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U.S. equities finished lower in a rollercoaster session, as investors weighed upbeat guidance from Macy's and a mostly in line inflation report against disappointing data overseas and continued uncertainty surrounding a Brexit deal. Treasury yields and the U.S. dollar were lower, while gold and crude oil prices were higher, with the latter breaking a 12-session losing streak.
The Dow Jones Industrial Average (DJIA) dropped 206 points (0.8%) to 25,081 and the S&P 500 Index declined 21 points (0.8%) to 2,702, while the Nasdaq Composite shed 65 points (0.9%) to 7,136. In heavy volume, 1.0 billion shares were traded on the NYSE and 2.5 billion shares changed hands on the Nasdaq. WTI crude oil rose $0.56 to $56.25 per barrel and wholesale gasoline was up $0.02 at $1.56 per gallon. Elsewhere, the Bloomberg gold spot price traded $9.18 higher at $1,211.41 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.5% at 96.82.
Macy's Inc (M $33) reported Q3 earnings-per-share (EPS) of $0.20, or $0.27 ex-items, versus the $0.15 FactSet estimate, as revenues rose 2.3% year-over-year (y/y) to $5.4 billion, matching forecasts. Q3 same-store sale increased more than expected. CEO Jeff Gennette clarified with the Wall Street Journal that the company will cut its merchandise and employees at slower "neighborhood" stores. In answer to concerns of excessive inventory and shopping inconvenience, the retailer may wall store space off and leave it empty at some stores. The company issued Q3 EPS guidance that exceeded expectations, while it improved its full-year outlook for same-store sales, citing an improved trend in brick and mortar locations across the fleet. Shares traded to the downside.
Shares of PG&E Corporation's (PCG $26) were sharply lower after it provided an update on California's Camp Fire, which has a death toll of at least 42. The utility company said that it could face significant liability beyond its insurance coverage if it is deemed that an "electrical incident" with its equipment just before the fire is found to be the cause.
Consumer inflation mostly in line with forecasts, mortgage applications decline
The Consumer Price Index (CPI) (chart) rose 0.3% month-over-month (m/m) in October, in line with the Bloomberg estimate and above September's unrevised 0.1% increase. The core rate, which strips out the volatile food and energy components, moved 0.2% higher m/m, matching expectations, and slightly above September's unadjusted increase. Y/Y, prices were 2.5% higher for the headline rate, matching forecasts and above September's unrevised 2.3% increase. The core rate was up 2.1% y/y, south of projections of a 2.2% advance, and below September's unrevised rise.
The MBA Mortgage Application Index declined 3.2%, following the prior week's 0.7% decrease. The decline came as a 4.3% drop in the Refinance Index was met with a 2.3% fall in the Purchase Index. The average 30-year mortgage rate rose 2 basis points (bps) at 5.17%.
Treasuries were higher, as the yield on the 2-year note was down 4 basis points (bps) to 2.85%, the yield on 10-year note fell 3 basis points to 3.11%, and the 30-year bond rate ticked 1 bp lower to 3.35%. Schwab's Chief Fixed Income Strategist Kathy Jones notes in her latest article, Where Will Long-Term Interest Rates Settle?, that as we approach the end of rate increases for this economic cycle, it's becoming increasingly tempting to start to add duration to portfolios. Not so fast, she adds, concluding that until we see spreads between short- and long-term debt widen again, we suggest sticking with short- and intermediate-term debt.
Tomorrow's economic calendar will be a busy one, beginning with weekly initial jobless claims, forecasted to tick lower by 1,000 to a level of 213,000, followed by advance retail sales for October, with economists projecting a 0.5% m/m rise for both the headline rate and sales ex-autos, while sales ex-autos and gas are expected to post a 0.4% m/m gain. The Import Price Index is also on tap, expected to have inched 0.1% higher for October, while business inventories and the Empire Manufacturing Index will round out the docket.
Europe lower as Brexit uncertainty ratchets higher, Asia loses ground
European equities lost ground amid Italian defiance of the European Commission and uncertainty surrounding a potential Brexit breakthrough. As yesterday's European Commission-imposed deadline passed, Italy resubmitted a draft budget plan, but refused to make concessions to Brussels on its budget deficit, setting the stage for another showdown with regulators. Elsewhere, after months of tense negotiations, U.K. Prime Minister Theresa May said she had secured a Brexit deal draft with EU regulators. A previously scheduled statement from May was delayed as she headed into meetings with her Cabinet, exacerbating the uncertainty and putting marked pressure on the British pound. After the meeting, May delivered a statement outside her office saying that she had secured support for the deal. However, Parliament will need to vote on the accord, with some speculation and reports indicating that it could be voted down. In economic news in the region, Eurozone GDP grew at a 0.2% quarter-over-quarter (q/q) pace, the least in four years, as German GDP was a drag on the region, as output in the nation shrank 0.2% q/q, and was below expectations. The euro was higher and bond yields in the region were mixed.
Stocks in Asia were mostly lower, as oil headlines drew attention and oil prices closed lower for 12 straight sessions. Mainland Chinese equities and those traded in Hong Kong fell, as the nation's October retail sales came in lower than expected, which was partially offset by October industrial output and fixed asset investment that were higher than expectations. Sentiment also appeared to be negatively impacted by comments from Saudi Arabia's Energy Minister that OPEC agreed there was a need to cut oil supply next year. However, it was unclear if all OPEC members were on board for such cuts. Stocks in Japan dipped, as the yen gained ground on the U.S. dollar, and as the island nation's GDP data showed that the economy shrank for the second time in 2018, with economists pointing to earthquakes and typhoons as negative contributors, but the data was balanced by reports that U.S. auto tariffs against the country will be delayed. Meanwhile, markets in South Korea and Australia were also lower, with the latter seeing significant losses amid the continued slide in crude oil, and Indian securities were flat. Amid the persistent global growth concerns, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, discusses in his article, Should You Invest In The Only Country Planning Stimulus in 2019?
Tomorrow's international economic calendar will offer labor statistics from Japan, as well as trade data from the U.K. and the Eurozone.
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