Daily Market Color

Risk Assets Rise with Upbeat European Data and US Corporate Earnings

Global financial markets went into risk-on mode at the beginning of today’s session as the business outlook in Europe brightened following robust confidence data out of Germany and France.  As measured by the Munich-based Ifo Institute, the German IFO business climate index rose to its highest level on record at 116.0, outperforming expectations of a decline to 114.9.  Business confidence in France similarly exceeded median forecasts, as the measure tracking the overall state of the French economy rose to a six-year high of 108.  Adding to the positive sentiment were the robust Q2 earnings reports from Caterpillar and McDonalds, which prompted gains of more than 5% in their respective share prices.  All three major US stock indices are trading 0.1%-0.5% higher today, with the DJIA and S&P 500 leading the way as yesterday evening’s sub-par earnings report from Alphabet weighed on the Nasdaq.  Additionally, the CBOE Volatility Index (VIX), a measure of the expected volatility in the S&P 500 often referred to as the fear gauge, fell to an all-time low while US stocks touched record highs.  Treasurys sold off in a bear steepening pattern, with yields/swap rates increasing 2-8 bps across the curve.  The yield on the 10-year note is currently up more than 7 bps to 2.32%, its highest level in more than a week.  The US dollar held marginally higher against major currencies, as declines against the euro and pound were offset by a 0.3% rise against the Japanese yen.  In the commodities sector, crude oil resumed yesterday’s rally with news of capped exports in Saudi Arabia, with WTI and Brent futures increasing more than 3% to $47.85/barrel and $50.15/barrel, respectively.  Copper prices also surged during the trading session, up 2.6% to a five-month high of $2.81/pound.  



US politics continued to be in the spotlight today as Senate Majority Leader Mitch McConnell called for a vote to begin the debate to repeal Obamacare.  Despite opposition voiced from a number of Republican Senators last week, the motion to proceed was passed this afternoon, with Vice President Mike Pence casting the tie-breaking vote following a 50-50 split in the Senate.  While there still remains a difficult path ahead for the passage of a new healthcare bill, including 20 hours of open debate, the vote represents a significant step forward for the Trump administration in light of its recent struggles with policy implementation.  The next hurdle faced in the facilitation of the Obamacare reform/repeal will be whether Republicans can garner enough support to back a bill that would repeal the majority of the existing Affordable Care Act, as Senator John McCain stated this afternoon that “I will not vote for the bill as it is today,” calling it a “shell of a bill.”  At the very least, Republicans will look to pass a “skinny” repeal bill, which would eliminate a few key elements of Obamacare.


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