There is a negative vibe hanging over global equity markets today. The specific reason why is unclear, although concerns about less accommodative central bankers are receiving most of the blame.
Those concerns appear to be manifesting themselves in rising interest rates around the globe. To wit, Japan's government bond yield is up two basis points to 0.09%; Germany's bund yield is up 8 basis points to 0.55%; the UK's gilt yield is up five basis points to 1.31%; and the 10-yr note yield is up five basis points to 2.37%.
Those moves have created some yield signs for equity investors bothered by the specter of high valuations and the notion that the Federal Reserve has started to claw back the excessive policy accommodation provided during the financial crisis while others, like the ECB and the Bank of England, are making some waves about doing the same.
The S&P futures are down eight points and are trading 0.4% below fair value while the Nasdaq 100 futures are down 44 points and are trading 0.9% below fair value.
This policy perturbation is going to ebb and flow for a while, which is to say it will be regarded as an excuse for selling some days and an excuse for buying on other days.
The search for a definitive explanation for this morning's selling interest goes hand-in-hand with a market that has had a hard time of late making up its mind where it wants to go and what sectors it wants to follow. That fits with a market that recognizes valuations are stretched along with the element of uncertainty about fiscal, monetary, and geopolitical policies.
That confusion has fueled a series of mixed performances for the major indices and Wednesday was no exception.
The information technology sector, which had been under the thumb of sellers, outperformed in a rebound trade and led a 0.7% gain for the Nasdaq Composite while the energy sector, which had been outperforming, lagged on the back of a 4% decline in oil prices and weighed on the broader market.
Today, oil prices are up 1.6% to $45.85 following an inventory report from the American Petroleum Institute that showed a large drawdown in both oil and gasoline inventories. Some weakness in the dollar has also helped drive up prices.
This morning's economic data hasn't altered pre-market sentiment to any great degree, primarily because it was on the mixed side.
- The ADP Employment Change Report for June was weaker than expected, showing an estimated 158,000 positions were added to private sector payrolls (Briefing.com consensus 185,000) and that May job gains were revised down to 230,000 from 253,000
- Initial claims for the week ending July 1 rose by 4,000 to 248,000 (Briefing.com consensus 244,000) while continuing claims for the week ending June 24 climbed by 11,000 to 1.956 million
- The May Trade Balance Report showed a narrowing in the trade deficit to $46.5 billion (Briefing.com consensus -$46.1 billion) from $47.6 billion in April, as exports increased by $0.9 billion from April while imports slipped by $0.2 billion. The goods deficits with the European Union and China decreased by $2.6 billion and $2.0 billion, respectively.
The corporate news hasn't been too enthralling either. A number of specialty retailers have checked in with same-store sales results for June that have also prompted some mixed responses.
As a reminder, the G-20 meeting in Germany will get its start tomorrow and will be watched closely for any signs of policy discord between President Trump and other world leaders. In addition, the June Employment Situation Report, which will factor into Fed policy, will be released before the open on Friday.
That report and the tension brewing between the U.S. and North Korea are added factors holding back buying interest at the moment.