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Trading for Trade

Wednesday,September12, 2018, 10:97 AM, EST

  • NASDAQ Composite-0.71%Dow+0.03%S&P 500-0.13%Russell 2000-0.57%
  • NASDAQ Advancers:751Decliners:1380
  • Today's Volume (vs. yesterday)+7.3%

The markets opened generally lower this morning following yesterday's advance that was concentrated in large caps. In anticipation of Hurricane Florence crude oil and the Energy sector performed well yesterday and that looks to continue today with the sector up another 0.9%. Consumer Staples (+1.1%) is the leading sector while Technology (-1%) is seeing some profit-taking. On trade there is word that a deal with Canada is 'imminently possible' according to Canada's Foreign Minister, but that doesn't seem to be moving the market. There is nothing new with respect to trade with China and if the Trump administration moves ahead with its threat to impose tariffs on all Chinese imports, consumer prices will likely begin moving notable higher just ahead of the November elections. Asian markets closed mixed to lower, extending the losing streak to the longest in 16 years, and European markets are modestly higher. Treasuries are a little firmer and yield on the 10-yr stands at 2.959%, the dollar index is slightly lower as is gold, and WTI crude is up another 1.2%.

  • With all the talk about looming inflation it was surprising to see that Producer Prices fell in August, the first decline in 18 months. Expectations called for a top line +0.2% gain but instead came in with a -0.1% drop, and the stats are identical ex-food & energy. Year over year Producer Price have risen 2.8% while expectations called for a 3.2% gain, and ex-food & energy is at 2.3% versus an expected 2.7%. Machinery and equipment cost fell the most since December; health beauty and optical goods fell the most since February; and airline services also fell. On the other side of the coin construction machinery & equipment cost rose.
  • WTI crude is bumping up against the $70 line this morning on a number of factors. Hurricane Florence and a likely tropical storm in the Gulf of Mexico are adding to the angst, and both API and DOW reported substantial inventory drawdowns. Russia's Energy Minister commented at an economic forum that the oil market is 'quite fragile' at the moment. Despite the efforts to curb the supply glut, he cites the collapse of Venezuela as a problem and notes the US sanctions on Iran are creating 'huge uncertainty' in the market. In addition the Energy Information Administration (EIA) cut its forecast for crude output growth in 2019 slightly, citing capacity constraints.
  • Most agree that the current US economy is strong and performing well. However one aspect rarely gets discussed - the massive increase in government spending. An article in The Washington Post notes that federal spending is 33% higher this year over last, with the feds spending nearly $900 billion more than receipts. The recent tax cuts reduced revenues by 30% so far this year, but along with the tax cut are higher spending on the military and domestic programs. In a similar article several weeks ago, Bloomberg highlights that total federal borrowing this calendar year will reach about $1.33 trillion, far more than the budget deficit. If that isn't scary enough, House Republicans are proposing another $646 billion in tax cuts that could grow to $2 trillion over the next decade. Interest on the debt is expected to exceed military spending in about four years or so and will consume the entire federal budget in 17-18 years if not sooner.

Technical Take:

The softer PPI data has led to a slight pullback in both rates and the US dollar. More broadly speaking the US dollar Index (DXY) remains in consolidation mode around ~$95.15 which we highlighted as a key technical level back in the mid-August BLOG . The 10-year yield just yesterday broke out from its declining trend line connecting the highs from May and July. The next key "price" level from here is 3.01% above which would negate the potential large head & shoulders topping pattern forming throughout 2018. Key support is down at 2.80% which coincides with the rising 200-day ma (yellow line). With the next FOMC meeting two weeks away, it appears the long yield will remain range bound unless some other catalyst (tariffs?) surfaces.

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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 Associate Vice President 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.

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