Weekly Market Update – 05 September 2017 BMO

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Wall Street Ends Week On A High Note

Equities ended another positive week on a positive note as investors took a relatively disappointing August jobs report in stride, pushing the Nasdaq (+0.1%) to a new record high (6,435.33). The S&P 500 and the Dow climbed 0.2% apiece, ending the day in the middle of their trading ranges. Trading volume was especially light as many investors got a jump start on the extended Labor Day weekend.

The Employment Situation Report for August disappointed on nonfarm payrolls (156K actual vs 183K consensus), nonfarm private payrolls (165K actual vs 173K consensus), the unemployment rate (4.4% actual vs 4.3% consensus), and the average workweek (34.4 actual vs 34.5 consensus). However, another tepid average hourly earnings reading (+0.1% actual vs +0.2% Briefing.com consensus) overshadowed the less-than-stellar metrics.

Average hourly earnings have been reluctant to pick up despite a tightening of the labor market, effectively tempering inflation and, therefore, the market’s rate-hike expectations. The fed funds futures market currently places the chances of an additional rate hike this year–which the Fed needs to meet its forecast of three rate hikes in 2017–at 41.4%.

Treasury yields moved solidly higher on Friday to end the week relatively flat. The 10-yr yield climbed four basis points to 2.16%, registering a weekly loss of one basis point, while the 2-yr yield jumped three basis points to 1.35%, settling the week higher by one basis point. Meanwhile, the U.S. Dollar Index (92.77, +0.18) added 0.2% to end the week higher by 0.1%.

Seven of the eleven sectors settled Friday’s session in positive territory, but the underperformance of the influential health care (-0.1%) and technology (-0.2%) spaces kept the broader market’s gain in check. Still, the two groups ended the week at the top of the leaderboard–in first and second place, respectively. Health care climbed 3.0% for the week while technology added 2.1%.

The energy sector (+0.8%) was the top performer on Friday, followed closely by the financials (+0.4%), consumer discretionary (+0.5%), and materials (+0.7%) groups. Within the consumer discretionary space, automakers outperformed after reporting their U.S. sales for the month of August.

Fiat Chrysler (FCAU 15.86, +0.73), Ford Motor (F 11.35, +0.32), and General Motors (GM 37.36, +0.82) showed notable strength, climbing 4.8%, 2.9%, and 2.2%, respectively. However, GM was the only one to report an increase in sales (+7.5%). FCAU and F reported respective year-over-year declines of 11.0% and 2.1%.

On the earnings front, Lululemon Athletica (LULU 61.68, +4.13) jumped 7.2% after beating both top and bottom line estimates and issuing above-consensus guidance. The SPDR S&P Retail ETF (XRT 39.70, +0.53) finished higher by 1.4%.

In Washington, reports indicate that the White House will not shut down the government in October in an attempt to gain funding for President Trump’s promised barrier along the U.S.-Mexico border. The decision will potentially make it easier for Congress to reach a deal on a short-term budget.

Reviewing Friday’s economic data, which included the Employment Situation Report for August, the August ISM Manufacturing Index, July Construction Spending, and the final reading of the University of Michigan Consumer Sentiment Index for the month of August:

The U.S. equity market will be closed on Monday in observance of Labor Day.

(Excerpts from Briefing.com)

Currencies: Dollar Rises From 2017 Low

The Dollar Index was up 0.1% at 92.79 after bouncing back from a Friday morning dip, which followed the release of a disappointing Employment Situation report for August. In a way, Friday’s session made for a mirror image of Thursday’s affair when the index climbed in the morning only to give back that entire gain in the afternoon. The Index added 0.1% for the week after recovering from a fresh 2017 low that was posted on Tuesday.

Bonds Yields: Treasuries Retreat After Disappointing Data

U.S. Treasuries ended the week on a lower note after making a failed morning run at this week’s highs. Treasuries jumped in response to a disappointing Employment Situation report for August, which not only missed headline expectations (actual: 156K; consensus: 183K), but also showed weak average hourly earnings growth (actual: 0.1%; consensus: 0.2%). However, the morning charge reversed almost as swiftly as it developed. After surrendering their gains, Treasuries continued sliding through the release of today’s second batch of data, which was also mostly disappointing. Session lows were notched in the late morning and light buying in the early afternoon lifted the market off the lows. The 10-yr note ended the week with a slight gain while the long bond ended the week slightly lower. The 2s10s spread finished the week at 81 bps, down from 84 bps one week ago.

For another consecutive week, spreads continued to narrow as the yield curve continued to flatten by pivoting on the belly of the curve.

Commodities: Commodities end the week up noticeably higher

Crude falls for the fifth week, Gold breaks above 1,300, Metals continue to strengthen. Baker Hughes total U.S. rig count broke the declining trend with an increase by 3 to 943 following last week’s decline of 6.

Agriculture: Corn, Wheat bounce, Soy continues uptrend.

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THE WEEK AHEAD

Coming off a dovish reaction to Non-Farm Payrolls last week, the coming shortened week (Monday 04 September is a holiday) looks like pushing this rally further up.

Tuesday 05 to Friday 08 September (Week 36)

The thirty-sixth week of 2017 (wk36) is mildly bullish for the DIA and SPY across the 5, 10 and 15 year averages.

Wk26Sea

The 2017 Stock Trader’s Almanac’s averages for the benchmark indices (based on 21 years) for week 36;

Wk36Alma

Key Economic Dates

In the US, the most important events will be trade balance, factory orders and ISM non-manufacturing PMI. Elsewhere, the ECB and the RBA will announce their interest rate decisions; Australia will release the first estimate of GDP growth, and the Eurozone and Japan will publish final figures for GDP growth. China inflation rate and foreign trade; and UK industrial output and trade balance will also be in the spotlight.

Tue 05 September

Wed 06 September

Thu 07 September

Fri 08 September

SUMMARY

The geo-political situation in the Korean Peninsular is getting hotter as North Korea conducted its 6th nuclear test since 2006 and was its most powerful test yet. North Korea claimed that the test was a hydrogen bomb and the bomb could be attached a long-range missile. President Trump responded to the test saying that North Korea’s words and actions continue to be very hostile and dangerous to the United States. He claims North Korea is a rogue nation which has become a great threat and embarrassment to China, which is trying to help but with little success.

In spite of the tensions, given that week 37 is usually incredibly bullish (ahead of the notorious September sell-off), I remain cautiously bullish for now.

Happy Hunting!

 

 

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