Monthly Archives: March 2016

Market Insights 3/31/2016

Markets Lose Steam Ahead of Data Deluge

U.S. stocks fell late in the day to finish the last day of 1Q mixed, as caution was palpable ahead of a flood of key data headlined by tonight’s Chinese business activity data and tomorrow’s key U.S. labor report and manufacturing releases.

Treasuries were higher amid the prudence, and as jobless claims surprisingly rose, while regional manufacturing activity jumped back into expansion territory.

Meanwhile, crude oil prices finished nearly flat after a choppy session, while the U.S. dollar was lower and gold gained ground.

The Markets….

The Dow Jones Industrial Average fell 32 points (0.2%) to 17,685,

The S&P 500 Index lost 4 points (0.2%) to 2,060, while

The Nasdaq Composite ticked nearly a point higher to 4,870.

In moderately-heavy volume, 997 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq.

WTI crude oil ticked $0.02 higher to $38.34 per barrel, wholesale gasoline was $0.02 lower at $1.45 per gallon and

The Bloomberg gold spot price rose $6.86 to $1,231.88 per ounce. Elsewhere,

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 94.62.

For the 1st Quarter, the DJIA increased 1.5%, the S&P 500 Index gained 0.8%, while the Nasdaq Composite lost 2.8%.

Jobless claims surprisingly rise

Weekly initial jobless claims rose by 11,000 to 276,000 last week, versus the Bloomberg estimate calling for claims to remain at the prior week’s unrevised level of 265,000. The four-week moving average increased by 3,500 to 263,250, while continuing claims declined by 7,000 to 2,173,000, south of the estimated level of 2,200,000.

The Chicago Purchasing Managers Index jumped back into expansion territory (above 50), rising to 53.6 in March from 47.6 in February, and versus expectations of an improvement to 50.7. New orders, employment and production all rose compared to the prior month.

Treasuries were higher, as the yields on the 2-year and 10-year notes, along with the 30-year bond, declined 4 basis points to 0.72%, 1.79% and 2.62%, respectively.

The headlining day of the U.S. economic week is poised for tomorrow’s releases of the nonfarm payroll report, the ISM Manufacturing Index, and Markit’s final Manufacturing Index for March. Job growth is projected to rise 205,000 after increasing 242,000 in February, the unemployment rate is expected to remain at 4.9%, and average hourly earnings are forecasted to rise 0.2% month-over-month, on the heels of the disappointing 0.1% dip for the month prior. The ISM is anticipated to show manufacturing output ticked back into expansion territory (above 50), rising to 50.9 from February’s 49.5 level, while Markit is projected to show a slight upward revision to 51.5 from 51.4, and above the 51.3 reading posted in February.

Federal Reserve Chairwoman Janet Yellen offered a mixed view of the economy as she delivered a dovish tone in her speech on Tuesday, highlighting the strong labor market, while pointing out that the manufacturing sector and net exports continue to be hard hit by slow global growth and the significant appreciation of the dollar. We continue to believe 2016 will be a year of heightened market volatility. Seemingly after the last 30 days investors have already forgotten the carnage that hit us from January 1st through mid-February. While the early weeks of the year the volatility was to the downside, the past month or so has seen that volatility on the upside. For now, the relief rally in risk assets remains intact, but the dollar, commodities, and economic data will be critical to sustaining it.

Europe lower, Asia mixed ahead of tomorrow’s U.S. and tonight’s China data

The European equity markets finished lower, giving back yesterday’s gains that followed dovish commentary from U.S. Federal Reserve Chair Janet Yellen, which eased concerns about a near-term rate hike. Oil & gas issues led to the downside, and financials saw some pressure, with the markets bracing for tonight’s key reports on manufacturing and services sector activity in China and tomorrow’s key U.S. labor and manufacturing releases. The euro traded higher versus the U.S. dollar and bond yields in the region were mixed. In economic news, German retail sales unexpectedly declined for February, while Eurozone consumer price inflation came in slightly hotter than expected for March. European stocks capped off a solid quarterly decline with banks coming under pressure on heightened concerns about bad loans, and as the European Central Bank’s (ECB) decision to deploy further stimulus measures was overshadowed by uneasiness regarding the central bank taking its deposit rate further into negative territory.

