Daily Market Color

Stocks, Treasurys Rise on Strong Earnings, GDP Data

GDP Weathers the Storms

Expansion in the US economy was robust during the third quarter, as strength in consumer spending and business investment helped to mitigate the negative impact of hurricanes Harvey and Irma.  After increasing at a 3.1% annual rate in Q2, GDP grew at a 3.0% annualized pace (+2.6%e) in the July to September period – the best B2B quarters since 2014.  Personal consumption expenditures, the largest source of US economic demand, climbed at a 2.4% rate, as large numbers of post-hurricane motor vehicle purchases offset a slowing in services spending.  Overall business investment rose 1.5%, however residential fixed investment was one of the few weak spots in the report, falling 6.0% in the quarter.  Additionally, inflation data in the Commerce Department’s release displayed a 1.3% rise in core prices, a 0.4% increase from the previous quarter but still notably below the Fed’s 2% target.    

 

 

The Power of Powell

US Treasurys abruptly ended a three-day selloff today after it was reported that President Trump was leaning towards Fed Governor Jerome Powell as his nomination for the next Fed Chair.  Powell’s (dovish) views are considered to be most closely aligned with incumbent Fed Chair Janet Yellen, compared to those of John Taylor, the other recent Fed Chair frontrunner, who favors quicker rate normalization policies.  Treasury yields/swap rates declined as much as 5-6 bps following the report, and the yield on the 10-year note is currently down 4 bps to 2.40%.

All three major US stock indices traded higher during the trading session, boosted by a combination of robust corporate earnings, speculation on the next Fed chair and strong GDP Data.  The tech-heavy Nasdaq currently leads the way, up more than 2.2% on the day, after both Amazon and Alphabet exceeded their Q3 performance expectations.  In commodities, crude oil prices surged for a second consecutive session, helped by reports that OPEC production cuts would be extended beyond the March 2018 end date and continued conflict between Iraq and the Kurds.  WTI crude oil futures currently are up 2.4% to $53.90/barrel – its highest level in eight months.

 

 

Conflict in Catalonia

The Catalan drive for secession took a serious step forward today as its parliament voted in favor of a declaration of independence from Spain via a secret ballot this morning.  In the 48 hours leading up to the vote, Catalonia’s President, Carles Puigdemont, had tried to come up with a less chaotic alternative to secession, but his efforts came up empty-handed.  Meanwhile in Madrid, Spanish Prime Minister Mariano Rajoy received official approval to seize control of the Catalan Parliament’s power, setting the stage for a historic confrontation between the two sides.  Explaining Madrid’s view of the situation, Rajoy stated, “The Catalan Parliament has approved something that in the opinion of the great majority of people doesn’t just go against the law, but is a criminal act, because it supposes declaring something that is not possible.”  Spanish equities fell nearly 2%, and the nation’s government bond yields rose more than 5 bps in anticipation of the escalating conflict.    

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