[MM_Member_Data name=’firstName’],

U.S. markets remained rangebound but showed continued strength into Wednesday’s close with the Dow and S&P 500 setting fresh all-time highs. It was the 4th-straight session in which the blue-chips have traded within a 100-point range. The Nasdaq also finished in the green and within striking distance of its recent lifetime high.
Meanwhile, the small-caps closed slightly lower but have settled above the 1,500 level for 8-straight sessions. Real Estate and Utilities were the strongest sectors, rising 0.6% and 0.5%, respectively. Financials and the Industrial sectors were the only laggards, sliding 0.2% and 0.1%, respectively.
 
Global Economy – European markets were mixed as political rhetoric softened and positive comments from the ECB took center stage. Catalan President Puigdemont retreated from his previous hardline stance of independence and said he would seek talks with the Spanish government over the future Catalan. Germany’s DAX 30 added 0.2% and the Belgium20 gained, or 0.1%. UK’s FTSE 100 slipped 0.1% while France’s CAC 40 dipped a point, or 0.02%. The Stoxx Europe 600 was down by less than a point, or 0.0%.
ECB Governing Council member and Bank of Italy Governor Visco said the economic recovery in the Eurozone is gaining momentum and becoming more widespread across member countries.
ECB Governing Council member Smets said the Eurozone economy is behaving better, but the ECB’s latest assessment was clear that inflation still needs to be supported by monetary policy.
Asian markets traded mostly higher with Japan’s Nikkei closing at a 21-year high after rising 0.3%. South Korea’s Kospi jumped 1% and Australia’s S&P/ASX 200 climbed 0.6%. China’s Shanghai index advanced 0.2% while Hong Kong’s Hang Seng Index declined 0.4%.
Japan August core machine orders rose 3.4% month-over-month and 4.4% year-over-year, stronger than expectations for a gain of 1.0% and 0.7%, respectively.
MBA Mortgage Applications sank 2.1%, along with a 0.1% decline in the purchase index and a 4.2% drop in the refinancing index. The average 30-year fixed mortgage rate rose 4 basis points to 4.16% for the week ending October 6th.
The U.S. JOLTS report showed job openings declined 58,000 to 6.08 million in August. Expectations were for a gain to 6.16 million job openings.
 
Market Sentiment – The FOMC minutes showed quite a few Fed members saw another rate hike was warranted, while a smaller number thought action could wait. Several thought that further tightening should hinge on incoming data, though it was acknowledged that Hurricanes Harvey, Irma, and Maria would impact economic activity.
There was active debate over inflation and wages as some members saw some of the softening in inflation as due to idiosyncratic factors. However, some Fed members believe other factors could be at work, as well, and there was concern that such influences could be more persistent.
Several Fed members expressed concern that the persistence of low rates of inflation might imply that the underlying trend was running below 2%. A few others pointed out the need to consider the lags in the response of inflation to tightening resource utilization and, thus, increasing upside risks to inflation.
San Francisco Federal Reserve Bank President, John Williams, believes gradual rate hikes are appropriate over the next couple of years and expects the economy to continue on its same, gradual growth path. He thinks the 2.5% area is the new normal and he strongly supports the balance sheet unwind, adding it will take about four years to shrink the portfolio to the desired level. In a Q&A session, he said losing confidence in tax reform being enacted over the next six months.
Chicago Fed, Charles Evans, said U.S. fundamentals are very strong and he suspects the wage story is improving, though he wonders whether a little more accommodation is needed to get to the 2% inflation target by 2019. He believes there’s room for honest discussion later this year whether it’s the right time to raise rates and advocates gradual policy increases as the Fed assesses progress towards 2% inflation.
The iShares 20+ Year Treasury Bond ETF (TLT) traded to an intraday high of $124.66 with resistance at $124.50-$124.75 holding for the 7th-straight session. Additional hurdles are at $125.50-$125.75 and the 50-day moving average on continued closes above the latter. Support remains at $124-$123.50.
Market Analysis- The PowerShares QQQ (QQQ) tapped another record high of $148.07 but has been in a tight range over the past four sessions. Fresh resistance is at $148.25-$148.50 with a move above the latter likely leading to a run towards $150-$151.50.
Current support is at $147-$146.50. A move back below $146 would likely signal a short-term top. RSI is approaching the 70 level and appears to be in a slight uptrend.
The Utilities Select Spider (XLU) continued to show strength following Tuesday’s close above the 50-day moving average and today’s run to $54.51. Fresh resistance is at $54.50-$54.75 with a move above the latter likely leading to a retest of early September highs.
Rising support is at $54-$53.75 with a close back under $53.50 signaling additional weakness. RSI has returned above the 50 level after bottoming near 40 earlier this month and is in a strong uptrend.
All the best,
Roger Scott