Daily Market Color

Risk Off Mood Grips Markets to Start the Week


Equity Markets Plunge

The S&P 500 began the holiday-shortened week by dropping 1.66%, resulting in 38% of the index’s names now trading in bear market territory. The selloff was led by Apple, the tech giant falling 3.96%, as the company is reported to have slashed its iPhone production plans by as much as 1/3 of the 70 million units expected between September and February. Some of biggest news in equity markets came from overseas- with Nissan Chairman / Renault CEO Carlos Ghosn being arrested in Japan for financial misconduct. Nissan’s stock traded down 5.85% on the day.



Adding to the negative sentiment entering the week was the Asia-Pacific Economic Cooperation (APEC) summit held in Papua New Guinea over the weekend, where the US-China trade impasse overshadowed what is generally an amicable annual meeting.  For the first time since the group was formed roughly 30 years ago, the summit concluded without a joint communiqué issuance.  It was reported that the overarching dispute revolved around the sentence “we agreed to fight protectionism including all unfair trade practices” being referenced in the statement, as Chinese officials refuted its direct targeting of China.  Asked about the nature of the failed talks, APEC host and Papua New Guinea Prime Minister Peter O’Neill stated, “You all know who the two big giants in the room were, so what can I say?”


Geopolitical Tension Continues to Drive Oil Market Volatility

A CIA report completed this past weekend is expected to lay the responsibility for the murder of Washington Post journalist Jamal Khashoggi squarely at the feet of Saudi Arabia’s Crown Prince Mohammed bin Salman. The report sets up a potential showdown between hawkish republican congressional leadership and President Trump, who needs a strong middle eastern ally to apply pressure to Iran.



The geopolitical tension coupled with an upcoming OPEC meeting translated into an extremely choppy day for US crude- the price per barrel falling 3.5% before bouncing back and ending the day up 0.42%. If the U.S. meaningfully sanctions Saudi Arabia, it is expected to be politically difficult for the oil cartel leader to cut supply – setting up further volatility for the commodity.


Rates Trade in a Tight Range Despite Risk Off Sentiment

After an eventful end to last week, interest rates stayed within a tight range on the day as the yield on the Treasury note remained near 3.06%.  While a rate hike still seems likely in December (69% likelihood as per Fed funds futures), markets can’t seem to agree on the timing of future hikes beyond December. Currently, futures are indicating a 36% chance of an additional hike by next March, a 44% chance of at least one more by May and a 55% chance of an additional hike by June.


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