S&P500, +0.11%, 2,943.03
Nasdaq, +0.16%, 7,839.04
Nikkei Futures, +0.09%, 22,377.5     

The S&P 500 (+0.11%) and Nasdaq Composite (+0.16%) both set new closing, and intraday, records on Monday. It was a tight-ranged session, but positive economic data and the outperformance of the financial and communication services stocks helped maintain the market’s bullish bias.

The latest personal income and spending data helped advance the narrative that the U.S. economy seems to be benefiting still from solid consumer spending activity and muted inflation pressures.

Alphabet shares fell about 7% in after market trading, Google’s parent company reported revenue that fell below analyst estimates for its first-quarter 2019. Earnings per share: $11.90 per share, ex-items, vs. $10.61 expected. Revenue: $36.34 billion, vs. $37.33 billion expected.

The U.S. Dollar Index rose 0.5% to 97.24. U.S. Treasuries edged lower, pushing yields higher. The 2-yr yield and the 10-yr yield increased two basis points each to 2.23% and 2.39%, respectively.  WTI crude decreased 0.3% to $59.27/bbl.

A U.S. trade delegation, which included USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin, arrived in Beijing for a two-day meeting on Thursday. Reuters reported Wednesday evening that Chinese negotiators made “unprecedented” proposals on a range of issues including forced technology transfers. Despite the progress, the market continues to wait for a substantive, final trade deal.

In Brexit, Parliament will vote later today on Theresa May’s Brexit deal for a third and possibly final time, the British government confirmed. But the arrangements are, unsurprisingly, mired in confusion and controversy. Unless some last-minute shifts occur, it would be a huge surprise if the prime minister managed to get enough MPs to back her agreement, even after having separated it from the deal’s political declaration.

The legality of this separation is still disputed. Various MPs and pundits, from both the Remain and Leave camps, have questioned whether today’s vote is lawful. Attorney general Geoffrey Cox told parliament earlier that it is, and will address concerns in his opening speech later. DUP deputy leader Nigel Dodds said that the party will vote against the EU withdrawal agreement when it comes before the House of Commons on later today. Northern Ireland’s 10 DUP members, who prop up May’s minority government, don’t have many votes, but are crucial to the process. Despite hopes that they might give way and support her deal, or at least abstain, they remain implacably opposed to a deal that contains the Irish border backstop.

The S&P 500 increased 0.36% on Thursday, led by shares of the recently-battered financial and industrial stocks. S&P 500 materials (+1.0%), financials (+0.8%), and industrial (+0.8%) sectors outperformed the broader market. Conversely, the utilities (-1.3%) and communication services (-0.5%) sectors were the lone groups to finish with losses.

In earnings news, Lululemon athletica (LULU 167.54, +20.74, +14.1%), PVH Corp (PVH 127.26, +16.37, +14.8%), and Accenture (ACN 175.12, +8.65, +5.2%) all beat top and bottom-line estimates and provided upbeat guidance, sending shares notably higher.

In M&A news, WABCO Holdings (WBC 131.48, -14.53, -10.0%) agreed to be acquired by ZF Friedrichshafen for $136.50/share, or over $7 billion, in cash.

NOTABLE MOVES  

As of Sat, Mar 23, Singapore Time zone UTC+8

USDJPY, -0.80%, $109.92
EURUSD, -0.52%, $1.1314
GBPUSD, +0.62%, $1.3212
USDCAD, +0.52%, $1.3429
AUDUSD, -0.39%, $0.7084
NZDUSD, -0.07%, $0.6877

S&P500, -1.90%, $2,800.71
Nasdaq, -2.23%, $7,326.06
Nikkei Futures, -0.39%, $21,340.0

CURRENCY MARKET WRAP 

The Dollar benefited from the flight to safety, lifting the U.S. Dollar Index 0.2% to 96.65. U.S. 2-yr yield dropped eight basis points to 2.32%, and the 10-yr yield dropped eight basis points to 2.46%. The spread between the 3-month yield (2.45%) and the 10-yr yield briefly inverted for the first since 2017.

Germany’s Manufacturing PMI fell to 44.7 from 47.6 in February, serving as a reminder that output in a major export center remains weak. France’s Manufacturing PMI (actual 49.8 vs prior 51.5) fell below 50.0, which indicated that the country’s manufacturing sector was also in contraction. The weak data sent investors flocking to safe-haven bonds, which drove the yield on the 10-yr German bund (-0.011%) into negative territory for the first time since 2016. The lower yields in Europe likely contributed to increased buying interest in U.S. Treasuries, which helped drive yields even lower. Investors were worried about growth after the ECB cut its forecasts earlier this month and today’s PMI reports show how deep those concerns run. Adding salt to the wound are the possibility of European auto tariffs – Trump said on Wednesday that the EU has been very tough on the US for many years and “we’re looking at something to combat at.”