Stocks in Asia finished mixed as traders await tomorrow’s key March labor report and manufacturing releases out of the U.S., along with tonight’s releases of manufacturing and services reports out of China. Also, the global markets continued to digest Tuesday’s dovish tone from U.S. Fed Chair Janet Yellen. Japanese equities declined, with the Nikkei 225 Index capping off a dismal quarter which saw banks come under pressure as the Bank of Japan adopted a negative interest rate policy in February, while the yen rallied to exacerbate corporate earnings sentiment.

Mainland Chinese stocks ticked higher and those traded in Hong Kong dipped ahead of tonight’s business activity report, though stocks in the Asian nation have rebounded sharply this month as the country’s economic data and currency showed signs of stabilizing and central banks added further stimulus measures, per Bloomberg.

South Korean equities decreased, despite an unexpected jump in the nation’s industrial production for February. However, a rebound in banking stocks, which have come under pressure on a flare-up in concerns about the bad loans, exacerbated by the impact of the struggling resources sectors, helped boost Australian issues, while India’s markets finished flat.

While the manufacturing and services reports out of China will likely headline tomorrow’s international economic calendar, there are a slew of manufacturing PMI reports across Europe slated for release, as well as Japan, while other items on the docket include CPI and trade data from South Korea, auto sales from Japan, and the eurozone’s unemployment rate.

Market Insights 3/30/2016

Bullish Gains Coerced Despite Oil’s Price Reverse

U.S. equities closed the regular trading session nicely higher with tech and financial stocks leading the advance to extend yesterday’s gains that transpired following Fed Chair Yellen’s speech.

Gold and the U.S. dollar were lower and Treasuries were mixed, while crude oil prices gave up an early advance and finished nearly unchanged.

The Markets…

The Dow Jones Industrial Average rose 84 points (0.5%) to 17,717

The S&P 500 Index added 9 points (0.4%) to 2,064, sectors leading the way higher included Technology +.59%, Financial +.58%, Consumer Staples +.66% and Consumer Discretionary +.64%

The Nasdaq Composite advanced 23 points (0.5%) to 4,869

In moderate volume, 824 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil ticked $0.04 higher to $38.32 per barrel, wholesale gasoline was $0.01 lower at $1.47 per gallon

The Bloomberg gold spot price declined $16.19 to $1,226.02 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% lower at 94.81

ADP employment report slightly stronger than expected

The ADP Employment Change Report showed private sector payrolls rose by 200,000 jobs in March, versus the Bloomberg forecast of a 195,000 increase, while February’s gain of 214,000 jobs was revised to a 205,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader March non-farm payroll report, expected to show an increase of 205,000 jobs, while private sector payrolls are expected to rise of 190,000. The unemployment rate is forecasted to remain at 4.9% and average hourly earnings are projected to rise 0.2% month-over-month (m/m).

The MBA Mortgage Application Index declined 1.0% last week, after dropping 3.3% in the previous week. The decrease came as a 3.3% fall in the Refinance Index more than overshadowed a 2.1% increase for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point higher to 3.94%.

Treasuries were mixed, with the yield on the 2-year note dipping 3 bps to 0.75%, while the yield on the 10-year note increased 2 bps to 1.82% and the 30-year bond rate gained 5 bps to 2.65%.

Tomorrow, the U.S. economic calendar will yield the release of the Chicago Purchasing Managers Index for March, expected to show activity in the Midwest improved to 50.8 from the 47.6 posted in February, where 50.0 represents the demarcation point between expansion and contraction. We will also receive weekly initial jobless claims, which are forecasted to remain at the previous week’s 265,000 level.

Europe rallies and Asia mostly higher following Fed Yellen’s speech

European equities moved solidly higher, with oil & gas and basic materials stocks rebounding sharply, while the global markets got a boost from yesterday’s speech from U.S. Federal Reserve Chairwoman Janet Yellen. The Fed Chief suggested it is appropriate for the Central Bank to proceed cautiously in adjusting policy, easing concerns about a near-term rate hike. The U.S. dollar extended its losses that ensued following Yellen’s comments, bolstering commodity prices and the euro, while bond yields in the region were mixed. In economic news, German consumer price inflation came in hotter than expected for March, though eurozone economic confidence slipped for this month.

