Year: 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.

The week ahead will include major earnings reports, economic data, and a Federal Open Market Committee (FOMC) meeting. The Federal Reserve will meet on Tuesday and Wednesday this week. No rate hike is expected this month.

Core inflation as measured by personal consumption expenditures (PCE) hit 1.9 percent in March. The headline number was 2.0 percent. The Fed’s target range for inflation is 2 to 3 percent.

April manufacturing PMIs, auto sales and March construction spending will be released on May 1st. Auto sales were strong in March, hitting an annualized pace of 17.5 million vehicles. Last week’s flash PMIs indicated strengthening in the manufacturing sector. Service PMIs are due later in the week. The big economic data point will be Friday’s April employment report. The consensus forecast calls for 194,000 new jobs and a drop in the unemployment rate to 4.0 percent.

Eurozone GDP will be out on Wednesday. Economists expect 2.5 percent growth year-on-year. They also forecast 1.3 and 0.9 percent headline and core inflation for the Eurozone.

Crude oil climbed past $69 a barrel as geopolitical tensions escalated between Israel and Iran. Energy was the best performing sector in Monday trading.

The 10-year Treasury yield continued its consolidation after cracking 3 percent last week. It finished Monday trading at 2.94 percent.

McDonald’s (MCD) kicked off this week with a strong earnings report. It delivered $1.67 per-share last quarter, up 20 cents from last year and 7 cents ahead of estimates. Shares rallied on Monday and the Dow outperformed the other major indexes. Analysts are looking for $2.69 per share from Apple (AAPL) after the bell on Tuesday. The company is expected to announce a large dividend increase or share buyback plan given the changes in tax laws.

Allergan (AGN), Pfizer (PFE), Merck (MRK), BP (BP), Gilead Sciences (GILD), Mondelez (MDLZ), Mastercard (MA), CVS Health (CVS), Kraft Heinz (KHC), Estee Lauder (EL), MetLife (MET), Tesla (TSLA), Southern Company (SO), Prudential Financial (PRU), Express Scripts (ESRX), Zoetis (ZTS), DowDuPont (DWDP), Alibaba (BABA), Celgene (CELG) and Cboe Global Markets (CBOE) will also report this week.