Weekly Market Analysis – 07 January 2019 BMO

WEEK IN REVIEW – December 31 to January 04 :
Fed Chair Powell, Strong Jobs Data Help Lift Stocks from Growth Concern Angst

Wall Street kicked off the first week of 2019 on a higher note, as robust jobs data and soothing commentary from Fed Chair Jerome Powell helped press pause on global growth concerns.

The S&P 500 gained 1.9%, the Dow Jones Industrial Average gained 1.6%, the Nasdaq Composite gained 2.3%, and the Russell 2000 gained 3.2%.

Headline payroll growth in the Employment Situation Report for December was comfortably ahead of estimates while average hourly earnings (+0.4%) increased more than expected, lifting the year-over-year growth rate to 3.2%.

There were some concerns, though, about how the central bank would react to stronger-than-expected jobs data.

Fed Chair Powell eased those concerns when he said the Fed will remain patient given muted inflation readings. He added monetary policy will be nimble and shift if necessary, and he also softened his previous comments regarding the Fed’s balance sheet reduction path being on autopilot.

The stock market liked what it heard from Mr. Powell, and his comments helped solidify an equity rebound from previous angst over economic growth.

A rare revenue cut from Apple (AAPL) and disappointing manufacturing data from the U.S. and China had exacerbated fears that economic growth might be slowing more quickly than anticipated, which would present a headwind to corporate earnings.

The market is not free and clear from economic growth concerns, but with strong U.S. jobs growth and a friendlier-sounding Fed, the market saw renewed buying interest.

U.S. Treasuries underwent wild swings this week amid the fragility in investor sentiment. At the end of the week, the 2-yr yield declined four basis points to 2.48%, and the 10-yr yield declined eight basis points to 2.66%. The U.S. Dollar Index lost 0.2% to 96.17. WTI crude rose 6.0% to $48.03/bbl.

(Economic Excerpts from Briefing.com)

Wednesday 02 January:

December U.S. Markit Manufacturing PMI- Revision 53.8, Prelim 53.9

Thursday 03 January:

Initial Claims Increase in Final Week of December

Initial claims for the week ending December 29 increased by 10,000 to 231,000 (consensus 220,000) from last week’s revised reading of 221,000 (from 216,000). Continuing claims for the week ending December 22 increased by 32,000 to 1.740 million from last week’s revised reading of 1.708 million (from 1.701 million).

The key takeaway from the report is that claims continue hovering within a sideways range that has been maintained since mid-2018.

ISM Manufacturing Index Decreases in December

The ISM Manufacturing Index for December decreased to 54.1% (consensus 57.8%) from 59.3% in November.

The key takeaway from the report is that the December decrease was fueled by a sharp pullback in the New Orders component, which is the same element that lifted the November ISM Manufacturing Index into the neighborhood of its high from 2018.

Friday 04 January:

December Payroll Growth Soars Past Estimates

The Employment Situation Report for December produced an upside surprise on most fronts. Headline payroll growth was comfortably ahead of estimates while average hourly earnings (+0.4%) increased more than expected, lifting the year-over-year growth rate to 3.2%. In addition, job gains in October and November saw notable upward revisions.

The key takeaway from the report is that employment data are unlikely to deter the Federal Reserve from its tightening path, especially if average hourly earnings growth remains on its current trajectory.

December U.S. Markit Services PMI- Revision 54.4, Prelim 53.4, November 54.7

Fed Chair Monetary Policy Roundtable





Friday 04 January 2019
Wall Street Jumps on Strong Jobs Report,
Soothing Powell Commentary

The S&P 500 gained 3.4% on Friday, as Fed Chairman Jerome Powell signaled patience and flexibility on rates in light of stronger-than-expected jobs data. Friday’s gains helped the benchmark index secure a weekly gain of 1.9%.

The Dow Jones Industrial Average (+3.3%), the Nasdaq Composite (+4.3%), and the Russell 2000 (+3.8%) also sported sizable gains to finish the week up 1.6%, 2.3%, and 3.2%, respectively.

All 11 S&P 500 sectors closed the session in the green, with gains ranging from 1.0% (real estate) to 4.4% (information technology). Apple (AAPL), for its part, recouped nearly half of its losses from Thursday.

The major averages began the day on a higher note, helped by optimism surrounding upcoming trade talks with China next week and a robust Employment Situation Report for December.

Specifically, nonfarm payrolls (consensus 180,000) exceeded expectations with an increase of 312,000, while average hourly earnings (consensus +0.2%) increased 0.4%, lifting the year-over-year growth rate to 3.2%.

There were some market concerns about how the Federal Reserve would respond to the strong jobs report. The latest comments from Fed Chair Powell, however, eased those concerns, evident from stocks soaring to session highs — and maintaining their gains.

Some talking points from the Fed Chair that soothed the market included (1) the Fed will remain patient given the muted reading on inflation, (2) monetary policy will be nimble and shift if necessary, and (3) his softer tone regarding previous comments on the Fed’s balance sheet reduction path being on autopilot.

The CBOE Volatility Index (VIX) fell 4.1 points to 21.38, reaching its lowest level since mid-December.

U.S. Treasuries ended the week sharply lower, surrendering their gains from Thursday. The 2-yr yield dropped 10 basis points to 2.48%, and the 10-yr yield dropped 11 basis points to 2.66%. The U.S. Dollar Index lost 0.1% to 96.17.

Market Internals – Friday 04 January 2019

Dollar: Weakens Again

The U.S. Dollar closed lower for the week at $96.20 from $96.39 the previous week. 

