Hurricane Irma, the most powerful storm on record, weighs on sentiment in a mixed day of trading. Markets grappled with the storm which is heading for Florida and Georgia over the weekend and other economic news that includes the European Central Bank's signalling the end of the stimulus programme could be nigh and President Trump's announcement that he had reached agreement to extend the debt ceiling to December.
The major indexes Dow and S&P 500 bounced between gains and losses and ended flat. The S&P 500 fell -0.02% and the Dow declined -0.10% while Nasdaq crept up +0.07%. Among the day's movers were Visa up +1.34%, Microsoft up +1.28% and 3M +1.19%. Financial stocks were under pressure as yields on benchmark Treasury fell impacting on lending profitability.
Stocks lagging were General Electric slid -3.61%, JP Morgan Chase fell -1.75% and Goldman Sachs dropped -1.27%. Insurers are also suffering from fallout from Hurricane Harvey and the potential from Irma which is on course to hit Florida over the weekend. Everest Re fell -6.79% and Leggett & Platt fell -6.53%.
- Dow 21,784.78 -0.10%
- S&P 500 2,465.10 -0.02%
- Nasdaq 6,397.87 +0.07%
- Russell 2000 1,398.67 -0.25%
- NYSE Composite 11,879.59 +0.06%
- Gold 1,354 +1.12%
- Oil WTI $49.11 -0.10%
- 10-Year Treasury 2.05 -2.61%
Taking the wind out of economic sails: Elsewhere, both hurricanes are expected to have significant knock-on effect on economic measures in the months and years to come according to WSJ which surveyed economists. The expectations are that GDP, jobless claims and inflation will be distorted by the natural disasters. The Bank of International Settlements estimates that the worst natural catastrophes typically permanently lower the afflicted country's GDP by close to 2% says the Economist.
Jobless claim surges: The Labor Department reported data that showed the number of Americans filing for unemployment benefits rose in Texas in the wake of Hurricane Harvey underscoring the impact on the economy in the shorter term. Claims rose 62,000 to 298,000 for the week ended 2 September. The data was well above forecasts of 241,000. Claims in Texas went up significantly in the last week by 51,637 due to temporary unemployment.
European Central Bank are thinking about stimulus end: and left rates remained unchanged. However, even with a stronger euro (now up $1.20) and the eurozone displaying signs of robust economic growth, the European Central Bank remains somewhat cautious about drawing to a close its stimulus programme. The quantative easing programme was meant to encourage growth and inflation which remained low following the credit crisis in 2008. Mario Draghi, president of the central bank said policymakers were in discussions "because the decisions are many, complex and always one naturally sort of thinks about risks that may materialise in the coming weeks or months. So that is the caution about not specifying a date. Probably the bulk of these decisions will be taken in October."
Watch again: Draghi says nothing will derail our will to reach the inflation objective pic.twitter.com/whWcY6iUxo— ECB (@ecb) September 7, 2017
Finally, President Trump's deal with Democrats rattles: Republicans. The proposal by Congressional Democrats raised the borrowing limit for a three-month period along with an extension for government funding for the period until December as part of a bill for Hurricane Harvey aid.
The Republicans had hoped for an extension to raise the debt ceiling to beyond mid-term elections in 2018. The deal surprised Republicans as it is seen as providing Democrats with leverage.
Still, House Speaker Paul Ryan put a good face on it, rationalising Trump's decision in a New York Times interview: "We got two hurricanes hitting us right now. We’re still just in the beginning of the recovery of Harvey. Irma is hitting us now and what the President didn’t want to do is have some partisan fight in the middle of response to this. He wanted to make sure that in this moment of national crisis...he wanted to have a bipartisan response and not a food fight on the timing on the debt limit attached to this bill."
Quote of the day: On Hurricane Harvey providing Trump with an out on a number of threats and reaction by markets: "For now, the chances of Washington causing panic in the markets within a month or so have decreased. The smart money's on no shutdown, but it’s possible that the parties will only agree to keep the government running until the end of this year which will present the financial markets with another shutdown risk in December. However, I think it’s a tad more likely that an omni bill would keep government open until after the midterms in 2018." Source: Andy Langenkamp, political commentator, specialises in assessing the repercussions for the financial markets of economic and geopolitical events, TheHill.com