Prime Minister May finally requested for a 3 month extension of Article 50 and the European Union approved a delay. They said that if May can persuade Parliament to accept the current Withdrawal Agreement, the UK would leave the European Union on May 22nd, one day before the European Parliament elections. However if she fails, they have until April 12th. In that time, they will need to decide if the current deal, no deal or no Brexit is their next course of action. The EU refuses to be trapped in a long extension. Unfortunately this means that a disruptive Brexit is still on the table so while sterling ended the week off its lows, the risk is to the downside.

STOCK MARKET WRAP 

The S&P 500 dropped 1.9% on Friday, as weak manufacturing data out of Europe added to worries about the pace of global economic activity. Growth concerns were reflected by another drop in U.S. Treasury yields, the underperformance of the cyclical sectors, and a pullback in oil prices ($59.01/bbl, -$0.94, -1.6%). Ten of the 11 S&P 500 sectors finished lower, led by materials (-3.0%), financials (-2.8%), and energy (-2.6%). Conversely, the utilities sector (+0.7%) was the lone group to finish higher.

In earnings news, Dow component Nike (NKE 82.19, -5.82, -6.6%) didn’t help ease growth concerns after it reported underwhelming growth in North American sales, though it did beat earnings estimates.

The Philadelphia Fed Index jumped to 13.7 in March (consensus 6.0) from -4.1 in February.The key takeaway from the report is that it was accented by a pickup in new orders and a moderation in price pressures, which is the type of combination that has convinced the Fed to be patient before making any policy rate changes.

U.S. Treasuries closed roughly unchanged. The 2-yr yield and the 10-yr yield remained at 2.40% and 2.54%, respectively, although the 10-yr yield kissed 2.50% at its best level in morning action. The U.S. Dollar Index rose 0.7% to 96.41. WTI crude lost 0.4% to $59.95/bbl.

US-China trade talks are going nowhere fast. The US will be sending Mnuchin and Lighthizer to China next week for more trade talks but with reports that Trump wants China to double or triple their purchases of US goods, an agreement still appears far away. 

The BoE voted unanimously to leave interest rates unchanged (0.75%) and said Brexit could prompt policy moves in either direction. They also warned that employment growth could moderate significantly as more companies trigger no-deal Brexit plans. The central bank said “gradual, limited tightening is probably needed.” UK retail sales also beat expectations, rising 0.4% against a forecast for a 0.4% drop. Unfortunately, nothing matters more than the Brexit process. Under the EU’s plan, if the House of Commons passes the divorce deal, Britain will leave the EU on May 22. But if May’s agreement is once again rejected, the UK will be get an unconditional Brexit delay until April 12 to bring new proposals for a way out of the impasse. She’ll have until April 12 to decide whether to leave without agreement or request a much longer extension.  May, who had gone to Brussels seeking an extension until June 30, said she welcomed the council’s decision. She said she would return to the UK Friday, where she would “make every effort to ensure that we are able to leave with a deal and move our country forward.”

S&P 500 gained 1.09% on Thursday, bolstered by the notion of a dovish Fed and persistently low U.S. Treasury yields. Leadership from the S&P 500 information technology sector (+2.5%), driven by gains in Apple (AAPL 195.09, +6.93, +3.7%) and Micron (MU 43.99, +3.86, +9.6%), also helped carry buying momentum throughout the day. The S&P 500 closed at its highest level this year.

Ten of the 11 S&P 500 sectors finished higher, led by information technology (+2.5%), real estate (+1.8%), and consumer discretionary (+1.3%). Conversely, the financial sector lost 0.3%, pressured by concerns that the recent compression in spreads will lead to weak net interest margins for lenders.

Apple reclaimed its title as the world’s most valuable company after Needham upgraded the stock to Strong Buy from Buy and raised its price target to $225. Needham’s upgrade was the latest from a host of positive analyst coverage this month that has helped lift the stock 12.7% in March, including Thursday’s 3.7% gain.

Micron suggested a bottom could be close with an improvement likely coming at the back half of the year. That call helped investors overlook its disappointing fiscal Q3 guidance and helped spur buying interest within the Philadelphia Semiconductor Index (+3.5%).

In other earnings news, Conagra Brands (CAG 25.82, +2.92, +12.8%) and Darden Restaurants (DRI 116.11, +7.46, +6.9%) were some of the biggest gainers in the S&P 500 following their earnings reports.Shares of Biogen (BIIB 226.88, -93.71), on the other hand, plunged 29.2% after the company said it will discontinue its Phase 3 trials of aducanumab for Alzheimer’s. Separately, Levi Strauss (LEVI 22.41, +5.41, +31.8%) became the biggest IPO in 2019 Thursday, opening at $22.22 after pricing its IPO at $17.

