Last night, Iran launched its response to a U.S. airstrike that claimed the life of a top military official and it was a decidedly measured response that did not result in any casualties. President Trump noted his belief that the restrained response indicated that Iran “appears to be standing down.” The apparent lack of escalations sent U.S markets higher, while Asian markets, which closed earlier amid a much more uncertain geopolitical picture, were lower on the day. European markets caught just the tip of the relief rally to finish mixed. Oil prices and gold had been rising with the tensions and today, gave back a good portion of those gains. Economic data, while being overshadowed in the headlines, continued its strong start to 2020 with an ADP Employment report that came in well above expectations. Treasury yields were higher, which was able to boost the dollar in the face of the risk-on rally. The dollar’s fellow safe-haven, the Japanese yen, underperformed all its G10 peers. On the equity front, Dow member Walgreens Boots Alliance saw pressure after missing Q1 expectations and Lennar Corporation rose after topping Q4 estimates.
The Dow Jones Industrial Average rose 161 points (0.6%) to 28,745, the S&P 500 was up 20 points (0.6%) to 3,257 and the NASDAQ added 61 points (0.7%) to 9,129. 896 million shares were traded on the NYSE and 2.4 billion shares changed hands on the NASDAQ. WTI oil fell $3.09 to $59.61 per barrel and wholesale gasoline was down $0.07 to $1.65 per gallon. Elsewhere, the Bloomberg gold spot price was down $14.10 to $1,560.20 per ounce. The Dollar Index—a comparison of the U.S. dollar to six major world currencies—added 0.3% to 97.26.
The ADP Employment Change Report showed private sector payrolls grew by 202,000 jobs in December, above the Bloomberg forecast of a 160,000 gain, while November’s increase of 67,000 jobs was revised to a 124,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader December nonfarm payroll report, expected to show jobs grew by 160,000 and private sector payrolls rose by 153,000. The unemployment rate is forecasted to remain at 3.5% and average hourly earnings are projected to rise 0.3% month-over-month (m/m), and be up 3.1% y/y.
The MBA Mortgage Application Index rose 13.5% last week, following the prior week’s 13.2% drop. The jump came as a 24.6% surge in the Refinance Index was met with a 3.0% gain for the Purchase Index. The average 30-year mortgage rate decreased 4 basis points (bps) to 3.91%.
Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $12.5 billion during November, well short of economists’ expectations of $16.0 billion. October’s figure was modestly upwardly adjusted to an increase of $19.0 billion from the originally reported $18.9 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $14.9 billion, which marks the largest increase in three months. Revolving debt, which includes credit cards, declined by $2.4 billion.
Treasuries were lower, with the yield on the 2-year note rising 4 bps to 1.58% and the yields on the 10-year note and the 30-year bond advancing 5 bps to 1.87% and 2.36%, respectively.
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