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Issues Weighing On Markets Easing, But Not Going Away Just Yet

Wednesday, May 30, 2018, 10:35 AM, EST

  • NASDAQ Composite +0.66% Dow +0.64% S&P 500 +0.75% Russell 2000 +1.48%
  • NASDAQ Advancers: 1766 Decliners: 409
  • Today’s Volume (100 day avg) -7.3%

After yesterday’s rather dour session the market opened nicely higher this morning though none of the issues confronting investors have gone away. Italy had a successful (and oversubscribed) bond auction, and that along with strong Eurozone CPI and German jobs data calmed market fears. Of the major indices the R2K leads and with a near 1.5% advance, a new intraday record and making it the top performer so far this quarter. All sectors are in the green with Energy (+2.2%) seeing a nice rebound after five consecutive losses, and Financials (+0.9%) are also on the move as rates tick higher. Crude oil is 0.9% higher after five days in the red, Gold is up 0.2% and the dollar index is off 0.4%.

  • Stabilizing? Italian bond markets are rebounding, Italian bank stocks are up, and safe-haven US Treasury bonds are moving lower as rumors of a rift between the populist leaders of Italy's Five-Star and The League movements prompts hopes that a 'worst case scenario' is off the table. Italy sold 5 and 10-year debt in auction that was oversubscribed by investors as Italian 10 year yields moved off of yesterday’s highs. This reverses some of the damage done yesterday when political uncertainty in the country caused bond and stock markets to re-price risks in holding Italian debt, also hurting European and U.S. stocks. The flight to safety caused a rally in U.S. government debt and lowered the market-based probability of a fourth Fed rate hike this year.
  • Today’s US economic data was a little soft, not worrisome but just soft. ADP’s measure of private payrolls came in at 178k up from a downwardly revised 163k in April but still less than the 190k analyst expected. The first revision to first quarter GDP was also underwhelming with the measure lowered to 2.2% from 2.3%, personal consumption was lowered to 1.0% from the initial 1.1%, the slowest in five years, and the GDP price index was lowered to 1.9% from 2.0%. The downward revisions were led by inventories, exports and spending on healthcare. The data also provides a first look at the impact of the recent tax overhaul – Corporate America paid $117.4 billion less than it would have otherwise, or read differently - the Federal government borrowed $117.4 billion more than it would have otherwise.
  • The Federal Reserve Boardmeets today to discuss the roll back of the Volcker Rule enacted during the financial crisis. The Volker Rule banned short-termed, proprietary trading by FDIC insured banks in an effort to protect client deposits. The expected revisions will likely reduce compliance costs while making it easier to take advantage of exemptions as regulators look to ease banking rules in a bid to boost lending and economic growth. Coalition Development LTD stated in a recent Bloomberg article that “trading revenue at the biggest global investment banks dropped by a collective $40 billion since 2010, the year the Dodd-Frank Act was signed into law.” However, before any rules are change, they must be approved by 5 different federal agencies, the Fed, SEC, FDIC, Office of the Comptroller of the Currency and Commodity Futures Trading Commission.
  • The WSJ had an article that Trade policy uncertainty might be weighing on markets. In the ISM’s latest semi-annual survey of manufacturing execs, some 74% said they expect that tariffs will raise their prices, and some 58% expect delays and disruptions in their supply chains. The comparable figures for non-manufacturing executives are 50% and 59%. On average they expect prices due to tariffs to rise by 5.4% for manufacturing and 7.2% for non-manufacturing. Not helping is the announcement that the U.S. is planning once again to impose tariffs on China is not helping market sentiment either.

Technical Take: Is the Dollar’s Countertrend Rally Nearing Completion?

The US Dollar is seeing a brief reprieve today yet remains on pace for its 14th weekly gain in the last 18 weeks. However this string of positive returns may be due for a pause as yesterday’s $95.03 high came within 12c of the $95.15 top made in Q4’17. It reaches this expected resistance level with a daily RSI that has been hovering above the overbought 70 level since the start of May. A pullback from here would be welcome news for large US multinational corporations, as well as those assets with strong inverse correlations such as commodities. And while the golden cross whereby the 50day over the 200-day moving averages is roughly a week away, this conventional bullish signal can actually often mark the end of a countertrend rally in a larger ongoing bear market.

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Nasdaq's Market Intelligence Desk (MID) Team includes:

Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.

Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.

Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.

Brian Joyce, CMT is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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