Month: February 2016

WisdomTree Bloomberg USD Bullish (USDU)
CurrencyShares Euro Trust (FXE)
CurrencyShares Swedish Krona (FXS)
CurrencyShares Canadian Dollar (FXC)
CurrencyShares Japanese Yen (FXY)
PowerShares DB U.S. Dollar Bullish Index (UUP)
 
The Japanese yen and U.S. dollar are this week’s currencies to watch. On Friday, the Bank of Japan slashed interest rates to below zero and immediately touched off a drop in the yen and a rally in global asset prices. Markets once again followed oil declines on Monday, however, and by Wednesday the move had almost completely reversed. The yen traded stronger versus the U.S. dollar following Japan’s announcement, while the Nikkei’s gains were reduced to about 1 percent.

The U.S. dollar is also broadly weaker against most other major currencies. Resource currencies, such as the Canadian dollar, have bounced with oil and play a small role in weakening the greenback, but the euro’s weight in the index dictates most of the U.S. dollar’s relative strength.

SPDR Energy (XLE)
FirstTrust ISE Revere Natural Gas (FCG)
Global X Copper Miners (COPX)
Market Vectors Coal (KOL)
Market Vectors Steel (SLX)
 
It has been another volatile week for commodities. Following the previous week’s rebound, oil saw its largest two-day decline since the financial crisis, only to climb again on Wednesday. Industrial metals are on a steadier path higher. None of these commodities have made a breakout; the recent bounce is still well within the bearish downtrend.

Gasoline inventories have been rising, and prices are not rebounding with oil. This is good news for consumers, but it hasn’t translated into a rise in spending. Consumer are spending more on health insurance premiums and higher deductibles under the Affordable Care Act. They’re also saving more than last year, with the personal savings rate at its highest level in 5 years as of December.

SPDR Utilities (XLU)
SPDR Pharmaceuticals (XPH)
SPDR Materials (XLB)
SPDR Consumer Staples (XLP)
SPDR Consumer Discretionary (XLY)
SPDR Healthcare (XLV)
SPDR Technology (XLK)
SPDR Financials (XLF)
 
Falling bond yields contributed to strength in Utilities last week. The sector has done very well in 2016 relative to the broader market. Often the “defensive” sectors of the market lose less than the broader market during sell-offs, but utilities have rallied. The futures market offers a rapidly changing snapshot of expectations and at the moment, speculators believe further rate hikes are not likely for the foreseeable future.

iShares iBoxx High Yield Corporate Bond (HYG)
iShares iBoxx Investment Grade Corporate Bond (LQD)

Investors stopped selling investment-grade bonds last week. Shares of LQD rallied, while HYG traded sideways, bounding up and down with oil prices. Investors continue to buy U.S. treasuries, however, in reaction to the yen. Germany’s 5-year bond sold at an interest rate of negative 0.30 percent.

The U.S. 5-year treasury yield of 1.25 percent is 500 percent higher, but falling global yields are weighing on it. The yield is approaching the 1.20 percent level that has served as the lower bound of a 30-month trading range. This dip is very similar to the one seen in early 2015.

SPDR S&P 500 (SPY)
iShares Russell 2000 (IWM)
S&P Midcap 400 (MDY)
SPDR DJIA (DIA)
PowerShares QQQ (QQQ)
SPDR S&P Dividend (SDY)
 
Small-caps held their own versus large caps last week. Small-caps often trend with mid-cap stocks, which have turned relatively bullish in the past few weeks. The Dow continues to track with the S&P 500, while the correction in some large Internet stocks is leaving the Nasdaq behind. The relative outperformance of dividend shares cannot be clearer. Long-term, buy-and-hold investors stick with their dividend payers through thick and thin. SDY also has 15 percent in the utility sector versus 3 percent in SPY, which is providing an extra boost to shares. Although it’s doing relatively well, SDY is down 2 percent on the year and SPY is down more than 7 percent.

The Bank of Japan’s interest rate cut fueled Friday’s rally and equity markets gained ground in late trading on Monday.  Last week’s better-than-expected Chicago Purchasing Managers’ survey and encouraging earning reports bode well for the equity markets over the coming days.

There are several economic reports due out this week. Personal income, consumer spending and core inflation for December were released on Monday morning. Personal income climbed 0.3 percent faster than expectations. Consumer spending and core inflation were flat. The two manufacturing surveys were published as well.  The Markit PMI was 52.4 and continues to reflect an expanding manufacturing sector, while the ISM survey indicated contraction at 48.2, despite its improvement over analysts’ expectations.  The two surveys use similar data, but utilize different weightings. This week’s core inflation number is the core PCE (personal consumption expenditures), calculated by the Bureau of Economic Analysts, which also calculates GDP estimates. Core PCE is up 0.6 percent over the past 12 months, accelerating from an annual 0.2 percent rate in September. In January, the Bureau of Labor Statistics, reported 2.1 percent core inflation in December. The Fed wants to see the core PCE rise to match the BLS number which appears to be slowly happening despite very low oil prices.

January’s motor vehicle sales will be released on Tuesday. Analysts predict a 17.2 million annual sales rate. The ISM non-manufacturing index will be reported on Wednesday and is anticipated to be 55.2, down 0.1 from the previous month, but still clearly expanding. Initial weekly jobless claims will release before Thursday’s bell, as will productivity and unit labor costs for the fourth quarter. The Fed closely monitors unit labor costs for nascent signs of wage growth. The number is forecast to show a 4.5 percent increase in labor costs, well above the 1.8 percent growth in the prior quarter. Thursday will also deliver December factory orders, which are forecast to drop 3.0 percent and will factor into the fourth quarter GDP revision due at the end of February. The January employment report will be out on Friday. Economists are looking for 5.0 percent employment, but if the economy is doing well the number should rise due to discouraged workers, who are currently not counted as unemployed, returning to the labor market. The trade deficit for December will also be out on Friday. GDP growth rises when the trade deficit falls, and vice versa, so this number could impact the GDP revision if it has deviated from the forecast $43.5 billion deficit.

Earnings season continues with several potentially market-moving reports scheduled for this week. On Monday, tech giant Alphabet (GOOGL) reported earnings per share of $8.67 on revenues of $21.33 billion, exceeding expectations of $8.10 per share and spurring late day and after-hours purchasing. Exxon Mobil (XOM) is set to report earnings Tuesday. Analyst consensus is for EPS of $0.64 and top line revenues of $51.36 billion. Tuesday before the bell, leading drug manufacturer Pfizer (PFE) is expected to post EPS of $0.52 and revenues of $13.57 billion. Merck (MRK), expected to report quarterly results before the bell Wednesday. Consensus estimates are for EPS of $.091 and revenues of $10.36 billion. Other firms reporting this week include Yahoo (YHOO) Chipotle (CMG), General Motors (GM), Dow Chemical (DOW), Gilead Sciences (GILD), Yum Brands (YUM), Clorox (CLX), athenahealth (ATHN) and Boston Scientific (BSX).

The Bank of England and the Reserve Bank of Australia meet this week. Investors will be looking to see if these central banks will react to the dovish stance of the Bank of Japan and the European Central Bank. The U.S. Dollar Index comes into the week where it has spent the past three months, bouncing between 98 and 99.