Until 3:00 P.M. there is little to write about yesterday’s market action. Equities were flat, the dollar fell and oil rallied. Then there was a selloff, minor in regards to the selloffs’ past but enough to send the S & P down for the third consecutive month and the fifth month of decline out of six, the longest stretch of consecutive losses in four years.
As stated, oil however rallied about 3% on the announced OPEC/Saudi production freeze; a freeze that I think is symbolic given the inability to increase production because of the lack of infrastructure spending. Bloomberg wrote OPEC production fell in February from the highest level that was achieved in 20 years.
As noted many times, the correlation between oil and equities is extremely close, yesterday however was an exception. It was the first time since November 23, 2015 the correlation was broken according to Bloomberg.
For the month the S & P fared better than most other global indices as the data is suggesting that American consumers are alive, housing, wages and manufacturing all exhibiting strength. Such strength has caused the Fed’s preferred measure of inflation to rise the most since October 2014.
As noted yesterday, this week can confirm or deny the strength of the economy.
Today the ISM Manufacturing Index is released. As noted several times, the manufacturing sector is exhibiting unexpected strength. Consensus expects this top tier data point to read 48.5, up from 48.2 registered in January. Any reading over 50 indicates an expanding manufacturing sector and vice versa.
Will the statistics post a positive surprise?
Later in the week, the Beige Book is posted and are a host employment statistics including Friday’s BLS report, data that will be instrumental in determining the strength of the economy.
Will 1Q16 be the inverse of the last five years where will surprise on the upside versus the downside?
Friday may not get here soon enough.
Last night the foreign markets were up. London was up 0.55%, Paris up 0.46% and Frankfurt up 1.21%. China was up 2.32%, Japan was up 0.37% and Hang Sang up 1.55%.
The Dow should open moderately higher as oil is higher today and a positive response to stimulus in China. The 10-year is off 4/32 to yield 1.75%.
IT WAS A QUIET DAYUNTIL 3:00
Ken Engelke
Chief Economic Strategist Managing Director
The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.
