U.S. equities finished lower to start the week, with energy issues seeing pressure amid a drop in crude oil prices, while Fed rate hike expectations continued to linger, sapping sentiment.
On the equity front, Bank of America and Hasbro posted better-than-expected earnings, while Dow member Caterpillar announced the retirement of its CEO. Treasuries were higher following a much softer-than-expected regional manufacturing report, as was gold, while the U.S. dollar lost ground.
The Dow Jones Industrial Average (DJIA) fell 52 points (0.3%) to 18,086, the S&P 500 Index lost 7 points (0.3%) to 2,127 and the Nasdaq Composite declined 14 points (0.3%) to 5,200. In light-to-moderate volume, 691 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq.
WTI crude oil declined $0.41 to $49.94 per barrel, wholesale gasoline was unchanged at $1.49 per gallon and the Bloomberg gold spot price rose $3.66 to $1,254.69 per ounce. Elsewhere, the dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 97.87.
Bank of America Corp. (NYSE:BAC $16) reported 3Q earnings-per-share (EPS) of $0.41, above the $0.34 FactSet estimate, as revenues rose 3.0% year-over-year (y/y) to $21.6 billion, compared to the projected $20.8 billion. The company benefitted from its fixed income trading activity and reduced expenses. Shares gave up early gains and were little changed.
Hasbro Inc. (NASDAQ:HAS $82) posted 3Q profits of $2.03 per share, north of the expected $1.75, with revenues increasing 14.0% y/y to $1.7 billion, above the estimated $1.6 billion. The toy company said growth in boys, games and girls categories helped it deliver the "greatest revenue and earnings quarter" in its history, adding that it is well positioned for what it believes will be a good holiday season. HAS rallied.
Dow member Caterpillar Inc. (NYSE:CAT $87) announced that Chairman and Chief Executive Officer (CEO), Doug Oberhelman, has elected to retire, effective March 31, 2017. CAT said its board has elected Caterpillar Group President, Jim Umpleby, to succeed Oberhelman as CEO. Shares finished lower.
Industrial production ticks higher, NY manufacturing output unexpectedly shrinks
Industrial production (chart) ticked 0.1% higher month-over-month (m/m) in September, in line with the Bloomberg estimate, and following August's downwardly revised 0.5% decrease. Manufacturing and mining production improved modestly, while utilities output fell. Capacity utilization rose to 75.4% from August's downwardly revised 75.3%, and compared to projections for a 75.6% rate. Capacity utilization is 4.6 percentage points below its long-run average.
The Empire Manufacturing Index showed output from the New York region surprisingly fell further into contraction territory (a reading below zero) for October. The index dropped to -6.8 from September's unrevised -2.0 level, with forecasts calling for an improvement to 1.0.
Treasuries finished higher, as the yield on the 2-year note declined 3 basis points (bps) to 0.81%, while the yields on the 10-year note and the 30-year bond dropped 4 bps to 1.76% and 2.52%, respectively. Bond yields have given back some of a recent rally that has come courtesy of upbeat economic data, hawkish Fedspeak, and the rise in crude oil prices.
While the ramp up in earnings season will likely garner heavy attention, today's data kicks off this week's domestic economic calendar that will yield a plethora of data to digest as the markets grapple with Fed rate hike expectations. Tomorrow, the docket will bring the Consumer Price Index, forecasted to have risen 0.3% m/m during September following the 0.2% increase the month prior, while ex-food and energy, the core rate is expected to be 0.2% higher m/m, down slightly from the 0.3% posted in August.
As well, October's NAHB Housing Market Index will be reported, with economists expecting a reading of 63, down slightly from the 65 recorded in September, but well above the demarcation point of 50 that separated homebuilders' assessment of conditions in the housing market as good versus poor. Also, the Presidential election will remain a source of focus for the markets leading up to Wednesday's final debate.
U.S. equity indexes are within the summer’s range and we believe a bullish rotation within equities may be taking place. The important third quarter earnings season is just gearing up, with expectations having been downgraded over the past couple of months, setting up the likelihood of a good quarter relative to expectations. However, some improvement in economic data and higher inflation readings leaves the possibility of tighter monetary policy from the Fed and even other central banks.
Europe lower ahead of data and amid central bank focus, Asia mixed
European equities finished mostly lower, led by oil and gas issues as crude oil prices moved to the downside, while the markets awaited a plethora of global earnings and economic data this week and central bank caution remained ahead of Thursday's monetary policy decision from the European Central Bank. Ahead of the decision, eurozone consumer price inflation rose 0.4% m/m in September, matching expectations, and an acceleration from the 0.1% gain posted in August.
The euro was higher and the British pound finished little changed versus the U.S. dollar, while bond yields in the region closed mixed. Italian stocks outperformed amid a reprieve from the recent pressure on the nation's banking sector.
Stocks in Asia finished mixed as the recent weakness in the yen helped lift Japanese equities, though a plethora of Chinese data slated for this week likely kept caution elevated. Casino-related stocks were a drag on the markets in the region as Chinese authorities detained employees from Australia's Crown Resorts Ltd. ($21) with China's Foreign Ministry saying that Australian nationals were under criminal detention for their suspected involvements in gambling crimes, per CNBC.
Mainland Chinese securities and those traded in Hong Kong dropped 0.8%, while Australia's markets saw marked pressure with the weakness in gaming stocks being met with solid declines in technology and oil & gas issues. Meanwhile stocks in India declined amid concerns on the lackluster start to earnings season and on the heels of Friday's mixed September trade report, but listings in South Korea ticked modestly higher.
Tomorrow, the international economic calendar will be dominated by reports out of the U.K., including the Retail Price Index, CPI, PPI, and housing prices.