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Stocks extend rally on trade developments, ECB stimulus measures
12-Sep-19 16:15 ET
Dow +45.41 at 27182.43, Nasdaq +24.79 at 8194.50, S&P +8.64 at 3009.57

https://www.briefing.com/stock-market-update

[BRIEFING.COM] The S&P 500 advanced 0.3% on Thursday, as positive-sounding trade developments and stimulus measures from the ECB helped extend the market's September rally. The Dow Jones Industrial Average increased 0.2%, and the Nasdaq Composite increased 0.3%. The Russell 2000 (-0.04%), however, finished just below its flat line.

In terms of trade news, President Trump said he will delay the tariff rate increase on $250 billion of Chinese imports to Oct. 15 from Oct. 1. Those goods remain taxed at 25%, but the new 30% rate will be delayed at China's request, as Oct. 1 marks the 70th anniversary of the People's Republic of China. The president also remarked that China is expected to buy large amounts of U.S. agricultural goods.

Mr. Trump's "gesture of good will" was followed up by a report from Bloomberg News that the president's advisers were considering an interim trade deal with China. This report was later refuted by sources from CNBC, which helped spoil an early rally effort in the stock market. An appreciation that the two sides appear willing to de-escalate tensions ahead of trade talks helped the market rebound.

This sentiment was made evident in the relative strength displayed in the trade-sensitive S&P 500 materials (+0.7%), information technology (+0.5%), and consumer discretionary (+0.5%) sectors. Accommodative measures from the ECB, which cut its deposit rate to -0.5% from -0.4% and announced it will resume quantitative easing on Nov. 1, were other supportive factors for equities.

The market did lose some steam into the close, though, with the S&P 500 energy (-0.6%) and health care (-0.1%) sectors posting losses. Many energy stocks were pressured by another decline in the price of oil ($55.13, -0.61, -1.1%) amid lingering concerns about oil demand. Downward eurozone growth revisions for 2019 and 2020 from the ECB also weighed on the commodity.

The U.S. Treasury market experienced some noticeable price swings on Thursday. Yields fell in unison with the 10-yr German bund yield following the ECB policy decision. Some factors that helped lift yields back up included a turnaround in the German bund yield, weekly jobless claims that remained at historically low levels, and a stronger-than-expected 0.3% increase in core CPI for August.

The 2-yr yield increased five basis points to 1.72%, and the 10-yr yield increased six basis points to 1.79%. The U.S. Dollar Index lost 0.3% to 98.37, pressured by a rebound in the euro.

Separately, some story stocks from Thursday included Oracle (ORCL 53.89, -2.40, -4.3%) and SmileDirectClub (SDC 16.67, -6.33, -27.5%). Oracle guided Q2 EPS slightly below expectations and announced its co-CEO Mark Hurd will take a leave of absence for health reasons. SmileDirectClub opened at $20.55 after pricing its IPO at $23 in a disappointing market debut.

Reviewing Thursday's economic data, which included the Consumer Price Index for August, the weekly Initial and Continuing Claims report, and the Treasury Budget for August:

Total CPI for August increased 0.1% m/m, as expected, while core CPI, which excludes food and energy, rose a stronger-than-expected 0.3% (Briefing.com consensus +0.2%). The monthly changes left total CPI up 1.7% yr/yr, versus 1.8% in July, and core CPI up 2.4% (largest 12-month increase since July 2018), versus 2.2% in July.
The key takeaway from the report is that it shows budding inflation pressure in core CPI that is apt to keep policy hawks at the Fed squawking about not needing to be overly aggressive with rate cuts at this time.
Initial claims for the week ending Sept. 7 decreased by 15,000 to 204,000 (Briefing.com consensus 218,000). Continuing claims for the week ending Aug. 31 decreased by 4,000 to 1.670 million.
The key takeaway from the report is the very low level of initial claims, which is indicative of a tight labor market.
The Treasury Budget for August showed a deficit of $200.3 bln versus a deficit of $214.1 bln for the same period one year ago. The Treasury Budget is not seasonally adjusted, so the August deficit cannot be compared to the $119.7 bln deficit for July.
The fiscal year-to-date deficit is $1.07 tln versus a deficit of $898.1 bln for the same period a year ago. The budget deficit over the last 12 months is $948 bln, versus $961.8 bln for the 12 months ending in July.

Looking ahead, investors will receive the following reports on Friday: Retail Sales for August, the preliminary September reading for the University of Michigan Index of Consumer Sentiment, Import and Export Prices for August, and Business Inventories for July.

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