Stocks Dipping After Data and BoE

Charles Schwab: On the Market

Posted: 9/14/2017 9:00 AM ET

Stocks Dipping After Data and BoE

U.S. stocks are lower in early action, coming off another record high run, following a hotter-than-expected read on consumer price inflation that may be bringing the Fed back in focus, while the Bank of England's expected unchanged monetary policy decision hinted at a potential rate hike in the coming months. Treasury yields are mixed and the U.S. dollar is paring losses. Crude oil prices and gold are higher. Asia finished mixed and Europe is mostly lower on the BoE's decision and following some disappointing Chinese economic data.

As of 8:55 a.m. ET, the December S&P 500 Index future is 8 points below fair value, the DJIA future is 32 points below fair value, and Nasdaq 100 Index future is 29 points south of fair value. WTI crude oil is increasing $0.53 to $49.83 per barrel and Brent crude oil is gaining $0.42 to $55.58 per barrel. The Bloomberg gold spot price is trading $2.84 higher at $1,326.05 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—is dipping 0.1% to 92.45.

Tenet Healthcare Corp. (THC $16) is getting a boost from a report by the Wall Street Journal suggesting the hospital operator was exploring strategic options, including the possible sale of the company, citing sources familiar with the matter. THC has not commented on the report.

Lattice Semiconductor Corp. (LSCC $6) is in focus after President Donald Trump blocked Chinese-backed investor, Canyon Bridge Capital Partners LLC's $1.3 billion bid to acquire the company. The White House and Treasury Department said President Trump acted on the recommendation of a multi-agency panel, per Bloomberg.

Consumer price inflation tops forecasts, jobless claims decline

The Consumer Price Index (CPI) (chart) rose 0.4% month-over-month (m/m) in August, versus the Bloomberg estimate calling for a 0.3% gain, while July's 0.1% rise was unrevised. The core rate, which strips out food and energy, was up 0.2% m/m, matching expectations and compared to July's unrevised 0.1% rise. Y/Y, prices were 1.9% higher for the headline rate, above forecasts of a 1.8% rise, while the core rate was up 1.7%, topping projections of a 1.6% increase. July y/y figures showed an unrevised 1.7% rises for both the headline and core rates.

Treasuries are mixed, with the yield on the 2-year note ticking 1 basis point (bp) higher to 1.36%, while the yields on the 10-year note and the 30-year bond are dipping 1 bp to 2.18% and 2.77%, respectively.

Bond yields are modestly extending this week's sharp rebound from a recent drop back to November lows that came despite upbeat economic data and record highs for the stock markets. Schwab's Chief Fixed Income Strategist, Kathy Jones, and Vice President of Trading and Derivatives, Randy Frederick, provide analysis of the conundrum in the video, The Economy is Picking Up, But Bond Yields Are Falling—What's That About?, with Kathy noting that the disconnect between the fixed income markets and the economy is about inflation. Read more on the Insights & Ideas page and follow Kathy and Randy on Twitter: @kathyjones and @randyafrederick.

Weekly initial jobless claims (chart) declined by 14,000 to 284,000 last week, below forecasts of 300,000, with the prior week’s figure being unrevised at 298,000. The four-week moving average rose by 13,000 to 263,250, while continuing claims decreased 7,000 to 1,944,000, south of estimates of 1,965,000.

The jobless claims figures likely continued to be distorted by the impacts of Hurricanes Harvey and Irma, discussed by Schwab's Chief Investment Strategist Liz Ann Sonders in her latest article, Trying to Reason with Hurricane Season: The Aftermath of "Harma", on the Markets & Economy page at www.schwab.com. Follow Liz Ann on Twitter: @lizannsonders.

The U.S. dollar is giving back some of its solid recovery seen this week in the wake of the Bank of England's (BoE) expected unchanged monetary policy stance, where it suggested that it may tighten policy in coming months. The greenback's rally this week has come amid relatively eased geopolitical and U.S. political concerns, as well as reduced economic cost estimates of Hurricane Irma. However, the greenback is paring losses in the wake of the inflation data.

For commentary on the geopolitical and domestic political fronts, see Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, article, Missiles and Markets: An investor guide to geopolitical risks, on the International Investing page at www.schwab.com as well as Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Debt Ceiling Deal Pushes Showdown in Congress to December, on the Insights & Ideas page. Follow Jeff and Schwab on Twitter: @jeffreykleintop and @schwabresearch.

Europe mostly lower on mixed BoE decision

Most European equity markets are trading lower in afternoon action, with the British pound rallying versus the U.S. dollar after the Bank of England (BoE) held its monetary policy stance steady as expected, but noted that it may need to raise rates in the coming months. The markets are also eyeing more threatening rhetoric from North Korea, while digesting some disappointing Chinese economic data. However, Next Plc. (NXGPY $29) is a bright spot, rallying after the British retailer lifted its full-year profit outlook. In other central bank news, the Swiss National Bank kept its monetary policy unchanged, in line with forecasts. Growth in EU new car registrations for August accelerated in August. The euro is higher versus the U.S. dollar and bond yields in the region are mixed.

For a look at global investing, see Schwab's Jeffrey Kleintop's, CFA, article, U.S. vs international: what do earnings tell us about what may be ahead?, on the Markets & Economy page at www.schwab.com, and his video with Randy Frederick, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page.

The U.K. FTSE 100 Index is down 0.9%, France's CAC-40 Index is ticking 0.1% higher, Germany's DAX Index is declining 0.3%, Italy's FTSE MIB Index is rising 0.2%, Spain's IBEX 35 Index is declining 0.4%, and Switzerland's Swiss Market Index is dipping 0.1%.

Asia mixed following data and ahead of monetary policy decisions

Stocks in Asia finished mixed on the heels of the continued gains in the U.S. to record highs, while the markets digested some disappointing Chinese economic data and awaited monetary policy decisions out of the U.K. and Switzerland. China's Shanghai Composite Index and the Hong Kong Hang Seng Index declined 0.4% after August reports on retail sales, industrial production and fixed asset investment all rose at smaller-than-expected amounts. Japan's Nikkei 225 Index decreased 0.3%, despite the yen weakening. South Korea's Kospi Index overcame early losses and finished 0.7% higher and India's S&P BSE Sensex 30 Index nudged 0.2% higher. Australia's S&P/ASX 200 Index dipped 0.1%, even as the nation reported upbeat August employment figures. For more on the global markets, see Schwab's Jeffrey Kleintop's, CFA, articles, What are fund flows telling us about trends and risks in the global stock market?, and An important benefit to global investors is back after 20 years, on the International Investing page at www.schwab.com.