Other currency pairs;

Bonds: Treasuries Surrender Thursday’s Gains

US Treasuries ended  the week on a sharply lower note, surrendering their gains from Thursday. The pullback in the Treasury market began taking shape in overnight action and continued into midday trade. The overnight selling was accompanied by a rebound in growth-sensitive commodities like copper and crude oil while the news of an upcoming reserve requirement ratio cut in China was also welcomed by the market. In addition, China’s Ministry of Commerce confirmed that trade talks with U.S. officials will take place on Monday and Tuesday of next week, injecting additional optimism into capital markets. However, it remains to be seen if that optimism is warranted, considering U.S. Trade Representative Robert Lighthizer has reportedly said that more tariffs may be needed in order to secure concessions from China.

Friday Morning action saw the release of a much stronger than expected Employment Situation report, which was later followed by comments from Fed Chairman Jay Powell, who took part in a panel discussion with former Fed Chairs Yellen and Bernanke. Market participants locked in on Chairman Powell’s acknowledgement that the policy course can be altered swiftly, but it should be noted that the Fed Chair has said on multiple occasions that monetary policy is not on a pre-set course. The Fed Chairman also reiterated that the Fed’s economic outlook has not changed significantly, but today, the market was more focused on comments that could be categorized as dovish. Recall that just yesterday, the fed funds futures market entertained the prospect of a rate cut in December. Today, the implied probability of a December cut declined to 30.8% from yesterday’s 49.3%.

The belly of the yield curve rose as investors ran their money into medium term safety. The spread on the 2s5s flattened to 0bpsThe spread between the 5s10s widened to 18bps from 17bps the previous week while the 10s30s widened to 31bps from 30bps the previous week. The spread that matters most, the 2s10s, narrowed by 4bps to 18bps from 22bps the previous week.


The Bloomberg Commodity Index settled at 78.34, higher than 77.59 the previous week as Energy, Precious and Grains rallied.

WTI oil closed at $47.96 p/b, higher than the week before at $45.33. The spread between WTI and Brent widened to $9.10 from $6.87 the previous week as Brent settled at $57.06 p/b.

EIA petroleum data for the week ended December 28

Natural gas inventory showed a draw of 20 bcf vs a draw of 48 bcf in the prior week. Working gas in storage was 2,705 Bcf as of Friday, December 28, 2018, according to EIA estimates. This represents a net decrease of 20 Bcf from the previous week. Stocks were 450 Bcf less than last year at this time and 560 Bcf below the five-year average of 3,265 Bcf. At 2,705 Bcf, total working gas is below the five-year historical range.

Baker Hughes total U.S. rig count decreased by -8 to 1075 following last week’s increase of +3.

Metals: Precious Rise, Copper Falls

Agriculture: Grains Gain Again


Week 02 (07 to 11 
January 2019)

According to our 5, 10 and 15 year seasonal models:

Benchmarks Indices (21 year average) for wk02:

Week 02 Key Economic Dates

Next week will be a busy week in US with FOMC minutes, inflation, ISM Non-Manufacturing PMI, trade balance, factory orders and US-China trade talks. Elsewhere in the spotlight will be: UK monthly GDP, industrial output and foreign trade; ECB meeting accounts; Eurozone business survey, retail trade and jobless rate; Germany trade balance; China inflation and producer prices and Japan consumer confidence.

Mon 07 January

Tue 08 January

Wed 09 January

Thu 10 January

Fri 11 January



I am still bullish in the long term, albeit very cautiously bullish while holding a short-term bearish attitude until this correction is done and dusted. I will be sticking with my usual oil trades and seasonal portfolios but they will be hedged until I get an “all-clear” from the market and economic data.

Over the week, another indication that this bull-run could be ending soon is the convergence of the Federal Funds Rate and the 10 year bond yield.

With the Fed releasing more information about their intentions this week, I will be looking for hints or confirmation whether the benchmark rate will continue hiking. With the spread between the FFR and 10yr only 24bps apart, another Fed hike coupled with more flight-to-safety on the 10yr will surely invert this spread. Thereafter, we can expect the Yield Curve to flatten on the 2/10 and possibly invert before the end of the month. 

And that will be all she wrote … for the bulls.

Singapore’s GDP contracted QonQ from 3.5% in Q3 2018 to 1.6% in Q4. The Inflation Rate also fell from 0.7% to 0.3% in spite of the CPI and Core CPI holding at their highs. The benchmark index remained mired in red and still stays rooted below its 50/200DSMA Death Cross in Correction Territory, -15.5% from its May 2018 high. The index closed the first week of the year in the red.

While the U.S. economic numbers continue to look healthy, parts of Asia and Europe are falling onto troubled times. GDPs in Japan, Hong Kong, Thailand, Germany, Italy, Switzerland and Sweden have contracted with some already in a technical recession. Manufacturing and production numbers have also fallen in several East-Asian economies.

The coming week will be light on economic data that matters but will be full of key indications for where the U.S. Fed, BOE and ECB think their economies will be heading. If the early part of the coming week shows more divergence from the usual historical performance, I will be expecting a huge swing to the downside before the week is done.

January is normally a very bullish month. But we’ve had a few horrible Januarys in the last half decade to knock that confidence off. So be cautious, stay hedged and get ready to be very nimble.

Happy Hunting!



Date: 9th January 2019, Wednesday
Time: 07:00PM to 10:00PM
(Registration starts at 06:30PM)


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