Day Traders Diary



Stocks are mostly higher this afternoon, but financial shares have been selling off amid a flattening of the yield curve. The S&P 500 and the Nasdaq Composite are up 0.2% and 0.8%, respectively, while the Dow Jones Industrial Average is slightly lower, down 0.1%.

Investors received the latest policy directive from the European Central Bank this morning. The statement came in as expected, leaving interest rates unchanged and laying the groundwork for ending the ECB's asset purchase program. In September, the ECB plans to cut its monthly bond purchases in half, to EUR15 billion, and then end purchases entirely three months later, although it will continue reinvesting the principal from maturing securities. The ECB also said it plans to keep interest rates steady until at least the summer of 2019.

The euro has dropped sharply since the ECB announcement and is currently down 1.4% against the U.S. Dollar at 1.1629. Meanwhile, the yield on Germany's 10-yr bund dropped as well, going from 0.50% to about 0.42%, but the major European stock indices shot higher, ending Wednesday with gains between 0.8% and 1.7%.

U.S. Treasury yields are also mostly lower, although they were lower even ahead of the ECB decision. The benchmark 10-yr yield is currently down four basis points at 2.94%. However, the yield on the 2-yr note is up one basis point at 2.57%, bringing the 2yr-10yr spread to 37 basis points, its lowest level in more than a decade.

The flattening of the yield curve has weighed on lenders, pushing the S&P 500's influential financial sector lower by 1.1%. The financial group is today's worst-performing sector by a wide margin, but the industrial group is also trading in the red (-0.4%). 

On the flip side, the lightly-weighted utilities, telecom services, and real estate sectors are at the top of the leaderboard with gains of around 1.3% apiece. The consumer discretionary and information technology sectors are the next-best performing groups, up 0.9% and 0.7%, respectively.

Within the consumer discretionary space, media names are in focus once again after Comcast (CMCSA 33.58, +1.26) outdid Walt Disney's (DIS 108.29, +1.98) all-stock bid for the bulk of 21st Century Fox's (FOXA 44.47, +0.81) assets, offering $65 billion in cash.

Reviewing today's economic data, which included Retail Sales for May, weekly Initial Claims, Export and Import prices for May, and April Business Inventories:

  • May retail sales rose 0.8% ( consensus +0.4%), while the April increase was revised to 0.4% from 0.3%. Excluding autos, retail sales increased 0.9% in May ( consensus +0.5%), and the April increase was revised to 0.4% from 0.3%.
    • The key takeaway from the report is that consumer spending on goods was strong in May, which will feed expectations for a healthy pickup in second quarter GDP growth.
  • The latest weekly initial jobless claims count totaled 218,000, while the consensus expected a reading of 223,000. Today's tally was below the unrevised prior week count of 222,000. As for continuing claims, they declined to 1.697 million from a revised count of 1.746 million (from 1.741 million).
    • The key takeaway from the report is the same as last week: the low level of initial and continuing jobless claims is consistent with a tight labor market.
  • Import prices excluding oil rose 0.6% in May after rising a revised 0.6% in April (from +0.2%), and export prices excluding agriculture increased 0.5% after rising an unrevised 0.7% in April.
    • The key takeaway from the report is that import prices continued an upward trend that began in August 2017 and recorded their largest 12-month advance (+4.3%) since February 2017.
  • Business Inventories rose 0.3% in April ( consensus +0.3%). The March reading was revised to -0.1% from 0.0%.
    • The inventories-to-sales ratio held steady at 1.35 month-over-month and was down from 1.38 in the same period a year ago.

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