• The ISM Non-Manufacturing Index increased to 59.7 in February (consensus 57.2) from 56.7 in January. The dividing line between expansion and contraction is 50.0, so the increase in February reflects an acceleration in business activity in the non-manufacturing sector. The key takeaway from the report is that it featured a sizable increase for the New Orders component, which is a positive marker that will help push out the recession narrative for the U.S. economy since the non-manufacturing sector accounts for a much larger chunk of economic activity than the manufacturing sector does.
• New home sales increased 3.7% month-over-month to a seasonally adjusted annual rate of 621,000 (consensus 572,000).The key takeaway from the report is that the improvement in new home sales coincided with a drop in both median and average selling prices. Another important takeaway is that lower-priced homes (less than $400,000) accounted for a much smaller percentage of total homes sold than in November, underscoring the point that there are supply constraints at more affordable price points.
• The U.S. Treasury market was relatively muted on Tuesday. The 2-yr yield increased one basis point to 2.55%, and the 10-yr yield was unchanged at 2.72%. The U.S. Dollar Index increased 0.2% to 96.84. WTI crude was unchanged at $56.54/bbl.

• The S&P 500 lost 0.11% on Tuesday in a session that saw little conviction from buyers or sellers. Encouraging economic data and solid earnings reports from Target (TGT 76.00, +3.33, +4.6%) and Kohl’s (KSS 71.33, +4.86, +7.3%) provided some support for the market. The S&P 500 industrials (-0.6%) and materials (-0.3%) sectors underperformed the broader market. Conversely, the communication services (+0.7%), real estate (+0.3%), and consumer discretionary (+0.2%) sectors were the lone groups to finish with gains.
• Stocks opened roughly flat amid lingering concerns about the U.S. striking, and enforcing, a meaningful trade deal with China. On a related note, China lowered its 2019 GDP growth forecast to 6.0%-6.5% from 6.5%, and announced some tax cuts in a bid to contend with a “tough economic battle ahead.”
• The S&P 500 dropped 0.4% in early action but selling efforts were tempered following the release of the stronger-than-expected New Home Sales report for December and the ISM Non-Manufacturing Index for February.

 NOTABLE MOVES  

As of Sat, Mar 2, Singapore Time zone UTC+8

USDJPY, +0.48%, $111.92
EURUSD, +0.05%, $1.1377
GBPUSD, -0.40%, $1.3210
USDCAD, +0.88%, $1.3284
AUDUSD, -0.18%, $0.7082
NZDUSD, -0.10%, $0.6801

S&P500, +0.69%, 2,803.69
Nasdaq, +0.76%, 7,151.57
Nikkei Futures, +1.08%, 21,620.0

CURRENCY MARKET WRAP 

• The PCE Price Index for December was up 0.1% while the core PCE Price Index, which excludes food and energy, increased 0.2% (consensus +0.1%). That left the those indexes up 1.7% and 1.9%, respectively, year-over-year and below the Fed’s longer-run inflation target. The key takeaway from the report is that it will encourage the Fed to stick by a wait-and-see mindset.
• The ISM Manufacturing Index weakened to 54.2 in February (consensus 56.0) from 56.6 in January. The final reading for the University of Michigan’s Index of Consumer Sentiment for February was 93.8 (consensus 95.6).
• U.S. Treasuries closed out the week on a lower note, sending yields higher across the curve. The 2-yr yield increased five basis points to 2.55%, and the 10-yr yield increased four basis points to 2.76%. The U.S. Dollar Index increased 0.3% to 96.46. WTI crude lost -2.5% to $55.81/bbl.

STOCK MARKET WRAP 

• The S&P 500 increased 0.69% on Friday, led by shares of energy and health care companies; meanwhile investors remained optimistic about a U.S.-China trade deal. Friday’s gains lifted the benchmark index into positive territory for the week, advancing 0.4%. The S&P 500 energy (+1.8%), health care (+1.4%), and consumer discretionary (+0.9%) sectors outperformed. Conversely, the consumer staples (-0.2%), materials (-0.2%), and real estate (-0.1%) sectors were the lone groups to finish with losses.
• Stocks jumped out of the gate, propelled by a Bloomberg report that the U.S. and China are working on a document that lays out the provisions of a trade deal and that such a document could be ready to be signed by Trump and Xi as early as mid-March. The major averages, however, lost steam and fell to session lows following the release of the ISM Manufacturing and Consumer Sentiment reports for February. The reports came in below expectations and provided an excuse for profit taking. Selling was short-lived, though, as has been the case all year. The S&P 500 sectors staged a steady rebound during the afternoon, allowing the benchmark index to close near session highs and above the 2800 level.
• Positive earnings reports from retailers Gap (GPS 29.51, +4.11, +16.2%) and Foot Locker (FL 63.07, +3.55, +6.0%) helped spur gains in the consumer discretionary sector (+0.9%). GAP also announced it will spin off Old Navy as a separate company. Conversely, Walgreens Boots Alliance (WBA 66.61, -4.58, -6.4%) underperformed after Robert W. Baird cut its price target to $67 from $70. Baird maintained a ‘neutral’ rating on the stock.
• Tesla (TSLA 294.79, -25.09) made headlines, losing -7.8%, after CEO Elon Musk conceded that the company will not be profitable during the first quarter. The Tesla team also said it will shift sales worldwide to online only. The transition will reduce costs in order to lower the prices of its vehicles, including the Model 3.