Market Perspective for October 8, 2018

All the major stock indexes opened the day in the red on Monday but rebounded late in the day. The Dow Jones Industrial Average led performance with a gain of 0.15 percent. The Nasdaq declined 0.67 percent. Bond markets were closed for the Columbus Day holiday. Canadian and Japanese markets also closed for national holidays.

Financials and utilities extended their outperformance. SPDR Financial (XLF) gained 0.68 percent and SPDR Utilities (XLU) 0.84 percent. SPDR Technology (XLK) slid 1.07 percent.

Small business confidence for September will be out on Tuesday. The producer price and consumer price indexes are due on Wednesday and Thursday. Economists forecast 0.2 percent increases for the headline PPI, headline CPI and core CPI. In August, PPI missed expectations and fell 0.1 percent. Core CPI missed as well with a smaller increase of 0.1 percent. The advance consumer sentiment index for October will be out on Friday. Analysts predict the University of Michigan survey will rise to 100.9 from 100.1 in September.

China cut the reserve ratio requirement (RRR) for banks on Sunday by 1 percent. This will free up as much as 750 billion yuan ($109 billion) for the banking system. China’s currency weakened on Monday in response. The U.S. dollar broke out immediately following China’s prior surprise RRR cut in April.  China’s stock market also tumbled on Monday as it caught up with global markets following a week-long holiday. New loans and exports are due later this week.

Italy’s sovereign bonds and stock market fell on Monday after its budget battle with the European Union escalated. EU officials rejected planned deficit spending, but Deputy Prime Minister Salvini said the country would not alter its budget. The euro sank in sympathy. This weekend, German voters in Bavaria will hold state elections. The euro-skeptic Alternative for Germany is framing the election as a referendum on Chancellor Merkel.

Brazil gave 46 percent of its votes to a pro-business reform candidate in Sunday’s elections. He’ll face a run-off later this month, but he’s all but assured to win. Shares MSCI Brazil (EWZ) gained 6.74 percent on Monday.

Euro weakness boosted the U.S. Dollar Index on Monday. SPDR S&P 500 (SPY) finished flat on the day, iShares MSCI EAFE (EFA) fell 0.42 percent and iShares MSCI Emerging Markets (EEM) gained 0.17 percent.

Delta Air Lines (DAL), Walgreens (WAG), Commerce Bancshares (CBSH) and Fastenal (FAST) will report early this week ahead of Friday’s big announcements from Citigroup (C), J.P. Morgan (JPM), Wells Fargo (WFC) and PNC Financial Services (PNC). Rising interest rates have lifted the financial sector over the past week and investors will be looking for positive guidance as firms adjust their outlooks given the prospect of higher rates and wider interest rate spreads.

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