Center Stage for Bonds w No U.S. Rate Hike In View; Q2 Earnings Take Center Stage
July 15, 2017   //   by Mischler MarCom   //   Equities Market Commentary  

Peruzzi’s Perch 07.14.17 – Equities: Slow and Steady Winning the Race, Now Its Center Stage for Bonds

Traders and investors return from a holiday shorten week on Monday with the same resolve: not willing to outright sell and not looking to make large bets. As a result, U.S and global markets resumed their slow, steady and non-volatile rise to new records.

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Larry Peruzzi, Managing Director

The MSCI all country world index closed Thursday at an all-time high. Thursday’s June PPI data was largely in line. An Ex Food and Energy reading of 1.9% YoY provides little argument for inflation driven higher rates. These reading seemed to be confirmed with Friday’s June CPI reading. Inflation seems to be contained, and as much as the Fed would like to raise rates, there is little evidence to support that notion right now. As a result, probability of a July 26th rate hike is now 0% and September 20th probability dropped to 10.1%.

June retail sales looked week dropping .2% MoM. Maybe next month we will see a rebound off of Amazon prime day. The VIX index started the week above 11, but will finish the week below 10.  The Dow index set new record highs on Thursday and pushed fresh highs on Friday, S&P 500 and NASDAQ comp are knocking on the door to new highs as well. Stocks across the globe traded higher Thursday after Fed chair Janet Yellen struck a slightly less hawkish tone than expected, emphasizing her concerns about low inflation. During her testimony, Fed Chair Janet Yellen urged Congress to take into account the growth trajectory of the federal debt when making decisions about spending and taxation.  As an added bonus,  President Trump visited France for Bastille Day and actually made comments that sounded as though he was moving toward a friendlier relation with our European allies.

Finance and banking stocks tried to put a damper on the party as JP Morgan, Wells Fargo and Citigroup lowered their outlook for loan growth for the second half of the year. The KBW bank index fell the most in 2 months on Friday.  Q2 earnings season began and will be in full swing next week. Elsewhere in Washington, Mitch McConnell’s latest heath care draft looks as though it will need more work in order to gain republican support. All said, investors seem to be focusing less on the markets and more on summer plans as they enter a mood of nervous content.

Next week Q2 earnings will be in full swing, with 335 U.S firms due to report. Economically, we have July Empire manufacturing on Monday, June import and export price index on Tuesday, June housing starts on Wednesday and Philadelphia Fed and leading indicators on Thursday. It is a light week for Fed speakers, as they enter a quiet period ahead of July 26th FOMC meeting. So,  outside of any political bombshells, earnings will dominate the headlines next week.

Oil has spent most of July trading in a very narrow $45 to $47 trading range. We will continue to monitor inventory and production data through the week,  but many analysts feel that we are in for a long term run of $42 oil.

Bonds are creeping back in favor with the low inflation readings, and that is worth watching next week. The U.S 10 year yield fell to 2.277% on Friday. Bond traders will be watching the European Central Bank’s policy decision on Thursday as many traders have initiated a large strangle trade that is set to expire on Friday July 21.

 

Larry Peruzzi

Managing Director International Trading

Mischler Financial Group

Investment Banking | Institutional Brokerage

Ph:   1-617-420-8472

Larry Peruzzi is a 20 yr global trading markets veteran and brings a unique perspective to global equities market commentary via Mischler Financial Group, the securities industry’s oldest minority broker-dealer owned and operated by service-disabled veterans.  Larry’s experience  and best execution perspective stems from his sitting on ‘both sides of the aisle.’  For more than half of Larry’s career, he ran buy-side trading desks for Standish Mellon and thereafter, The Boston Company. In both of those roles, Larry was responsible for implementing and managing international equities trade execution. Larry’s perspectives are frequently cited by the leading financial news publishers, including The Wall Street Journal, Bloomberg LP and Reuters

Mischler End of Week Equities Market Commentary via Peruzzi’s Perch June 23 2017 end-of-week edition is distributed via email to institutional investment managers and Fortune Treasury clients of veteran-owned broker-dealer Mischler Financial Group, the investment industry’s oldest  minority broker-dealer owned and operated by Service-Disabled Veterans.

Peruzzi’s Perch is a weekly synopsis of Everything Equities as seen from the perch of Mischler Financial Group’s International Equities Desk. Cited by Wall Street Letter in each of 2014, 2015 and 2016 for “Best Research / Broker-Dealer”, Peruzzi’s Perch is one of four distinctive content pieces produced by Mischler Financial Group 

Peruzzi’s Perch 07.14.17 – Equities: Slow and Steady Winning the Race, Now Its Center Stage for Bonds