Stocks in Asia finished mostly to the upside, with U.S. Fed Chair Yellen’s dovish tone easing concerns about an imminent rate hike. Stocks trading in mainland China and Hong Kong rallied as the eased U.S. rate hike concerns were accompanied by some upbeat earnings reports in the nation. South Korean equities rose and Indian securities posted a solid advance to snap a two-session losing streak, as emerging markets extended their rally, bolstered by Yellen’s comments. Australian stocks ticked higher, with gains being limited by weakness in oil & gas issues as crude oil prices fell yesterday. However, Japanese equities bucked the global equity trend and traded lower, with the yen gaining ground as the U.S. dollar dropped on Yellen’s comments, while a report showed Japanese industrial production in February fell more than expected.

The international economic docket for tomorrow will include housing starts from Japan, industrial production from South Korea and new home sales and private sector credit from Australia. Releases from across the pond will include consumer confidence and 4Q GDP from the U.K., retail sales and unemployment claims from Germany, CPI for the Eurozone and CPI and PPI from Italy and France.

Is it too quiet out there ??

Key points

Low volatility and inflation expectations look like the new normal.

Safe-haven currencies such as the U.S. dollar and yen rose after the tragic events in Brussels in a holiday-shortened week.

Stabilizing oil prices and a tighter labor market could contribute to rising U.S. inflation but Janet Yellen nixed that yesterday.

Central bank asset purchases have played a role in suppressing market volatility over the past six years. See the chart below. But current low levels of volatility look unsustainable.

**Click to enlarge**

cotw-weekly

The Federal Reserve’s quantitative easing (QE) program – twinned with liberal doses of QE by other central banks – dulled market volatility to unprecedented low levels between 2012 and 2014. This period of exceptionally low volatility ended last year, as the Fed wound down its QE purchases and began to raise rates. However, markets have become eerily quiet recently after a wild 3rd quarter of 2015 and a less than optimum start to 2016.

Preparing portfolios for higher volatility

U.S. equity market volatility is hovering around its lowest level since August 2015 and is well below its long-term average. This unusual calm follows declining market concerns about sliding oil prices, and the health of China’s economy and European banks. We do not expect this to last, and see a return to the higher-volatility regime that was the norm prior to QE.

The future path of monetary policy remains uncertain and tail risks remain. A big Chinese yuan devaluation isn’t our base case, but it’s a downside risk. Geopolitics, particularly as Europe confronts terrorism and migration, could spark volatility.

So, too, could be rising global and U.S. inflation expectations. A modest upward trend in inflation expectations, as recession fears fade, would initially support riskier market segments like emerging market (EM) stocks and commodities that have been pushed down by deflation concerns. However, these assets could suffer in the longer term if the Fed were seen to be falling behind the curve, raising expectations of sharper rate hikes.

global-snap-shot

Market Insights 3/29/2016

Yellen Comments Give Stocks a Lift

U.S. stocks finished higher, getting a boost on comments from Federal Reserve Chairwoman Janet Yellen in her speech to the Economic Club of New York, while a decline in crude oil prices hurt the gains in the energy sector once again.

Treasuries and gold got a lift from Yellen’s comments, while the U.S. dollar accelerated to the downside.

The Markets…

The Dow Jones Industrial Average rose 98 points (0.6%) to 17,633

The S&P 500 Index added 18 points (0.9%) to 2,055

The Nasdaq Composite rallied 80 points (1.8%) to 4,847

In moderately-heavy volume, 969 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq

WTI crude oil fell $1.11 lower to $38.28 per barrel, wholesale gasoline was $0.02 lower at $1.48 per gallon

The Bloomberg gold spot price jumped $19.24 to $1,240.95 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.9% lower at 95.11

Consumer Confidence improves, Yellen stresses caution in speech

The Consumer Confidence Index rose to 96.2 in March from the upwardly revised 94.0 level in February, where the Bloomberg estimate called for it to remain. Sentiment toward the present situation declined compared to the prior month, while expectations of business conditions rose. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—decreased to -1.2 from the -0.8 posted last month.

The 20-city composite S&P/Case-Shiller Home Price Index showed a gain in home prices of 5.8% y/y in January, versus the Bloomberg expectation of a 5.7% rise. Month-over-month (m/m), home prices were higher by 0.8% on a seasonally adjusted basis for January, above forecasts of a 0.7% increase.

Federal Reserve Chairwoman Janet Yellen delivered her speech to the Economic Club of New York, where she pointed out that the Federal Open Market Committee’s (FOMC) projections for economic growth, unemployment, and inflation are little changed from its estimates that accompanied its monetary policy decision earlier this month. The March decision reminded us that the FOMC continues to be a bit more hawkish than the market, but appeared to be more dovish than the market was expecting.

