Month: May 2018

Equities opened strong on Monday as crude oil topped $70 a barrel. Oil stocks and crude oil gave back some of the gains as investors anticipate President Trump’s decision on sanctions on Iran. Oil prices may peak in the next day or two as the market has largely priced in the move.

Technology, financials and industrials were the strongest sectors on Monday. Utilities and consumer staples were the weakest. AI and cryptocurrency chipmaker Nvidia (NVDA) rallied near its all-time high on Monday ahead of earnings later this week. Apple hit a new all-time high and its market capitalization crossed $900 billion.

The U.S. dollar extended its rally on Monday as well. WisdomTree Emerging Market Currency (CEW) broke below its rising trend line (going back to January 2016) on Monday, as did iShares MSCI Emerging Market (EEM).

This week will be light on economic reports. Tuesday will bring April small business confidence. April producer prices will be out on Wednesday, and the consumer price index on Thursday. The University of Michigan will put out its advance reading of May consumer sentiment on Friday.

Chinese April trade, new loans, and inflation data will be out early this week. Last week, South Korean trade declined for the first time since 2016. Copper, a key industrial commodity for the Chinese economy, is also headed for a “death cross” this week as the 50-day moving average falls below 200-day.

The 10-year Treasury yield started the week at 2.96 percent. It is still consolidating after hitting a new 52-week high of 3.04 percent in April. Many technical traders are waiting for a break of 3.05 percent, but the market also remains heavily short, increasing the potential for a short-squeeze that takes rates lower in the near term.

Ten-year U.S. treasury bonds yielded 2.4 percent more than Germany 10-year government bonds today, the widest spread since the 1980s. While this spread has steadily widened since August 2017, the dollar only began its major breakout versus the euro last month. The last time the spread was this wide, the U.S. Dollar Index was over 100 and the euro was at $1.05 versus $1.20 today.

Earnings season is now 80 percent complete, but several blue-chip companies will report this week including Disney (DIS), Anheuser-Busch (BUD), Nvidia (NVDA) and Duke Energy (DUK). Sysco (SYY), Nutrien (NTR), Tyson Foods (TSN), and Occidental Petroleum (OXY) will also report.

The Nasdaq climbed 1.26 percent this week and the Russell 2000 Index 0.60 percent. Apple (AAPL) powered technology gains with solid earnings, a 16-percent dividend hike and $100-billion stock buyback. Apple earned $2.73 per share versus the $2.67 consensus estimate and reported higher-than-expected revenue, despite disappointing iPhone sales. Apple rallied 13.25 percent on the week and hit a new all-time high. It is 11.9 percent of PowerShares QQQ (QQQ) and 14.7 percent of SPDR Technology (XLK).

McDonald’s (MCD) delivered strong earnings on Monday. DowDuPont (DWDP) and Mastercard (MA) also beat estimates.

The Bureau of Labor Statistics (BLS) reported 164,000 new jobs last month. This missed expectations of 192,000. The unemployment rate fell to 3.9 percent, beating forecasts of 4.0 percent and down from 4.1 percent in March. March’s job gains were revised higher to 135,000. Mining, healthcare and manufacturing were among the sectors adding jobs.

Wage growth missed expectations, but overtime hours hit a new post-2008 high. Friday’s jobs report lifted the 10-year treasury yield to 2.96 percent.

March factory orders increased 1.6 percent, beating estimates of 1.3 percent and February’s 1.2 percent. The trade deficit tumbled from $57.7 billion in February to $49 billion in March due to rising exports. This will result in an upward revision to first-quarter GDP estimates.

Auto sales hit an annualized pace of 17.2 million in April, ahead of forecasts of 17.0 million. The core personal consumption expenditures price index (PCE) hit 1.9 percent in March. Overall inflation was 2.0 percent. The Federal Reserve prefers the PCE to the more widely followed consumer price index (CPI).

The U.S. Dollar Index rallied 1.6 percent this week and 3.8 percent over the past three weeks. This is the dollar’s best rally since late 2016 and it has broken the downtrend in place since the start of 2017. This may be more than a counter-trend rally with speculators heavily positioned on the short side and U.S. interest rates well above the global competition. Serious weakness in foreign currencies could extend the dollar’s run. Hong Kong central bank may need to intervene with the Hong Kong dollar back near the bottom of its peg range. Argentina’s central bank hiked interest rates to 40 percent this week as its currency tumbled versus the dollar.

Developed markets outperformed after adjusting for currency changes last week. SPDR S&P 500 (SPY) slipped 0.19 percent, iShares MSCI EAFE (EFA) 0.06 percent and iShares MSCI Emerging Markets (EEM) 1.74 percent.

Today, Federal Reserve officials left interest rates unchanged as expected. Officials see core inflation close to 2 percent. Rate hike odds were unchanged following the release of the policy statement. Speculators are still split nearly 50-50 on two or three more hikes this year.

The Nasdaq was the best performing index on the week. PowerShares QQQ (QQQ) led the market by a wide margin following strong earnings reports from Amazon (AMZN) and Apple (AAPL).

Technology and consumer discretionary led the large sectors. Financials, healthcare and industrials all declined on the week. Pfizer (PFE) beat earnings on Tuesday, but a small revenue miss sent shares down 3.3 percent.

Utilities benefited from the dip in long-term interest rates, while energy climbed with oil prices.

The 10-year Treasury climbed above 3 percent last week and then pulled back with the 30-year bond yield. This dip in yields boosted bonds across the board.

The FAANG stocks pulled technology higher over the past week.

The U.S. Dollar Index decisively broke out of the downtrend in place since the start of 2017.

The British pound, euro and Chinese yuan have been the weakest major currencies.

The rising U.S. dollar has weighed on emerging and developed market stocks. Although they performed about as well as the S&P 500 Index in the past week, iShares MSCI Emerging Markets (EEM) went from a gain of 2.3 percent to flat over the past three trading days as the dollar rally accelerated.