Morning Minutes 11/27/2018

Market Muddle and Bank Earnings

November 27, 2018
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
ccieszynski@siawm.com
+1 (647) 282-4428

After an encouraging start to the week that saw the Dow post a 354 point or 1.4% gain on Monday, and the NASDAQ rally 2.0%, stocks have struggled again overnight. Dow futures are down almost 100 points or 0.4% this morning, while the FTSE, DAX and Hang Seng plus WTI and Brent Crude oil are all down 0.1%-0.3%. It appears that investors remain cautious ahead of the big trade meeting between the US and China at the Friday-Saturday G-20 Summit, and next week’s OPEC meeting and decision on potential production cuts.

While bulls appear to be sitting on their hands, bears don’t seem to be inclined to take advantage of the situation as fear gauges are muted this morning. The VIX is up a bit but still below 20 while gold is flat. Combined, this action suggests that the worst of the recent market selloff is behind us but there’s not enough conviction among bulls to start charging ahead, leaving many markets looking like they are bouncing along the bottom.

The Bank of Nova Scotia kicked off Canadian bank earnings week with a mixed report. Earnings per share of $1.77 were up 8% over the same quarter last year, but short of the $1.79 the street had been expecting. Growth was driven by its international businesses, mainly in Latin America, which were up 18% over a year ago, compared with a nothing to sneeze at 7% growth rate for Canada.  Royal Bank is next up tomorrow with CIBC and TD scheduled to report Thursday.

While waiting for the big meetings toward the weekend and into next week, investors may focus for the next couple of days in interest rate policy. Fed Board of Governors member Clarida and several regional Fed Presidents are speaking today, Fed Chair Powell speaks tomorrow and minutes from the last FOMC meeting are due Thursday. From their comments, investors may be looking into insight into whether after likely raising interest rates in December the Fed could pause or continue to raise rates into 2019. The 10-year and 30-year yields have come back down a bit recently, suggesting that investors still think US rates could rise toward the 3.00%-3.25% over time from the current 2.00-2.25% and then level off.

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