Yellen added that she considers it appropriate for the FOMC to proceed cautiously in adjusting policy. “This caution is especially warranted because, with the federal funds rate so low, the FOMC’s ability to use conventional monetary policy to respond to economic disturbances is asymmetric,” the Fed Chair stressed. As Brad points out in the above article, the Fed wants to “normalize” policy, but of course remain data dependent, and international developments will likely have a large impact on their ability to move toward that goal. Inflation has ticked higher, but economic growth remains modest, meaning the Fed will continue to try to be gradual in their approach. But given the disconnect with the market, and the divergent global central bank policies, financial market volatility is likely to continue.

Treasuries added to gains on Yellen’s comments to finish higher, as the yield on the 2-year note fell 9 basis points to 0.78%, the yield on the 10-year note declined 8 bps to 1.81%, while the 30-year bond rate lost 6 bps to 2.60%.

The domestic economic calendar for tomorrow will offer the ADP Employment Change Report, forecasted to show private sector jobs increased by 195,000 during March after posting a gain of 214,000 in February, as well as MBA mortgage Applications.

Europe shows late-day resiliency in return to action, Asia mixed

European equities overcame early sluggishness to finish mostly higher, with the region returning to action following the extended Easter holiday weekend, while data in the region was on the light side. However, conviction was likely contained as the global markets awaited today’s speech by Federal Reserve Chairwoman Janet Yellen, and weaker oil prices pressured the energy sector. The euro ticked higher versus the U.S. dollar, while bond yields in the region lost ground. In economic news, Italian consumer confidence unexpectedly improved for March, while a separate read on the nation’s business confidence for this month missed expectations.

Stocks in Asia finished mixed with traders likely moving cautiously ahead of today’s speech by Fed Chair Yellen, while markets in Australia and Hong Kong returned to action following the long Easter holiday weekend. Japanese equities declined, with a majority of stocks trading for the first time after being adjusted for their next dividend payments, per Bloomberg. Stocks found some support from some late-day weakness in the yen and an unexpected rise in Japan’s overall household spending for February. However, separate reports showed the nation’s jobless rate surprisingly ticked higher and retail sales dropped more than expected for last month. With recent moves to tighten property purchase rules by some major cities continuing to weigh on real estate issues, mainland Chinese stocks fell, while those traded in Hong Kong ticked only slightly higher. Elsewhere, weakness in financials pressured Australian stocks, but South Korean listings advanced, while, India’s markets declined ahead of Yellen’s speech and next week’s monetary policy decision from the Reserve Bank of India, which is expected to cut some of its benchmark lending rates by 25 bps.

Market Insights 3/28/2016

Choppy Action in Return to Work

U.S. equities finished nearly where they began the day after returning to action from the Easter holiday break, amid continued uncertainty ahead of a jam-packed domestic economic calendar, headlined by Friday’s labor report, as well as tomorrow’s speech by Fed Chair Janet Yellen.

Treasuries were slightly higher on the heels of some mostly positive economic data, which included Friday’s upbeat 4Q GDP growth revision. Meanwhile, the U.S. dollar was lower, crude oil prices were mixed, and gold was higher.

The Markets…

The Dow Jones Industrial Average ticked 20 points (0.1%) higher to 17,535

The S&P 500 Index gained 1 point (0.1%) to 2,037

The Nasdaq Composite lost 7 points (0.1%) to 4,767

In moderate volume, 706 million shares were traded on the NYSE and 1.4 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.07 lower to $39.39 per barrel, wholesale gasoline was $0.01 higher at $1.50 per gallon

The Bloomberg gold spot price rose $3.24 to $1,220.29 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.2% lower at 95.95

Personal income and spending tick higher

Personal income was 0.2% higher month-over-month in February, above the Bloomberg forecast of a 0.1% gain, while January’s 0.5% increase was unrevised. Personal spending came in 0.1% higher m/m last month, in line with expectations, while January’s 0.5% gain was adjusted to a 0.1% rise. The February savings rate as a percentage of disposable income rose to 5.4% from January’s upwardly revised 5.3% rate. The PCE Deflator dipped 0.1% m/m, matching forecasts. Compared to last year, the deflator was 1.0% higher, in line with estimates. Excluding food and energy, the PCE Core Index was 0.1% higher, compared to expectations of a 0.2% increase, and the index was up 1.7% y/y, versus estimates of a 1.8% gain.

