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Afternoon Debrief for the 8th of Aug 2019

Wall Street down but well off session lows; yields in focus

The S&P 500 is down 0.8% today after being down as much as 2.0% shortly after the open amid a steep drop in U.S. Treasury yields. The benchmark index held just above Monday’s low (2822), which appeared to welcome some buying interest. 

The Dow Jones Industrial Average is down 1.0%, the Nasdaq Composite is down 0.5%, and the Russell 2000 is down 0.7%. 

Treasury yields have been on a steady retreat since November, but another sharp acceleration lower — and further curve-flattening– caught some investors off-guard. More central banks on Wednesday (Reserve Bank of New Zealand, Reserve Bank of India, and Reserve Bank of Thailand) surprised the market by cutting rates more than expected with New Zealand’s RBZN Governor indicating that rates may be lowered into negative territory. 

Low-to-negative rates around the world, including expectations that the Fed and global central banks will continue to lower rates in the face of economic uncertainty, has exacerbated the move into U.S. Treasuries. Currently, the 2-yr yield is down seven basis points to 1.54%, and the 10-yr yield is down ten basis points to 1.64%. The U.S. Dollar Index is down 0.2% to 97.41.

This compression in spreads has undercut the S&P 500 financials sector (-2.3%), which is leading today’s broader decline. The energy sector (-1.8%) follows suit as oil prices ($51.14, -2.49, -4.6%) fall nearly 5% amid global growth concerns and bearish inventory data out of the EIA. Strikingly, the energy sector has now given up all its 2019 gains. 

On the other hand, the materials (+0.4%), consumer staples (+0.3%), and real estate (+0.2%) sectors are currently trading higher. Precious metals gold ($1518.90, +34.70, +2.3%) and silver ($17.12, +0.68, +4.1%) are up, as well. 

Lower rates usually favor risk assets, which may be contributing to a buy-the-dip mindset. The general mood, however, has been negative as economic data continues to disappoint, including Germany’s industrial production for June, while trade tensions with China have shown little improvement. 

Back on Wall Street, Dow component Walt Disney (DIS 134.16, -7.70, -5.4) reported below consensus top and bottom-lines, which has sent shares down over 5%. CVS Health (CVS 57.15, +3.03, +5.6%) and Match Group (MTCH 94.25, +20.33, +27.5%) have climbed following upbeat results and guidance. 

Separately, the weekly MBA Mortgage Applications Index increased 5.3% following a 1.4% decline in the prior week.

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