Equites rallied as oil climbed to a 2016 high after Iraq’s oil minister said major OPEC and other producers will meet possibly next month is a new push to freeze output. US crude output also fell more than expected to the lowest level since October 2014. Stocks also were buoyed by better than expected earnings results, results that were not overshadowed by some disappointments from large cap momentum growth issues.
Of the 69 S & P 500 companies that have reported 84% have beaten expectations while 58 exceeded sales. The disappointments, technology and health or the must own momentum growth issues.
Treasuries tumbled yesterday as oil rose, as crude is now up about 62% from its February low. The gap between yields on 10-year inflation indexed securities and equivalent Treasury notes, known to as the 10-year breakeven rates rose one basis points to 1.63%. It fell to 1.2% in February, the lowest since 2009. The wider the spread the greater the inflation fears.
Is the narrative changing where inflation may become the primary concern? As noted many times, monetary velocity is hovering around its all-time lows of about 4x versus the historical average of 12x. What happens if velocity accelerates? Will demand pull inflation morph into cost push inflation, the type of inflation that decimates purchasing power?
What will happen today? How will weekly jobless claims and earning reports be interpreted?
Last night the foreign markets were mixed. London was down 0.55%, Paris down 0.49% and Frankfurt down 0.36%. China was down 1.23%, Japan was up 2.70% and Hang Sang up 1.82%.
The Dow should open quiet. Commodities are at a five month high, the result of surging oil prices and data supporting an improving Chinese and American economy. There are 36 S & P 500 companies posting results today and as expected results are exceeding dumbed down expectations. The 10-year is off 6/32 to yield 1.87%.