Pending home sales jumped 3.5% m/m in February, versus projections of a 1.2% rise and following the downwardly revised 3.0% drop registered in January. Compared to last year, sales were 5.1% higher, versus forecasts of a 0.4% decline. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which fell more than expected in February.

The Dallas Fed Manufacturing Index rose to -13.6 for March from February’s unrevised -31.8 level with economists forecasting an improvement to -25.8. However, a reading below zero denotes contraction.

Treasuries finished mostly higher, as the yield on the 2-year note was nearly flat 0.87%, while the yields on the 10-year note and the 30-year bond are declined 2 basis points to 1.88% and 2.66%, respectively.

Today’s data will kick off a heavy week for the U.S. economic front, which will yield a plethora of reports with March’s non-farm payrolls release likely garnering much attention, but Friday will also provide another look at the health of the manufacturing sector with the releases of the ISM Manufacturing Index. Given recent market drivers and the fact that major central bank meetings took place this month, we believe three major risks to the rally now are: the return of dollar strength, the return of weakness in oil/commodity prices, and a return of disappointing economic data.

Tomorrow however, investors will get a look at the S&P/Case-Schiller Home Price Index, forecasted to show home prices in the 20-city composite rose 5.8% y/y during January, and were 0.7% higher m/m on a seasonally-adjusted basis, as well as the Consumer Confidence Index, with economists expecting a reading of 94.0 for March, slightly higher than the 92.2 posted in the month prior.

Japanese stocks advance, while mainland China stumbles in light global action

The global market action remained lighter than usual with markets in Europe, Australia, and Hong Kong all continuing to be closed following the long Easter holiday weekend. However, Japanese equities advanced, aided by the extended weakness for the yen on the heels of Friday’s stronger-than-expected read on U.S. 4Q GDP. Also, reports that Japanese Prime Minister Abe is readying a stimulus package ahead of the G7 summit in May likely helped bolster stocks in Japan.

Mainland Chinese stocks finished lower in choppy trading as traders digested an upbeat report on the nation’s industrial profits, which showed a rebound in February to snap a seven-month losing streak. As well, property-related issues saw pressure as some of the nation’s largest cities introduced tighter property purchase rules. South Korean equities dipped, while stocks traded in India also fell, amid some likely posturing ahead of this week’s derivative contract expiration and caution ahead on next week’s monetary policy decision by the Reserve Bank of India (RBA). The RBA is expected to lower some of its benchmark interest rates by 25 bps.

The international economic calendar will be dominated by reports out of Japan, as the island nation is set to report personal income, employment figures, retail sales and personal consumption numbers. Meanwhile from across the pond will come business and consumer confidence from Italy and housing prices from the U.K.

Reason for Recession Worry: Behind U.S. GDP Data

U.S. economic growth slowed in the fourth quarter, but not as sharply as previously estimated, with fairly strong consumer spending offsetting the drag from efforts by businesses to reduce an inventory overhang

On the face of it, the latest government update on how the U.S. economy performed in the fourth quarter looked a bit more encouraging. Growth was revised to a 1.4 percent annualized pace from a previously estimated 1 percent, and the adjustment to gross domestic product was for a good reason — consumer spending rose more than previously thought. GDP growth was initially estimated to have risen at only a 0.7 percent rate. The economy grew at a 2.0 percent pace in the third quarter and expanded 2.4 percent for all of 2015.

Relatively strong consumer spending underscores the economy’s underlying strength and should further allay fears of a recession, which triggered a massive stock market sell-off early this year. That, together with a tightening labor market and rising inflation likely keeps the Federal Reserve on a path to gradually raise interest rates this year. Many feel the consumer is back in the driver’s seat. There is no sign of recession in this data so this will put a smile on Fed officials’ faces and argues for their policy of gradual interest rate normalization to continue.

Consumer spending, which accounts for more than two thirds of U.S. economic activity, rose at a 2.4 percent pace and not the 2.0 percent rate reported last month. More consumption of services than previously estimated accounted for the revision.

Spending is being supported by rising wages as the jobs markets tightens, as well as firming house prices. Gasoline prices around $2 per gallon are also helping to underpin household discretionary spending.

