by Pinchas Cohen
Key Events
Yesterday, both US stocks and Treasuries extended Tuesday’s selloff, after the Republican tax overhaul passed its final House vote before being sent to President Donald Trump for his signature. The US Senate approved the tax-cut legislation in a vote that followed party lines and the House of Representatives passed the bill after a re-vote, bringing Trump to the brink of his first major legislative victory. The bill itself will be signed at an as yet unspecified later date.
We reflected on the reasons that investors might sell off US assets, in yesterday's 'Opening Bell' post, after passage of the very thing they’ve been wanting for so long. Possible explanations include: the bill’s focus had changed from corporate to individual cuts, reducing the hoped-for company (and shareholder) profits; the bill's passage was already being priced in and perhaps a rush to profit-taking as markets keep climbing.
We emphasized that the Russell 2000 is expected to be the biggest beneficiary of the tax cuts, yet it fell the hardest on Tuesday. However, it bucked the trend yesterday. It was the only one of the four major indices to move higher. The Dow, S&P 500 and NASDAQ Composite all extended Tuesday’s losses.
Global Financial Affairs
Internally, the S&P 500 Index was held back by slumping consumer and real estate shares, while the energy and telecom sectors rose.
The sector that outperformed most was Energy, gaining 1.41 percent; Real Estate was the biggest laggard, falling 1.07 percent.
The defensive Utilities sector was a close second, it slipped 0.79 percent.
The infamous jump in 10-year Treasury yields, discussed at length in yesterday's post because of the note's abnormal market behavior, jumped for a fourth day, commensurate with the Treasury selloff. However, its exponential rise from Sunday's 0.77 percent to Monday's 1.04 percent to Tuesday's 2.72 percent slowed. Today it traded higher, then lower, before settling—for now—near its opening price, forming a High Wave candle, which demonstrates lack of leadership.
Global trading this morning extended the US selloff, with most sectors in most benchmark indices showing red. However, Chinese stocks both on mainland Shanghai Composite and Hong Kong’s Hang Seng bucked the trend and rose. Trading in Japan was mixed, with a slight 0.11 percent decline for the Nikkei 225 while the TOPIX eked out a 0.9 percent gain.
The Stoxx Europe 600 Index is headed for its biggest three-day loss in more than a month, following yesterday’s biggest decline in almost three weeks, led by tech shares, with Spanish equities underperforming ahead of today’s Catalan election.
In Spain, investors will be watching the outcome of the regional election which gives voters another chance to express their view on whether Catalonia should press ahead with its fight for independence or remain part of Spain. The country’s IBEX was down 0.3 percent, in line with Germany’s DAX, but slightly better than France's CAC 40, down 0.4 percent.
The euro is fluctuating between a setback in Asian trading and a slight gain in European trading. This follows a three-day advance for the single currency.
The pound meandered as data showed U.K. consumer confidence slid to a four-year low in December.
The yen declined as the Bank of Japan held rates and Governor Haruhiko Kuroda said there’s no need to reconsider the current policy framework.
This follows Tuesday’s decline, the biggest in almost two weeks. The dollar is set for a third day of gains against the safe haven currency, even as equities and Treasuries are being sold off in a risk-off market.
Oil held gains near the highest close in more than two weeks after U.S. government data showed a greater than forecast drawdown in crude stockpiles hitting a two-year low.
Up Ahead
All times listed are EST
- 8:30: US – GDP (Q3, final); Initial Jobless Claims (w/e 16 December): GDP growth forecast to be unrevised at 3.3%.
The third estimate for third-quarter GDP is expected to come in at a 3.3 percent annualized rate, unchanged from the second estimate. Consumer spending, also forecast to be unchanged at 2.3 percent, provided some lift but the quarter really depended on an inventory build as well as strength in nonresidential investment and improvement in net exports. The GDP price index is seen unchanged a 2.1 percent rate.
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- 8:30: US – Philadelphia Fed Manufacturing Index (Dec): expected to fall to 22.7 from 20.8.
Some correction would probably do the Philly Fed manufacturing index some good, as the headline index slowed slightly November to the still very strong 22.7. New orders and shipments were both just over 20 in November with unfilled orders building sharply, at 17.0 for a 6.1-point gain. Respondents in this sample have been struggling to keep up with the work as employment, at 22.6 in November, fell 8 points from October's 48-year record. Econoday's consensus for December's headline is 21.8.
Market Moves
Stocks
- The Stoxx Europe 600 Index sank 0.7 percent as of 8:18 London time (3:15 EST), the biggest decrease in almost three weeks.
- The MSCI All-Country World Index declined 0.1 percent.
- The U.K.’s FTSE 100 fell 0.3 percent, the biggest fall in a week.
- S&P 500 Futures dipped less than 0.05 percent to the lowest in a week.
Currencies
- The euro declined less than 0.05 percent to $1.187.
- The Bloomberg Dollar Spot Index advanced 0.1 percent.
- The British pound declined 0.1 percent to $1.3367.
- South Africa’s rand decreased 0.2 percent to 12.7513 per dollar.
Bonds
- The yield on 10-year Treasuries increased less than one basis point to 2.50 percent, hitting the highest in about nine months with its sixth straight advance.
- Britain’s 10-year yield advanced four basis points to 1.25 percent, the highest in almost two weeks.
- Germany’s 10-year yield gained two basis points to 0.42 percent, the highest in eight weeks.
Commodities
- West Texas Intermediate crude fell less than 0.05 percent to $58.08 a barrel.
- Gold fell 0.1 percent to $1,264.91 an ounce, the largest fall in a week.
- LME copper increased less than 0.05 percent to $7,045.00 per metric ton, reaching the highest in more than two months on its seventh consecutive advance.