U.S. equities began the 2Q underwater, as continued political uncertainty and softer-than-expected monthly auto sales took the shine off some upbeat manufacturing reports both here and abroad. Weakness in Treasury yields weighed on the financial sector, crude oil prices were lower, while gold and the U.S. dollar moved higher.
The Dow Jones Industrial Average (DJIA) shed 13 points (0.1%) to 20,650, the S&P 500 Index fell 5 points (0.2%) to 2,358, and the NASDAQ Composite was 17 points (0.3%) lower at 5,895. In moderately-heavy volume, 924 million shares were traded on the NYSE and 1.8 billion shares changed hands on the NASDAQ. WTI crude oil ticked $0.36 lower to $50.24 per barrel and wholesale gasoline lost $0.01 to $1.69 per gallon. Elsewhere, the Bloomberg gold spot price rose $3.75 to $1,252.95 per ounce, and the dollar index, a comparison of the U.S. dollar to six major world currencies, was 0.2% higher at 100.51.
Tesla Inc. (NASDAQ:TSLA $299) announced that it delivered just over 25,000 vehicles in 1Q, above the 24,420 FactSet estimate, posting the highest quarterly rate in the electric vehicle maker's history and a 69% increase year-over-year (y/y). TSLA said its 1Q production was also a quarterly record. Shares were nicely higher.
The big three U.S. automakers reported March sales today, with General Motors Co's (NYSE:GM $34) sales rising 1.6% y/y, compared to the projected 7.5% increase. Fiat Chrysler Automobiles NV's (NYSE:FCAU) $10) sales declined 4.8%, compared to the expected 0.6% gain. Ford Motor Co (NYSE:F $11) reported a 7.2% drop in sales, versus the expected 6.1% fall. Also, Toyota Motor Corp (NYSE:TM $109) announced that its sales declined 2.1%, compared to the 2.3% decrease that was expected. Shares of all GM, F, FCAU and TM were all lower.
Shares of Panera Bread Co. (NASDAQ:PNRA $283) rose after Bloomberg reported that the restaurant is working with advisers to study strategic options, including a possible sale after receiving takeover interest, citing sources with knowledge of the matter. PNRA did not comment on the report.
Manufacturing activity slows but continues to suggest expansion
The Institute for Supply Management (ISM) Manufacturing Index (chart) for March slowed but remained firmly in expansion territory (above 50) after declining to 57.2 from 57.7—the highest level since August 2014—in February and matching the Bloomberg forecast. New orders slipped but remained solidly above 60 and production fell 5.3 points to 57.6. Employment gained 4.7 points to 58.9 and new export orders rose 4.0 points to 59.0. The ISM said comments from the survey were consistent and generally positive, with all 18 industries reporting growth in new orders.
The final Markit U.S. Manufacturing PMI Index was revised slightly lower to 53.3 for March from the 53.4 preliminary level, compared to estimates calling for an adjustment to 53.5. The index was down from the 54.2 level posted in February. A reading above 50 denotes expansion. The release is independent and differs from ISM's manufacturing report, as it has less historic value and Markit weights its index components differently.
Investors are facing the realization that "soft" data such as confidence readings and business surveys, doesn't necessarily translate immediately into "hard" data, like retail sales, capital expenditures, and industrial production. It's this hard data that translates into economic growth and increasing profitability. Looking at some of the parabolic moves in recent confidence surveys, it would be difficult for hard data to keep up. Historically, wide spreads between soft and hard data tend to narrow in both directions—soft data tends to retreat, but hard data tends to play some catchup. We expect that pattern in this cycle, too.
Construction spending (chart) rose 0.8% month-over-month (m/m) in February, versus projections of a 1.0% advance, and following January's favorably revised 0.4% decline. Residential spending grew 1.8%, while non-residential spending came in flat.
Treasuries finished higher, as the yield on the 2-Year note declined 2 basis points (bps) to 1.24%, the yield on the 10-Year note dropped 4 bps to 2.35%, and the 30-Year bond rate fell 3 bps to 2.98%.
Bond yields and the U.S. dollar remain in focus as the markets continue to grapple with upbeat economic data, festering political uncertainty and the Fed's March rate hike and outlook for future increases.
Tomorrow's economic calendar will give investors a look at the trade balance, with economists expecting the deficit to have narrowed during February to $44.6 billion from the $48.5 billion posted in January, as well as factory orders forecasted to have gained 1.0% m/m in February.
Europe declines as financials lead to the downside, Asia higher
European equities finished lower to start the new quarter, with financials leading to the downside as global bond yields moved lower, while political uncertainty remained. The U.S. is set to meet with China later in the week, while Brexit negotiations have begun and a key French Presidential election this month looms.
Shares of Imagination Technologies Group (LON:IMG) $1) tumbled after Dow member Apple Inc. (NASDAQ:AAPL $144) announced that it will no longer use the graphic chipmaker's technology for new products. Basic materials was the lone major sector to avoid losses and finish flat, aided by reports on manufacturing output out of the U.S., Eurozone and China that showed growth continued last month. However, UK and Spanish manufacturing output missed expectations. The euro gained modest ground on the U.S. dollar and the British pound saw pressure following the disappointing manufacturing report.
Stocks in Asia finished higher to begin 2Q, following some relatively upbeat economic data in the region, while markets in mainland China were closed for a holiday. The markets shrugged off continued political uncertainty in the U.S. and Europe and lingering geopolitical concerns toward North Korea and as China's President Xi is set to meet with U.S. President Trump later this week.
Japanese equities gained ground following the nation's 1Q Tankan report that showed sentiment among the country's largest manufacturers and non-manufacturers both improved, but the former missed expectations and the latter topped forecasts.
Stocks in Hong Kong rose, with China reporting continued growth in manufacturing activity, while Australian securities ticked higher following mixed reads on the nation's retail sales and building approvals. Meanwhile, markets in South Korea and India advanced, with the latter reporting that growth in manufacturing output accelerated for last month.
Tomorrow, the international economic calendar will provide a look at CPI from South Korea, trade data from Australia, labor statistics from Spain, and retail sales from the Eurozone. Meanwhile, the Reserve Bank of Australia will meet to discuss monetary policy, with no change to its stance expected.