Daily Market Color

Tropical Storm Harvey Continues to Impact US Financial Markets

The team at Derivative Path would first like to express our heartfelt thoughts and prayers for all of those in Houston, the rest of Texas and the surrounding areas being impacted by the flood waters and other destructive forces triggered by the superstorm Harvey.  We sincerely hope that everyone remains safe and are able to make a swift recovery from the severe destruction caused by the storm.
From a financial markets perspective, Harvey’s impact has most significantly been felt in the energy sector, where severe flooding has forced much of the refinery capacity along the Texas coast to be shut down, resulting in the interruption of nearly 10% of the nation’s fuel-making facilities.  Gasoline prices have surged as a result, with futures trading at their highest level in two years at $1.78/gallon, while WTI crude fell 2.5% to $46.70/barrel.  The crack spread, which generally reflects the gap between oil prices and the cost of gasoline, rose dramatically as a result.  The gasoline-WTI crack spread increased more than 18% to over $20/barrel today — its highest level in more than 2 years.   



Key economic data releases on the day began with the Commerce Department’s report on the US goods trade deficit.  Weighed down by a 1.3% decline in exports, the trade gap widened to $65.1 billion during July ($64.1 billion deficit expected).  Notable weakness was recorded in vehicles and consumer goods exports, which more than offset a 0.3% reduction in imports.  A separate report this morning provided the advance readings for retail and wholesale inventories for July.  Growth in wholesale inventories eased slightly last month to +0.4% MOM (vs +0.6% previous month), while retail inventories fell 0.2% last month (vs +0.6% in June).  Key economic data releases scheduled for later this week include Q2 GDP on Wednesday, Personal Income and Outlays on Thursday, and Nonfarm Payrolls & Unemployment on Friday.        



US stock markets were mixed on the day, with the DJIA finishing just below even while the S&P 500 (+0.05%) and Nasdaq (+0.30%) edged higher.  The largest increases in share prices were recorded at US refiners not affected by the tropical storm, whereas equities in insurance companies posted the most sizeable losses.  Treasurys continued their rally from Friday as yields/swap rates declined 1-3 bps across the curve.  The yield on the 10-year note remained near its two-month low, down 1bp for the session to 2.16%.  The US dollar fell 0.3% against major currencies and is currently residing near its lowest levels in two years.


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