactions that take place solely in the country. The import data also provide a window into the Chinese domestic economy, which can be somewhat opaque.
• Looking under the surface. The S&P 500 had another slow day, closing fractionally lower. In the process, it missed out of the first three-day win streak in over a month. It has now gone 50 straight days without a 1% drop, which has only happened five other times in the past 20 years. During the past 40 days, the S&P 500 (using closing prices) has traded in a range of 1.75%, the tightest range ever–breaking the record from 1963 of 1.96%. Although not much is happening with big blue chips, both the Nasdaq and S&P 600 closed at all-time highs; these groups have been performing strongly recently, while the S&P 500 is stuck in that range. Taking a closer look at tech, semiconductors have been on fire, with theSemiconductor Index (SOX) up for 10 consecutive weeks–its longest win streak ever.

Monitoring the Week Ahead

Thursday

• Eurozone: European Central Bank Meeting (No Change Expected)
• China: CPI (Aug)
• Japan: Economy Watchers Survey (Aug)
• Japan: Money Supply (Aug)

Friday

• European Union: Central Bankers and Finance Ministers Meeting in Bratislavia
• China: New Loan Growth and Money Supply (Aug)

Saturday

• European Union: Central Bankers and Finance Ministers Meeting in Bratislavia

Click Here for our detailed Weekly Economic Calendar

 

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