Yet beyond the headline number, there is a reason for some concern. Corporate profits plunged 11.5 percent in the fourth quarter from the year-ago period, the biggest drop since a 31 percent collapse at the end of 2008 during the height of the financial crisis. For 2015 as a whole, pretax earnings fell 3.1 percent, the most in seven years, according to the Commerce Department.

Many experts consider that “bad news,” history shows that when earnings fall, the economy often follows them downward into recession as profit-starved companies cut back on hiring and investment.

There are, however, some caveats to such a gloomy conclusion. Last quarter’s numbers were unusually depressed by a $20.8 billion penalty payment by BP Plc to settle claims over the 2010 oil spill in the Gulf of Mexico. Taking that into account, earnings fell about 7.6 percent, according to Bloomberg calculations. That’s still weak but not as bad as the 11.5 percent slump.

Worth noting is that the decline was heavily concentrated in the petroleum and coal industries, where profits plummeted by more 75 percent in 2015 as energy prices collapsed. That makes it less worrying from the point of view of the overall economy.

But many feel these numbers also likely reflect the beginnings of a profit-margin squeeze driven by tighter labor markets, rising wages and weak productivity. And that is something that is worth watching.

Market Insights 3/24/2016

Slow Day Ahead of Good Friday

In the final trading session of the week the U.S. equity markets were able to shed morning losses and finish fairly flat as crude oil prices, which ultimately closed lower, rebounded in afternoon action to power gains for the energy sector. The U.S. dollar was higher and gold and Treasuries were lower.

All domestic markets will be closed tomorrow in observance of Good Friday.

The Markets….

The Dow Jones Industrial Average advanced 13 points (0.1%) to 17,516

The S&P 500 Index lost 1 point to 2,036

The Nasdaq Composite increased 5 points (0.1%) to 4,774

In moderate volume, 887 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil decreased $0.33 to $39.46 per barrel, wholesale gasoline was $0.02 higher at $1.47 per gallon

The Bloomberg gold spot price lost $3.02 to $1,217.09 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 96.12

Markets were lower for the week, as the DJIA and the Nasdaq Composite decreased 0.5% and the S&P 500 Index lost 0.6%


Mixed bag of economic data

February preliminary durable goods orders declined 2.8% month-over-month (m/m), compared to Bloomberg’s estimate of a 3.0% decrease and January’s downwardly revised 4.2% gain. Ex-transportation, orders fell 1.0% m/m, versus the 0.3% forecasted decline, and January’s unfavorably revised 1.2% increase. Orders for non-defense capital goods excluding aircraft, considered a proxy for business spending, dropped 1.8%, compared to projections of a 0.5% decrease, and following the downwardly revised 3.1% increase in the month prior.

The preliminary Markit U.S. Services PMI Index in March moved back to a level depicting expansion (a reading above 50) improving to 51.0 from 49.7 in February, but shy of forecasts calling for a rise to 51.4. Markit indicated that the new business component of the report registered its lowest reading since the series began, while prices charged rose by the largest m/m margin since November 2015. The release is independent and differs from the Institute for Supply Management’s (ISM) report, as it has less historic value and Markit weights its index components differently.

The Kansas City Fed Manufacturing Activity Index for March improved to -6 from February’s -12 level, with a reading south of zero depicting contraction.

Weekly initial jobless claims grew by 6,000 to 265,000 last week, versus estimates of 269,000 and the prior week’s downwardly revised 259,000. The four-week moving average increased by 250 to 259,750, while continuing claims dropped by 56,000 to 2,179,000.

Treasuries were lower, with yields on the 2-year and 10-year notes and the 30-year bond all gaining 2 basis points to 0.87%, 1.90% and 2.67%, respectively.

All domestic markets will be closed tomorrow in observance of the Good Friday holiday, though the U.S. economic calendar will yield the release of the third and final read on 4Q Gross Domestic Product (GDP), projected to show growth at an annualized 1.0% quarter-over-quarter pace, matching the second revision estimate and after registering 2.0% in 3Q. There will be no update to this report until Monday.

Europe and Asia finish lower

European equities traded broadly lower as some disappointing regional economic reports may have depressed investor sentiment. In the U.K., retail sales fell m/m in February after surging the month prior, though the decline was less than forecasted and the country’s Office for National Statistics said poor weather was responsible for delaying purchases of spring and summer attire. In other regional economic news, import prices in Germany declined by a less-than-forecasted amount and Italian industrial orders increased m/m. Meanwhile, the European Central Bank distributed 7.3 billion euros to banks in the seventh round of a program aimed at boosting lending to companies and consumers, while it also gets ready for a new and more generous plan.

