US stocks were up across the board after yesterday's despondent opening to the week. Investors remained calm in the face of a number of political and geopolitical risk factors. The Dow closed up +0.40%, the S&P 500 was up +0.47% and Nasdaq was up +0.50%. Signs of Tuesday's jitters were somewhat diminshed as investors hold a rosy economic outlook and bought on the dip. Optimism linked to a few federal policymakers expressing doubts about further rate hikes.
Nine out of 11 sectors gained. Energy and consumer discretionary were among the top percentage gainers up +1.88% and +0.69% respectively. Home Depot led the big board up +2.39%, along with ExxonMobil up +2.11% and Chevron up +2.10%.
- Dow 21,807.57 +0.25%
- S&P 500 2,465.57 +0.31%
- Nasdaq 6,393.31 +0.28%
- Russell 2000 1,403.42 +0.27%
- NYSE Composite 11,880.64 +0.45%
- Gold 1,329.90 +0.58%
- Oil WTI $49.11 +0.90%
- 10-Year Treasury 2.10 +0.04%
Oil stocks expected to rise
Investors fear Hurricane Irma's impact on US oil production. Analysts expect rising demand as oil refineries in the Gulf Coast came back on stream. Disruptions to oil production by tropical storms could result in higher prices.
The Energy Information Adminstration will release much-anticipated data on US crude-oil stocks on Thursday.
Market analysts according to the Wall St Journal forecast an increase of around 5 million barrels. However, damage wrought by tropical storm Harvey may distort the inventory data. Crude oil prices rose on Wednesday to 44 cents or 0.9% to $49.10 per barrel.
Time to raise the debt ceiling
A risk factor that is causing some uncertainty among investors is yet another legislative agenda showdown. This time the impending deadline of the debt ceiling and with it Congress' ability to raise the borrowing limit and avoid a government shutdown. According to the Brookings Institute the US federal government debt is about $20trn.
The debt ceiling will hit in early to mid-October although US Treasury Secretary Steven Mnuchin has given a 29 September deadline. Ratings agencies such as Standard & Poor's, Moody's and Fitch warned late August of the potential impact if Congress is not able to raise the debt limit in a 'timely manner' with the three agencies stating it would review US' sovereign rating.
The wider concern centers on Congressional brinkmanship jeopardising market liquidity if government is unable to meet obligations for Treasuries.
Money market fund group say no to short-term Treasuries
The FT reported that Federated Investors, the fifth largest money market investor said it was avoiding US government debt maturing around the mid-October timeline when the government may shut down.
Fitch is not expecting a default but said in its statement: "If the debt limit is not raised in a timely manner prior to the so-called "x date" [extraordinary measures expected to be reached in October] Fitch would review the US sovereign rating, with potentially negative implications.
"We have previously said that prioritising debt service payments over other obligations if the limit is not raised - if legally and technically feasible - may not be compatible with 'AAA' status."
Hurricane Irma's force and North Korea tension lurks
A backdrop to Wednesday's performance is Hurricane Irma's striking devastation in the Caribbean as several islands have dealt with the aftermath of gale force winds and flooding and loss of infrastructure. The tropical storm surge is expected to hit US Southeast this weekend.
North Korean nuclear test crisis has receded from the headlines. The White House is using diplomacy and pressing China to impose an oil embargo on North Korea.
Quote of the day: "Because political risk has been a constant, it has lost some of its shock value. Investors have in effect built that risk into their assumptions; their demand for safety is one reason government bond yields around the world are so low." Source: WSJ