Key Events
US stocks moved higher for a fifth consecutive day yesterday, with 3 of the 4 major indices hitting fresh records.
The S&P 500 gained 4.56 points or 0.17 percent, moving to 2727.71. The NASDAQ Composite climbed on the strength of semiconductors. The tech-heavy NASDAQ moved higher by 20.83 points, +0.29 percent to 7,157.39. Even the Russell 2000, which has been lagging its sister indices, advanced, gaining 1.8 points, up 0.12 percent to 1,561.81.
Ironically, yesterday it was the Dow Jones Industrial Average which assumed the laggard role. After posting an intraday record of 25,311.99, it closed down 12.85 points, or 0.05 percent, at 25,283—forming a hanging man and ending a four-day record-setting winning streak.
Just a few days ago, Trump boasted about Dow strength on Twitter:
Politifact, a website that specializes in fact checking, provided a table charting each instance the Dow crossed a 1,000-level threshold since 1896. Turns out the President wasn't tweeting fake news.
Global Financial Affairs
US equities are currently in their longest winning streak since early November, as investors continue to price in the benefits of tax cuts to corporations via the reforms passed late last year.
Signs of financial-market stress continue to ease as 2018 trading gets underway, with volatility sinking to the lowest levels since 2014. Investors seem to feel that optimism in the US on lower taxes and a burgeoning, worldwide economic recovery justify record high prices for global equities.
On the other hand, despite the record highs notched on Monday, the major averages traded within tight ranges. The Dow and S&P 500 oscillated in a range of 0.3 percent and 0.4 percent respectively; the NASDAQ traded in 0.5 percent range.
Traders in Japan, just back from a national holiday, this morning extended their markets' best start to a year since 2006, following a perfect 5 records in 5 days at the end of 2017.
The yen bounced off a retreat, after the BoJ announced trimming bond purchases dated 10-25 years by 10 billion yen ($89 million). That's harsher than it sounds: compared with its previous policy, it's a relatively minor tweak.
Still, that didn’t stop traders from selling dollars and buying yen, even after Governor Haruhiko Kuroda said last January, in response to speculation about the significance of similar tweaks, that they are not intended as signals on policy intentions. Even as recently as during the past two weeks, he emphasized that the country's inflation remains far from policy makers’ two-percent target. Consumer prices in Japan rose 0.6 percent YoY in November, while the 2017 average was 0.4 percent. Clearly, Japan’s “deflationary mindset” isn’t going away anytime soon. Why, then, the big move? Apparently, it's driven by sentiment.
Market moves dominated by sentiment don't mean traders can't win big on some of those bets. On June 27, traders—as well as our own analysis—interpreted comments from ECB President Mario Draghi to mean the ECB was about to begin tapering. The euro jumped 1.4 percent that day.
Once the euro provided a technical upside breakout, even ECB Vice President Vitor Contanccio’s attempt to clarify that Draghi wasn't in fact signaling tapering couldn’t dissuade the bulls. The single currency has extended its advance since then, despite repeated attempts by the ECB to temper sentiment. Still, the euro gained another 6.5 percent till the September 8 peak, near 1.2100 and almost 5.5 percent to date.
The prospect of similar appreciation in the yen could reduce chances of the BoJ fine-tuning its policy, which would keep 10-year government bond yields around zero. Moves such as the one today help explain why Kuroda hasn’t been willing to drop the annual, 80 trillion-yen bond-buying target from policy statements, even though the actual purchases are now far below that pace.
The rising yen weighed on Japanese stocks since more expensive local exports will affect global competitiveness. The TOPIX pared a 0.74 percent advance, sliding to 0.49, while the Nikkei 225 shaved an earlier 1.1 percent jump, ending the day up 0.56 percent.
Global shares from Sydney to Hong Kong were modestly higher on the heels of the S&P 500's fresh closing high yesterday. In the wake of its disappointing profit miss this morning, Samsung Electronics (KS:005930) shares weighed on South Korea’s KOSPI. Earnings—in the US, Asia and Europe—will continue to be a focus as the week proceeds, with US financial giants including JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) on tap Friday. Last year's dollar softness may reverberate for some international companies, as it did negatively this morning for Samsung.
European stocks joined the global equity rally, adding to last week’s biggest weekly advance since April, as investors hope earnings season will sync with the growing economy and exceptionally bullish market sentiment. The Stoxx Europe 600 rose to its highest level since August 2015.
Economic data out of Europe has bolstered euro area confidence and fueled the continued equity advance since the end of 2017. However, Germany’s ongoing struggle to form a government restrained the euro.
The pound fell and UK stocks were flat after weak housing and consumer spending data showed the UK's economy was slowing. As well, reports that Prime Minister Theresa May is considering creating a position for a minister in charge of contingency planning for a no-deal Brexit weighed on UK markets along with May's attempt to give her government a reboot which was marred by a chaotic cabinet reshuffle.
The dollar extended a third day of gains, wiping out last week’s declines and then some, after a three week long slide.
China’s yuan dropped as much as 0.4 percent against the dollar after Bloomberg News reported that the country’s central bank has effectively removed an adjustment mechanism used for the currency’s official daily fixing. That device had been interpreted as a way to limit fluctuations.
Oil extended gains, moving above $62 a barrel.
Up Ahead
- US inflation data, released Friday, is forecast to show price pressures remain muted, giving hawks little reason to argue for faster tightening.
- China producer and consumer price data comes out late today in the US (Wednesday morning in Asia), while a reading on the country’s money supply is expected in the coming days.
Market Moves
Stocks
- The Stoxx Europe 600 Index gained 0.3 percent as of 8:51 a.m. London time, with its fifth consecutive advance.
- The MSCI All-Country World Equity Index advanced less than 0.05 percent, reaching the highest on record.
- The MSCI Emerging Markets Index decreased 0.2 percent to 1,204.29, the first retreat in more than a week.
- S&P 500 Futures climbed less than 0.05 percent
Currencies
- The euro dipped 0.2 percent to $1.1941, the lowest in more than a week.
- The Bloomberg Dollar Spot Index advanced 0.2 percent.
- The British pound dipped 0.3 percent to $1.3525.
Bonds
- The yield on 10-year Treasuries climbed two basis points to 2.50 percent, the highest in about 10 months.
- Germany’s 10-year yield advanced one basis point to 0.44 percent.
Commodities