U.S. Retail Sales Unexpectedly Fell in August; S&P Cash Index Hits 2500

Friday’s U.S. trading session started with a knee-jerk reaction to the news that North Korea fired another missile and a terrorist attack in London. Following their script, investors shed risky assets early in the session, and move money into safe haven assets like U.S. Treasurys, gold and the Japanese Yen.

North Korea launched another missile test that passed over Japan and went further than its last test, indicating that the rogue nation may now have the capability to reach the U.S. territory of Guam. The U.N. Security Council met to condemn the action and to discuss a response. Secretary of State Tillerson demanded that Russia and China take more direct action against North Korea.

In London, policed called an explosion aboard a tube train that left some people injured an act of terrorism.

In economic news, U.S. retail sales unexpectedly fell in August as Hurricane Harvey likely depressed motor vehicle purchases, suggesting a moderation in consumer spending in the third quarter.

According to the Commerce Department, retail sales dropped 0.2 percent last month. Data for July was revised to show sales increasing 0.3 percent instead of the previously reported 0.6 percent jump. Economists were looking for a 0.1 percent increase.

U.S. industrial production fell in August for the first time since January as Hurricane Harvey battered oil, gas and chemical plants along the Gulf Coast and a cool summer sapped utility demand in the east, the Federal Reserve said on Friday.

Overall industrial production fell 0.9 percent over the month after a July increase revised upward to 0.4 percent. Economists had expected a 0.1 percent increase.

U.S. Equity Markets

Despite geopolitical concerns and weak economic data, Wall Street painted a rosy picture reaching record highs on Friday, with the benchmark S&P 500 surpassing 2,500 and the blue chip Dow Jones Industrial Average hitting an all-time high.

In the cash market, the S&P 500 Index settled at 2500.23, up 4.61 or +0.18%, the Dow Jones Industrial Average closed at 22268.34, up 64.86 or +0.29% and the NASDAQ Composite ended the session at 6447.68, up 18.60 or +0.29%.

The S&P 500 Index broke above 2,500 for the first time. This move came less than four months after it closed above 2,400, putting the benchmark index up nearly 12 percent for the year. The rally was led by a surge in information technology and financials stocks.

The Dow rose to a new all-time high at 22,275.02 before pulling back to 22268.34, a new record close. Boeing, 3M and Apple contributed the most to the gains.

The tech-based NASDAQ Composite lagged behind the S&P 500 and Dow most of the session before reaching an intraday record of 6,464.27. Strong performances by Apple and Facebook helped underpin the market.

Gold

Gold prices retreated on Friday on fears of European Central Bank and U.S. Federal Reserve tightening.

Gold traders were spooked after an ECB official called for scaling back the bank’s stimulus program, although losses were limited with the release of weaker-than-expected U.S. economic data. ECB board member Sabine Lautenschlaeger made the most explicit call so far from an ECB policymaker for paring the bank’s 2.3 trillion Euros money printing program.

Despite weaker U.S. economic data reducing the chances of a rate hike this year, bearish gold traders noted that the U.S. Federal Reserve is still on-track to begin trimming its balance sheet after next week’s September meeting.

In other news, gold prices initially rose in response to the North Korean missile launch and London attack, but investors eventually shrugged off this news and the bearish U.S. economic data.

Crude Oil

U.S. West Texas Intermediate and internationally-favored Brent crude oil posted their largest weekly increase since late July on higher demand forecasts and the restart of several more refineries shutdown in the Texas Gulf coast region by Hurricane Harvey.

The markets continued to be underpinned by OPEC’s forecast for higher demand for its oil in 2018 and a tighter global market. Additionally, the International Energy Agency (IEA) said the glut was shrinking thanks to strong European and U.S. demand, as well as production declines in OPEC and non-OPEC countries.

Finally, energy services firm Baker Hughes said energy firms last week cut the most oil rigs in a week since January as a 14-month drilling recovery stalled due to weak crude prices. Drillers cut seven oil rigs in the week to September 15, bringing the total count down to 749, the least since June.