Stocks Hit Record Highs, Oil Surges as Demand Forecasts Improve

US financial markets held within a tight range today as geopolitical tensions continued to simmer and investors looked ahead to tomorrow’s consumer price data.  In response to the newly imposed sanctions by the United Nations, North Korea warned it would accelerate its plans for nuclear development, with Pyongyang’s ambassador to the UN stating that “The forthcoming measures … will make the U.S. suffer the greatest pain it ever experienced in its history.”  While North Korea’s main trading partner, China, voted in favor of the increased sanctions along with the rest of the UN, their adherence to the new restrictions is going to be closely watched.  US Treasury Secretary Steven Mnuchin publicly addressed the situation, stating that the US would “put additional sanctions on them and prevent them from accessing the U.S. and international dollar system” if China’s support wavered.

 

All three major US stock indices posted modest gains after fluctuating for the majority of the session, weighed down by shares in Apple (-1%) after yesterday’s new product event failed to inspire stock investors.  Energy stocks were among the market’s best performers after crude oil prices surged more than 2% as the International Energy Agency (IEA) and OPEC brightened their demand outlook.  It has also been reported that OPEC and other oil producing nations are considering a six-month extension to the current supply-cutting agreement which are doue to expire in March 2018.  WTI crude is currently trading near its highest level in over a month at $49.35/barrel while Brent crude approaches $55.15/barrel.  US Treasurys experienced a modest selloff, as yields/swap rates rose for a 4^th consecutive day.  The 10-year note is up 2bps on the day to 2.19%.  

 

 

Another light day of economic data releases was highlighted by August’s producer-price index for final demand, which displayed inflation experienced by US businesses at +0.2% MoM.  Although it was below estimates of +0.3%, the reading represented the largest increase since April and was a steady rebound from July’s 0.1% monthly decline.  The core PPI also fell short of median forecasts, reported at +0.1% MoM (+0.2.% expected).  Looking at producers’ inflation over the past year, overall producer prices have increased 2.4% while core prices have risen 2.0%.  As producer prices can often be a leading indicator for consumer inflation, today’s release added to the murky outlook for consumer price growth, which currently stands as one of the biggest hurdle in the Fed’s push for additional rate hikes.