NOTICE: Monday 13 March 2017, US markets will open at 21:30 (9:30pm) (SG).
A rate hike at next week’s FOMC meeting appears to be a mere formality following the better than expected Employment Situation Report for February, which crossed the wires early Friday morning. That seemed to be alright with investors as they pushed the major averages higher to finish a slightly disappointing week on a positive note. For the week, the benchmark S&P 500 lost 0.4%.
After posting six consecutive weekly gains, the stock market saw its third weekly decline of 2017. However, just like the other two weekly downticks, this week’s retreat was minor. The S&P 500 shed 0.4%, narrowing its first quarter gain to 6.0%.
The trading week started on an unassuming note with stocks showing limited reaction to a proposal put forth by House Republicans to replace the Affordable Care Act. President Donald Trump spoke favorably about the proposal, but Republicans in Congress have yet to fully support the effort, which has led to concerns that slow progress on the health care front would stymie corporate and personal tax reform, which the market has been anxiously awaiting.
Equity indices inched lower through the first three days of the week, but on Wednesday, it was crude oil that stole the attention, falling more than 5.0% to a fresh 2017 low near $50.30/bbl. The energy component snapped out of a five-point range that has held since the start of the year, responding to the news of yet another significant inventory build. Crude’s retreat continued over the next two days, leaving the energy component near $48.50/bbl at the end of the week. Oil lost more than 9.0% during the week while the energy sector surrendered 2.6% since last Friday.
There wasn’t much change on the central bank front as Wednesday came and went without any major surprises from the European Central Bank. The ECB made no changes to policy and did not hint at impending tightening even though the 2017 GDP growth forecast for the Eurozone was nudged up to 1.8% from 1.7%. It is worth noting that reports that circulated on Friday suggested the ECB may begin raising rates prior to the end of its asset purchase program. The news coincided with comments from Bundesbank President Jens Weidmann, who said 2017 eurozone inflation is likely to be “far higher” than projected.
As for the Fed, the central bank is now widely expected to announce its next rate hike on March 15 after the Employment Situation report for February did not upset the overall economic picture. With the report showing the addition of 235,000 payrolls, headline expectations (Briefing.com consensus 188K) were beat handily while average hourly earnings increased an in-line 0.2%, bringing the year-over-year growth rate to 2.8%.
The CME Fed Watch Tool now assigns an implied probability of 93.0%, up from 88.6% on Thursday, to a rate hike at the March 14-15 FOMC meeting after the February jobs report showed that nonfarm payrolls increased by 235,000 (Briefing.com consensus 188,000) and average hourly earnings rose 0.2% (Briefing.com consensus +0.2%). The Federal Reserve will announce its decision on Wednesday at 2:00 pm ET.
- Dow Jones Industrial Average +5.8% YTD
- Nasdaq Composite +8.9% YTD
- S&P 500 +6.0% YTD
- Russell 2000 +0.6% YTD
(Excerpts from Briefing.com)
Employment Situation Report for February and the February Treasury Budget:
- February nonfarm payrolls came in at 235,000 while the Briefing.com consensus expected a reading of 188,000. The prior month’s reading was revised to 238,000 from 227,000. Nonfarm private payrolls added 227,000 while the Briefing.com consensus expected an increase of 185,000. The unemployment rate decreased to 4.7% (Briefing.com consensus 4.7%). Average hourly earnings increased 0.2% (Briefing.com consensus +0.2%), while the previous month’s reading was revised to 0.2% (from +0.1%). The average workweek was reported at 34.4, which is in line with the Briefing.com consensus. The previous month’s reading was left unrevised at 34.4.
- Average hourly earnings increased 0.2%, leaving them up 2.8% year-over-year and solidifying the prevailing belief that the Federal Reserve will raise the target range for the fed funds rate at its March 14-15 FOMC meeting. That is the key takeaway from this report, followed closely by the encouraging understanding that the labor market is strengthening, which is aiding the prospects for stronger economic growth.
- The Treasury Budget for February showed a deficit of $192.0 billion versus a deficit of $192.6 billion for February 2016. The Treasury Budget data is not seasonally adjusted, so the February deficit cannot be compared to the $51.3 billion deficit registered in January.
Treasury Budget Maintains Similar Deficit Line in February
The Treasury Budget for February showed a deficit of $192.0 billion versus a deficit of $192.6 billion for February 2016. The Treasury Budget data is not seasonally adjusted, so the February deficit cannot be compared to the $51.3 billion surplus registered in January. Total receipts in February were $171.7 billion while total outlays were $363.8 billion. Receipts were $2.6 billion more than receipts in February 2016. Total outlays were $0.32 billion less than the same period a year ago.
- 2-yr: 1.32% to 1.36%, up 4bps from previous week’s close
- 5-yr: 2.02% to 2.10%, up 8bps
- 10-yr: 2.49% to 2.58%, up 9bps
- 30-yr: 3.08% to 3.17%, up 9bps
Commodities were mostly lower for the week with Crude falling below $50. The Friday’s tumble left the energy component 8.8% lower. Wednesday’s bearish EIA inventory report, which showed record high U.S. inventories. WTI crude finished the Friday session at $48.49/bbl.
- April WTI crude closed lower at $48.49/barrel from $53.33/barrel the previous week
- April gold finished the week lower at $1201.10/oz from $1226.30/oz the previous week
- May silver closed 11 cents lower at $16.92/oz from $17.73/oz the previous week
- May copper ended 11 cents lower at $2.59/lb from $2.70/lb the previous week
Agriculture Closing Prices
- May corn closed at $3.65/bushel, down 16 cents from last week’s close at $3.81/bushel
- May wheat closed at $4.41/bushel, down 12 cents from last week’s close at $4.53/bushel
- May soybeans closed at $10.07/bushel, down 31 cents from last week’s close at $10.38/bushel
THE WEEK AHEAD
Monday 06 to Friday 10 March (Week 11)
- Sunday 12 March 2017 – Daylight Saving Time Begins. U.S. market will open at 21:30SG henceforth.
- The third week of March is the month’s most bullish week
- The Monday before March Expiration Friday has been up on the DOW 22 of the last 29 (last year up)
- March Triple Witching Friday has been mixed in the last 28 years – DOW down for the last 5 out of 8 (last year up)
The eleventh week of 2017 (wk11) is Bullish for the DIA and SPY with more than 80% over 5 years, more than 70% over 10 years and more than 60% over 15 years.
The 2017 Stock Trader’s Almanac’s averages the DOW and S&P500:
Key Economic Dates
Tue 14 Mar
- EU German ZEW Economic Sentiment
- US PPI m/m, Core PPI m/m
Wed 15 Mar
- UK Average Earnings Index 3m/y, Unemployment Rate
- US CPI m/m, Core CPI m/m, Core Retail Sales m/m, Empire State Manufacturing Index, FOMC Statement, Federal Funds Rate, FOMC Press Conference
- Australia Employment Change, Unemployment Rate
- Japan Monetary Policy Statement, BOJ Policy Rate
Thu 16 Mar
- Japan BOJ Press Conference
- EU Final CPI y/y
- UK Monetary Policy Summary, Official Bank Rate
- US Building Permits, Philly Fed Manufacturing Index, Initial Claims, Housing Starts
Fri 17 Mar
- US Industrial Production, Capacity Utilizations Rate, Consumer Sentiment
Without doubt, I am long next week given the statistical advantage favouring the Bulls. But before we get too carried away with the long trades, let’s keep in mind that next week (wk12) has been bearish for the last five years. Thus, I will be booking profits before the weekend just in case.