S&P 500 Trims Losses amid Huawei CFO Arrest
The S&P 500 has resumed its sell off from Tuesday with a loss of 1.2%, although it had been down as much as 2.9% earlier in the session. Contributing to today's decline is the reported arrest of Huawei Technologies' CFO, which has fueled concerns that it will keep a trade deal between the U.S. and China from happening in their prescribed 90-day window. Meanwhile, the Dow Jones Industrial Average is down 1.7%, the Nasdaq Composite is down 0.4%, and the Russell 2000 is down 1.1%.Huawei CFO Meng Wanzhou was arrested in Canada last weekend amid allegations the company violated U.S. trade sanctions on Iran. Ms. Meng is expected to be extradited to the U.S. to face the charges. Huawei is a major Chinese company and one of the largest smartphone companies in the world.  Her arrest has invited worries about potential retaliation against U.S. companies doing business in/with China. In a broader context, the sense that there might not be a trade deal has ignited global growth concerns.Within the S&P sectors, the cyclical energy (-3.1%), financials (-2.8%), materials (-2.6%), and industrial (-1.9%) groups underperform the broader market. The energy sector has fallen in tandem with oil prices while a further drop in market rates across the Treasury yield curve has been an added weight on the financial sector.Rates have dropped sharply across the curve, with the front end leading today's action as traders are sniffing the prospect of the Federal Reserve being less aggressive with its rate-hike path. The 2-yr yield is down six basis points to 2.74%, and the 10-yr yield is down five basis points to 2.87%. On a related note, Dallas Fed President Kaplan (non-FOMC voter) offered some supportive remarks, saying before today's open that the Fed needs to be gradual and patient and that he thinks the fed funds rate is a little bit below neutral but that the Fed is approaching the neutral rate.  His colleague, Atlanta Fed President Bostic (FOMC voter) later added that he thinks the fed funds rate is within shouting distance of neutral.The drop in rates has many watchers thinking it reflects an expectation for slower economic growth ahead. Heavyweight Citigroup (C 59.12, -3.14, -5.0%) has been an added drag on the financial sector after its CFO said the bank no longer expects year-over-year revenue growth for its markets business in the fourth quarter. In addition, Citigroup expects to fall slightly short of its stated goal of achieving 100 basis points of improvement in year-over-year operating efficiency.Looking at energy, WTI crude is down 3.3% to $51.13/bbl amid reports that Saudi Arabia is floating an idea for OPEC to cut production less than the market expected; OPEC has also delayed a decision on output levels until it hears from Russia.The communication services sector (+0.3%) has emerged as the only group to sport a gain today. Facebook (FB 138.72, +0.78, +0.6%), Alphabet (GOOG 1060.10, +9.28, +1.0%), and Netflix (NFLX 278.78, +3.47, +1.3%) have provided influential support.In earnings news, Hewlett Packard Enterprise (HP 15.96, +0.91, +5.9%) outperforms after it beat top and bottom line estimates, while Brown-Forman (BF.B 46.09, -0.40-0.8%) trades lower after it missed revenue estimates.Reviewing today's big batch of economic data:Nonfarm business sector labor productivity for the third quarter was revised to 2.3% (Briefing.com consensus 2.2%) from 2.2%. Unit labor cost growth was revised to 0.9% (Briefing.com consensus 1.2%) from 1.2%.
The key takeaway from the report is that it points to fairly subdued labor costs in the third quarter, which could contribute to a willingness on the part of the Federal Reserve to be more gradual on its rate-hike path.The U.S. trade deficit was $55.5 billion in October (Briefing.com consensus -$54.7 billion) versus a downwardly revised $54.6 billion (from -$54.0 billion) in September.The key takeaway from the report is that it doesn't reflect any improvement in the U.S trade deficit despite the tariff actions. The goods and services deficit has increased by $51.3 billion year-to-date, or 11.4%, from the same period in 2017.Initial jobless claims for the week ending December 1 decreased by 4,000 to 231,000 (Briefing.com consensus 225,000). Continuing claims for the week ending Nov. 24 decreased by 74,000 to 1.631 million.The key takeaway from the report is that initial claims, while down in the latest week, are starting to pick up in a move that suggests the low for this cycle has been reached.Factory orders declined 2.1% in October (Briefing.com consensus -2.0%) following a downwardly revised 0.2% increase (from 0.7%) in September. Excluding transportation, orders were up 0.3%.The key takeaway from the report is that it shows a surprising lack of business investment in the face of business-friendly fiscal stimulus measures.The ISM Non-Manufacturing Index rose to 60.7% in November (Briefing.com consensus 59.0%) from 60.3% in October. The November reading was the second-highest reading this year.The key takeaway from the report is that the services-providing sector, which accounts for a much larger slice of economic activity than the manufacturing sector does, remains in a healthy and fairly vibrant state.According to the ISM, the past relationship between the Non-Manufacturing PMI and the overall economy indicates the November reading corresponds to a 4.3% increase in real GDP on an annualized basis.The ADP National Employment Report showed an increase of 179,000 in November (Briefing.com consensus 192,000), and the October reading was revised to 225,000 (from 227,000).