U.S. stocks added to strong weekly gains after shrugging off softer-than-expected retail sales and industrial production reports and showing some resiliency in the face of a terror attack in London and another North Korean missile test. Quadruple witching likely added to the day's volatility and volume. Treasury yields modestly extended their weekly advance and the US dollar pared its weekly gain as the euro and British pound extended recent gains. Crude oil was little changed and gold was lower.
The Dow Jones Industrial Average (DJIA) increased 65 points (0.3%) to 22,268, the S&P 500 Index gained 5 points (0.2%) to 2,500, and the NASDAQ Composite increased 19 points (0.3%) to 6,448. In heavy volume, 2.1 billion shares were traded on the NYSE and 2.7 billion shares changed hands on the NASDAQ. WTI crude oil was flat at $49.89 per barrel and wholesale gasoline moved $0.03 higher to $1.66 per gallon. Elsewhere, the Bloomberg gold spot price declined $8.67 to $1,321.07 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was 0.3% lower at 91.87. Markets were nicely higher for the week, as the DJIA rallied 2.2%, the S&P 500 Index jumped 1.6% and the NASDAQ Composite gained 1.4%.
Oracle Corp. (NYSE:ORCL $49) reported fiscal Q1 earnings-per-share (EPS) of $0.52, or $0.62 ex-items, versus the $0.60 FactSet estimate, as revenues grew 7.0% year-over-year (y/y) to $9.2 billion, above the projected $9.0 billion. The company noted that the sustained "hyper-growth" of its cloud business continued to drive increased revenue and earnings. However, the company's Q2 guidance missed expectations. Shares fell solidly.
Retail sales miss to kick off heavy day of data
Advance retail sales for August declined 0.2% month-over-month (m/m), compared to the Bloomberg forecast of a 0.1% gain and compared to July's downwardly revised 0.3% gain. Last month's sales ex-autos grew by 0.2% m/m, versus expectations of a 0.5% gain, and following the negatively revised 0.4% increase seen in the previous month. Sales ex-autos and gas were down 0.1% m/m, compared to estimates of a 0.3% rise, and versus July's unrevised 0.5% rise. The retail sales control group, a figure used to help calculate GDP, decreased 0.2%, compared to the projected 0.2% rise, and the prior month's figure was unrevised at a 0.6% rise.
Auto activity fell solidly, along with clothing and online sales, while electronics and appliances, and building materials were also lower. Sales of furniture, and at restaurants, food and beverage stores and gas stations all moved higher. Commenting on the potential impact of Hurricanes Harvey and Irma on the data, the U.S. Census Bureau said overall response was within the range of the past 12 months even though collection in the impacted areas lagged behind recent months.
The preliminary University of Michigan Consumer Sentiment Index dipped to 95.3 in September from the prior month's 96.8 level, and compared to expectations for it to decline to 95.0. The current economic conditions component improved m/m, while the expectations measure dropped. The 1-year inflation forecast ticked higher to 2.7% from August's 2.6% rate, while the 5-10 year inflation outlook rose to 2.6% from 2.5%.
Industrial production fell 0.9% m/m in August, after six-straight monthly gains, versus estimates calling for a 0.1% gain, and compared to July's upwardly revised 0.4% increase. Manufacturing and mining production both declined, while utilities output fell sharply. Capacity utilization declined to 76.1% from July's upwardly revised 76.9% rate, and compared to forecasts of a 76.7% rate. Capacity utilization is 3.8 percentage points below its long-run average. The Federal Reserve noted that Hurricane Harvey is estimated to have reduced the rate of change in total output by roughly ¾ percentage point.
The Empire Manufacturing Index showed output from the New York region remained solidly at a level depicting expansion (a reading above zero) for September. The index dipped to 24.4 from August's unrevised 25.2 level, with forecasts calling for a reading of 18.0.
Business inventories rose 0.2% m/m in July, matching forecasts, and versus June's unrevised 0.5% increase.
Treasuries finished lower, with the yields on the 2-Year and 10-Year notes rising 2 basis points (bps) to 1.38% and 2.20%, respectively, while the 30-Year bond rate was flat at 2.77%.
Bond yields are modestly extending this week's sharp rebound from a recent drop back to November lows that came despite upbeat economic data. Yesterday's acceleration in consumer price inflation appeared to bring the Fed back into focus, with expectations of a December rate hike nudging higher, per data compiled by Bloomberg.
The U.S. dollar pared its weekly gain, amid flared-up North Korean tensions and another terrorist attack in London. Also, the British pound extended a jump that came from boosted U.K. rate hike expectations.
Europe lower as pound and euro rally
European equity markets finished lower, with the euro trading higher versus the U.S. dollar, while the British pound extended its surge to levels not seen in over a year. The pound has jumped on increased rate hike expectations in the wake of yesterday's Bank of England (BoE) monetary policy decision and bolstered hawkish commentary today from a BoE member that had been labeled as dovish.
Another missile test over Japan by North Korea and another reported terrorist attack in London likely hampered sentiment, but the reaction appeared limited. Bond yields moved higher, led by the U.K., amid the heightened BoE expectations. In economic news, the eurozone trade surplus narrowed more than expected in July and the region's wage growth posted the fastest pace in two years.
Stocks in Asia finished mixed after overcoming a brief bout of risk aversion as North Korea conducted another missile test over Japan. The yen reversed to the downside after an early boost on the North Korean missile launch news, helping Japanese equities gain ground, while South Korean stocks also advanced to display some resiliency.
Shares trading in India and Hong Kong ticked higher. Mainland Chinese stocks declined on the heels of yesterday's disappointing retail sales and industrial production reports, which continued to weigh on materials issues, leading to a move to the downside for Australian securities. However, after the closing bell, China reported stronger-than-expected lending statistics for August.
Stocks back on the weekly winning track
U.S. stocks got back to their weekly winning ways, rallying to fresh record highs amid reversals in the currency and bond markets, which contributed to last week's snapped winning streak. Early estimates suggesting Hurricane Irma's economic cost impact could be less than feared underpinned sentiment. Texas refining activity recovered from Hurricane Harvey's blow to boost crude oil prices to the best weekly performance since late July, per Bloomberg. The energy sector led the equity market's weekly jump.
Tech stocks posted a respectable gain, bolstered by a rally leading up to Dow member Apple Inc's (NASDAQ:AAPL $160) new iPhone unveiling. Consumer price inflation showed signs of accelerating against the favorable economic backdrop, small business optimism unexpectedly improved and the JOLTS' job openings surprisingly posted a record high, to appear to bring the Fed back in focus. The U.S. dollar rebounded from levels not seen in well over two years, though it pared gains on the pound's surge, and Treasury yields jumped off of multi-month lows to boost the financial sector.
This sets the stage for next week's economic calendar that will bring the Federal Open Market Committee's (FOMC) monetary policy decision, which is not expected to deliver a rate hike but could bring the commencement of the slow winding down of the Fed's behemoth $4.5 trillion balance sheet. Housing data will also be in focus, with the releases of the NAHB Housing Market Index, housing starts and building permits and existing home sales. Markit's September preliminary business activity reports and the Leading Index will round out the docket.
International reports due out next week that deserve a mention include: China—property prices. Japan—trade balance and the Bank of Japan monetary policy decision. Eurozone—Consumer Price Index and Markit's September business activity reports, as well as German investor confidence. U.K.—retail sales.