by Eli Wright
After days of volatility, markets have taken a breather and remain stable through early Tuesday morning.
Overnight, the Nikkei closed down 0.03%, at 17,668.15; the Shanghai Composite dipped 0.12%, to close at 3,206.62; and the Hang Seng crept 0.46% higher, to 22,323.91.
In early trading in Europe, the FTSE 100 rose 0.85% higher, to 6813.70; the DAX dropped 0.1%, to 10,691; the Euro Stoxx 50 edged 0.05% lower, to 3,043.
U.S. equities held steady on Monday: the S&P 500 closed down 0.01%, at 2,164.20; the NASDAQ dropped 0.36%, to 5,218.40; the Dow reached a third straight record high, up 0.1% to 18,868.69. In pre-market trading, the S&P is up 0.32%, the NASDAQ rose 0.38% and the Dow edged higher 0.18%.
Despite the overall U.S. market balance, the financial sector badly outplayed tech stocks: Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) rose 2.6%; JPMorgan Chase & Co (NYSE:JPM) picked up 3.73%; and Bank of America (NYSE:BAC) jumped 5.58% higher.
In comparison, Microsoft (NASDAQ:MSFT) edged 1.5% lower, Google (NASDAQ:GOOGL) fell 2.4%; Apple (NASDAQ:AAPL) dropped 2.5%; Amazon (NASDAQ:AMZN) declined 2.7%; and Facebook (NASDAQ:FB) slid 3.31%.
Bond yields remain high, with U.S. 10-Year Treasury yield now at 2.207% and the 30-Year yield hovering at 2.947%.
In contrast, stocks, bonds, and currencies in emerging markets have been hit recently. The rising dollar makes borrowing more expensive, and Trump’s protectionist, anti-trade attitude worries investors. Additionally with attractive opportunities returning to the main exchanges, there is little reason for traders to go elsewhere.
Forex
The dollar’s rally over the past week can be attributed to expectations of growth and inflation under a Trump presidency, as well as to the recent sell-off in bonds.
Also lending strength to the dollar are expectations of a December rate hike, which currently stand at over 85%. The Fed has only raised rates once since 2008 and that was back in December, 2015. However, as wages climb and unemployment drops, that is set to change. “In my view, the Fed appears reasonably close to achieving both the inflation and employment components of its mandate,” Fed Vice-chair Fischer informed a conference at the Central Bank of Chile late last week. A rate hike would entail a U.S. divergence from global monetary policy, which is still largely in easing mode.
According to Moody’s, despite the growing threat of protectionist policies, the U.S. is expected to lead growth among G7 economies over the next two years, expanding from 1.6% this year to 2.2% next year, and 2.1% in 2018. The UK is expected to lead with 1.8% growth this year, but Brexit has caused a lowered forecast for 2017-2018, with expectations for growth of only 1%.
This bodes well for the dollar against both the pound and the euro, and the Dollar Index continues to climb, yesterday reaching 100.19. It currently stands at 99.75.
U.S. Retail and Core Retail Sales data are due at 8:30 AM today, just before the market opens. Both reports are key indicators of consumer spending, which accounts for the majority of overall economic activity. Higher-than-expected readings could prove bullish for the USD.
Commodities
Gold hit five month lows yesterday, as risk appetite continues to lead traders away from safe havens. Gold prices are currently at $1,223.95.
Silver futures dropped over 3% yesterday, but have edged up 1% today to $17.047.
Oil prices continued to decline yesterday, reaching three-month lows, amid growing concerns of a global supply glut. Crude oil is currently trading at $44.41; Brent is currently at $45.35.
Stocks
Three major stocks report earnings today before the bell.
Dick’s Sporting Goods Inc (NYSE:DKS) is expected to report Q3 EPS of $0.42 on revenues of $1.64 billion. Dick’s has heavily outperformed the past two quarters, and company shares are up over 70% this calendar year.
Dick’s lost its closest competitor, Sports Authority, to bankruptcy earlier this year, and another rival, Sport Chalet, shuttered its doors as well. The company’s multi-channel marketing network, last quarter’s YoY 26% online sales growth, and a rise in sports gear consumer spending, all contribute to an attractive outlook.
Mobileye (NYSE:MBLY) is announcing Q3 earnings, with expected EPS $0.18 on revenues of $89.76 million. Commanding 70% of the market for advanced, automated driver assistance systems, Mobileye has consistently beaten EPS and revenue projections, missing earnings expectations only once in the past 6 quarters.
Mobileye cut ties with Tesla (NASDAQ:TSLA), but Tesla accounted for less than one percent of revenues and Mobileye has about two dozen other global automakers as clientele, including Volkswagen (DE:VOWG_p), General Motors Company (NYSE:GM), and Delphi Automotive plc (NYSE:DLPH), as well as a partnership with BMW and Intel (NASDAQ:INTC) to make self-driving cars. Shares have fallen approximately 22% from highs reached earlier this summer, but with self-driving cars a burgeoning market, there is definitely room for growth.
Finally, generic drug manufacturing giant Teva Pharma Industries Ltd (NYSE:TEVA) is expected to report Q3 EPS of $1.28 on revenues of $6 billion. Shares have tumbled 44% since July, 2015, but there has been a 5% upswing the past several days, as the healthcare/biotech industry as a whole have benefited from Trump’s victory. Despite these short-term gains, Teva remains under sharp scrutiny for price-fixing, making it a riskier long-term bet.