U.S. equities fell today amid heightened tensions between the U.S. and Iran following a U.S. airstrike in Iraq that claimed the life of a top Iranian military official. In a flight for safety, U.S. Treasuries were higher and the U.S. dollar rose versus most of its major peers. However, losses versus the safe-haven, Japanese yen kept the Dollar Index flat for the day. Oil and gold prices were higher. Piling on to a troubling geopolitical picture, economic data today showed the U.S. manufacturing sector contracted at an increased pace in December. In light equity news, Incyte Corp had disappointing results from a trial of its treatment of acute GVHD, while Tesla reported stronger-than-expected Q4 deliveries. Global markets were mixed.

The Dow Jones Industrial Average fell 234 points (0.8%) to 28,635, the S&P 500 fell 18 points (0.6%) to 3,240 and the NASDAQ shed 71 points (0.8%) to 9,021. 732 million shares were traded on the NYSE and 2.5 billion shares changed hands on the NASDAQ. WTI oil added $1.81 to $62.99 per barrel and wholesale gasoline was flat at $1.7 per gallon. Elsewhere, the Bloomberg gold spot price added $19.88 to $1,549.01 per ounce. The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was flat. For the week, the Dow and S&P were flat, while the NASDAQ was up 0.2%.

The December Institute for Supply Management (ISM) Manufacturing Index declined to 47.2 from November’s 48.1 level, and compared to the Bloomberg forecast of an increase to 49.0. This was the fifth month in a row the index remained in contraction territory (a reading below 50), as new orders dipped further below 50, and production and employment both saw their paces of contractions accelerate noticeably, while inventories rose but remained south of 50. The ISM said global trade remains the most significant cross-industry issue, but there are signs that several industry sectors will improve as a result of the “phase one” U.S.-China trade agreement.

Construction spending rose 0.6% month-over-month (m/m) in November, versus projections of a 0.4% increase, and following October’s upwardly-revised 0.1% rise from an initially-reported 0.8% drop. Residential spending grew 1.8% m/m but non-residential spending slipped 0.3%.

The Fed released the minutes from its December monetary policy meeting at which the Central Bank held rates steady and signaled it would likely remain in the current range through this year. The minutes showed wide agreement on the future policy path. The minutes were dovish with participants pointing out that inflation remains below the 2% target and that despite very low unemployment, the lack of mounting inflation pressure is possibly due to a still low labor participation rate.

Treasuries were higher as the curve experienced a bull flattener, in which long-term rates fall faster than short term rates. The yield on the 2-year note declined 4 basis points (bps) to 1.53%, while the yield on the 10-year note fell 9 bps to 1.79% and the 30-year bond rate also slipped 9 bps to 2.25%. Bond yields are trimming a recent run and the U.S. dollar is paring a slide as of late, ahead of some key economic data and as geopolitical concerns have flared up after a U.S. airstrike in Iraq killed a top Iranian general.

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