Weekly Market Update – 03 January 2017 BMO

Its back to business and before we get too excited, let’s not forget that this week is heavy with employment numbers and next week is the start of Earnings Season for Quarter 4 results. Given the bullish nature of October’s earnings results and the many surprises it brought, I will be looking for more of the same this season if this rally is meant to continue.

US MARKETS

The major indices finished the year with some gains that didn’t seem likely a month before the elections. For the most part, the major indices were flat after the initial volatility between January and March. It wasn’t until election season and that fruitful October earnings season that the market really started to move.

DOW YTD

Let’s be reminded that January hasn’t been a good month for the US markets in the last three years but as statistics go, January is actually supposed to be a bullish month. It is also the month where we get a few Self-Fulfilling indicators such as the “First Five Days” indicator and the “January Barometer” that points to where the market is likely to finish the year … although that wasn’t the case last year. These indicators have a high statistical record for accuracy but they do tend to fail occasionally.

Talking about Self-Fulfilling Prophecies, looks like we didn’t get a Santa Claus Rally. That usually means that the following year is likely to be weak – again, something that didn’t happen last year – although statistics don’t really show overwhelming proof of this. But let’s not discount any possibilities because there is one statistic that does scare me with a very impressive track record – the year ending with the number “7”. You can read about it in my Summary in the monthly update.

Bonds

It was pretty much touch-and-go for bonds during the middle of 2016 as the yield curve flattened and threatened to pivot on its belly.

By the year’s end and a new president later, yields closed broadly higher and steeper for the year implying that a bull run in risk may be in order moving into 2017, at least for the next six months.

(From 4 Jan 16 to 30 Dec 16)

Commodities were a mixed bag in 2016 with Gold and Silver making seasonal gains in the first half of the year and losing it all by the end of the year to finish almost unchanged for the year. Copper was a winner and Energy prices all closed higher than it opened at the start of 2016.

Copper is going to be my security to watch for 2017. If there is to be any upside in risk, Copper has to lead and that is where my money will be.

Agriculture Closing Prices

Out of all the agriculture counters, #11 Sugar, Coffee and FCOJ were the standout winners in 2016 while Cocoa was a spectacular loser.

Brent, Gold, Corn, WTI, Silver, Wheat, Nat Gas, Copper, Sugar

THE WEEK AHEAD

Tuesday 03 to Friday 06 January (Week 01)

The first week of January (01) is bearish for the SPY and DIA over the last 5 years, 10 and 15 years with the DOW carrying more than 50% reliability and the SPY less than 50%.

The 2017 Stock Trader’s Almanac’s averages for Tuesday and Wednesday are 66.7% bullish on the DOW with Thursday and Friday being flat.  The S&P500 is broadly flat for the week with a slightly bullish bias on Wednesday, Thursday and Friday at an average of 53%.

Key Economic Dates

Tue 03 Jan
• EU German Prelim CPI, Unemployment Change
• UK Manufacturing PMI
• US ISM Manufacturing PMI

Wed 04 Jan
• EU CPI Flash Estimate
• UK Construction PMI
• US FOMC Meeting Minutes
• China Caixin Services PMI

Thu 05 Jan
• UK Services PMI
• EU ECB Monetary Policy Meeting Accounts
• US ADP Non-Farm Employment Change, ISM Non-Manufacturing PMI
• Australia Trade balance

Fri 06 Jan
• US Non-Farm Employment Change, Unemployment Rate, Trade Balance, Factory Orders
• US FOMC Member Evans Speaks (12:15EST)

SUMMARY

Singapore bounced back from negative growth this morning reporting that;

Singapore’s economy grew a seasonally adjusted annualized 9.1 percent on quarter in the three months to December of 2016, following a downwardly revised 1.9 percent contraction in the previous period and beating market expectations of a 3.7 percent expansion, the preliminary estimate showed. It was the strongest growth rate since the second quarter of 2013, mainly due to a rebound in manufacturing (+14.6 percent from -8.1 percent in Q3) and services (+9.4 percent from -0.4 percent) while construction continued to fall (-4.7 percent from -14.8 percent).

What’s worrying about that number is whether we’re able to sustain it next quarter or are we likely to see a contraction because the previous quarter was overblown? Given that the Island State hasn’t been faring well, that unemployment is still on the rise and that consumer spending, property prices and money flow has slowed, how will 9.1% realistically be sustained (I am not even bothering to ask how 9.1% was achieved) in such weak circumstances.

Happy Hunting!!

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