Indecision. Stocks closed mixed yesterday as the Dow Jones was the sole index to close in the red, held back by Boeing’s travails. Mixed stimulus from benign economic numbers to troubles for UK Prime Minister Theresa May led to a relatively uneventful day for traders.
WHAT YOU NEED TO KNOW:
1) Inflation appears to be under control. Yesterday’s Consumer Price Index showed that prices excluding food and energy grew at +2.1% year over year. The number represented a slowdown from last month’s figure and right where the Fed thinks inflation should be. The number all but guarantees that the Fed will continue on its patiently dovish path.
2) Trouble in the UK continues as the Brexit deadline is a little more than two weeks away. PM Theresa May suffered a blow yesterday as the Parliament voted down her latest attempt to strike a deal with the European Union. More votes today and tomorrow are expected by many to end up with the UK having to ask for a deadline extension. The Parliamentary wrangling, which is unpleasant for businesses, does not seem to be of concern to US equity traders who were unfazed by drama.
3) Boeing’s stock continues to see pressure as a mounting group of airlines and countries ground its 737 Max 8 planes. The US FAA along with US carriers continue to allow the aircraft to remain in service. Despite their confidence there is mounting political and consumer pressure on the airlines. Boeing’s stock contributed to the Dow Jones Industrial Average closing off by -0.4% yesterday and airline stocks took a hit. Southwest Airlines who operates a large fleet of the disputed equipment took a hit in yesterday’s session as its stock fell by -2.34%.
Stocks traded in a flat line yesterday after opening higher on the equity friendly inflation numbers, but for the Dow which was dragged down by Boeing. Though stocks remain slightly expensive, traders seem content with the Fed’s dovish stance, which was supported by yesterday’s inflation figures. The Administration’s trade representatives continue to send positive messages on talks with China, the latest from Robert Lighthizer, who reported that they are in the final weeks of negotiations. Bond traders, in response to yesterday’s inflation figure, gave their nod of approval by bringing the aggregate bond index up by +.25% and ten year treasury yields down to 2.6%. The 2/10 yield curve flattened to +14 basis points yesterday with the front end of the curve remaining inverted. Gold rallied yesterday as the US dollar eased back a bit and the metal commodities complex heated up. Gold, perhaps the most discussed metal, is only one of the many commoditized industrial metals, however its unique capabilities make it interesting to a broad array of investors for many different reasons. Because it is geek-out Wednesday, I will delve a bit more deeply into the metal in the attached PDF.
WHAT TO LOOK FOR TODAY:
Today we will get the Producer Price Index which is expected to show a year over year growth of +1.9% versus last month’s +2.0% growth. Excluding the volatile food and energy categories Producer Prices are expected to have grown by +2.6% year over year, flat from last month’s reading. Also this morning we will get Durable Goods Orders from the Census Bureau and orders are expected to have declined by -0.4% after growing by +1.2% last month. Later in the morning we will get Construction Spending which is expected to have grown by +0.5% month over month versus last month’s decline of -0.6%. This afternoon we will get the weekly EIA Oil Inventory report and the US Treasury will auction off $15 billion 30 year bonds.