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Market Intelligence

Italy Giving Markets Agita

Tuesday, May 29, 2018, 10:15 AM, EST

  • NASDAQ Composite -0.16%Dow -0.58%S&P 500-0.53%Russell 2000-0.04%
  • NASDAQ Advancers:896Decliners:1161
  • Today’s Volume (vs. last Friday)+5.6%

U.S. equity markets are lower to start the day, keeping pace with the rest of the world as macro headlines and Italian politics move the markets. Trading volumes are traditionally light following the Memorial Day holiday. Currently 10 of the 11 S&P 500 sectors are trading lower with Financials and Industrials the worst performing sectors. Crude oil and Gold are both trading lower while the dollar is higher. The yield on the 10-yr has decreased to 2.8667.

  • M&A activity grabbing headlines in the Consumer space this morning as privately held Pret A Manger was sold to JAB Holdings for a reported $2 billion. JAB is the parent company of Panera Bread, Au Bon Pain, Krispy Kreme Doughnuts and Peet’s Coffee and Tea to name a few. JAB competes in the causal and quick serve segments and well as the high end coffee markets. YTD, global M&A has top $2.5 trillion of announced or proposed deals which is up 3.8% from this time last year.
  • Consumer Confidence rose in May according to the Consumer Confidence Survey. The monthly number rose in line with economist predictions 10 128.00 vs a revised lower April print of 125.6. "Consumer confidence increased in May after a modest decline in April," said Lynn Franco, Director of Economic Indicators at The Conference Board. "Consumers' assessment of current conditions increased to a 17-year high (March 2001, 167.5), suggesting that the level of economic growth in Q2 is likely to have improved from Q1. Consumers' short-term expectations improved modestly, suggesting that the pace of growth over the coming months is not likely to gain any significant momentum. Overall, confidence levels remain at historically strong levels and should continue to support solid consumer spending in the near-term."
  • A fair amount of U.S. economic data on the calendar this week with GDP 1st revision tomorrow, Jobless claims on Thursday, Non-farm Payrolls (NFP) on Friday, June 1st. Also noteworthy are Manufacturing Data, Retail Earnings.
  • Last week we mentioned Italian sovereign debt as something investors were watching. They are now paying full attention. It’s old news that a coalition of anti-establishment and Euroskeptic parties would attempt to form a government in the country and may demand debt forgiveness. What changed? Italian President Sergio Mattarella blocked the formation of a government formed by these populist parties and asked a Euro-friendly economist to form a government. Good right? No. This action may harden the resolve anti-Euro party members who feel the popular vote was ignored. This turns the elections, which may happen as early as the fall, into a de-facto referendum on Italy’s participation in the EU. Italy is the union’s third-largest economy and much bigger than Greece, which caused an EU crisis in 2012. Italy losing market confidence or potentially even leaving the EU or Euro would be a much bigger deal, hence the market reaction. The Italian 5-year credit default swaps that we referenced last week at 150 are trading at 261 now, up from 96 two weeks ago. The yield on 2-year Italian Government debt is spiking sharply from negative rates a few days ago to above 2.3% currently.

Technical Take:World Yield

Political concerns in European peripheries are weighing on risk assets and leading to a bid in safe havens. The 10-year US Treasury yield bottomed at 2.797% this morning which is off nearly 30bps from last week’s high of 3.08%. Meanwhile reminiscent to 2011-2012, yields on Italy’s debt are shooting higher across the curve as investors grow increasingly concerned about Italy’s political leadership and its future standing in the European Union. Italy’s two-year yield has spiked from a low of negative 33bps in early May to today’s intraday high of 2.82, its highest level since September 2012.

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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.

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