Stocks in Asia dropped as the U.S. dollar extended gains for a fifth-straight day which is bringing the prospect of having higher interest rates in the U.S. back into the spotlight and applying pressure to the mostly dollar-denominated commodity market. Energy producers lead declines in Japan as crude oil prices extended losses and as speculation is mounting that the Federal Reserve may be moving closer to raising U.S. interest rates. The Federal Reserve held steady at its recent meeting, but kept future rate hikes in play. With a tight labor market, inflation rising, and financial markets calming down, we could see a couple of hikes still to come this year.

Stocks trading in mainland China and Hong Kong fell as the slowing of the world’s second largest economy coupled with slumping commodity prices is expected to drag down profits at some of the nation’s largest companies. South Korean equities decreased, though the Chinese government is expected to adjust some taxes in April that would expectantly lift sales for South Korean cosmetics that are currently riding a wave of popularity and are in demand among Chinese customers, per Bloomberg. Finally, Australian securities dropped and India’s S&P BSE Sensex 30 Index was closed for a holiday.

WEEKLY RECAP: Stocks finish short week lower

Domestic equity markets finished the holiday-shortened week lower. In the past four days the U.S. dollar has managed gains, crude oil prices declined and we also received some mixed economic reports as existing home sales tumbled although regional manufacturing reads improved. We feel given recent market drivers and the fact that major central bank meetings took place last week, we believe three major risks to the rally now are: the return of dollar strength, the return of weakness in oil/commodity prices, and a return of disappointing economic data.

Stocks, commodities, and beaten down sectors have staged an impressive rebound as fears of recession have abated. But that doesn’t mean the all clear signal has sounded, and volatility will likely stay elevated. We believe stocks can move modestly higher over the course of the year, but believe investors should be mindful of risks and not become complacent. Earnings will likely play a large part in market movements in the coming months after a couple of quarters of negative earnings growth, with investors looking for any increase in profits momentum.

THE WEEK AHEAD: Next week heavy on data

Next week, the U.S. economic calendar will yield a plethora of reports with the March nonfarm payrolls report likely garnering much attention, but Friday will also provide another look at the health of the manufacturing sector of the economy with the release of the ISM Manufacturing Index and Markit’s final Manufacturing PMI Index.

Other U.S. reports slated for next week include: the Chicago PMI Index, the S&P/Case-Schiller Home Price Index, the Consumer Confidence Index, personal income and spending, construction spending, vehicle sales, and the final University of Michigan Consumer Sentiment Index.

International reports next week include: Australia—private sector credit and new home sales. China—Manufacturing and non-Manufacturing PMIs and the Leading Index. Japan—retail sales, small business confidence, industrial production, vehicle production, housing starts, and 1Q Tankan Index. U.K.—4Q GDP, consumer credit and Index of Services. Germany—CPI and retail sales. Eurozone—consumer confidence and CPI.

Market Insights 3/23/2016

Stocks Close Lower, Energy Leads Losses

U.S. equities finished lower, closing near the lowest levels of the day with the resiliency that was displayed for most of the trading session giving way as crude oil prices continued to trend to the downside.

Treasury yields lost solid ground, as did gold, while the U.S. dollar was higher. In economic news, new home sales increased in February, though weekly mortgage applications declined.

The Markets…

The Dow Jones Industrial Average fell 80 points (0.5%) to 17,503

The S&P 500 Index lost 13 points (0.6%) to 2,037

The Nasdaq Composite decreased 53 points (1.1%) to 4,769

In moderate volume, 862 million shares were traded on the NYSE and 1.7 billion shares changed hands on the Nasdaq

WTI crude oil tumbled $1.66 to $39.79 per barrel, wholesale gasoline was $0.05 lower at $1.45 per gallon

The Bloomberg gold spot price fell $27.71 to $1,220.61 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 96.08

New home sales increase, weekly mortgage applications decline

New home sales increased 2.0% month-over-month in February to an annual rate of 512,000 from January’s upwardly revised 502,000 pace, and compared to the Bloomberg forecast of 510,000. The median home price increased 2.6% y/y to $301,400. The supply of new home inventory remained at 5.6 months at the current sales pace as m/m declines in the Northeast, Midwest and South were more than offset by large gains in sales out of the West. New home sales are based on contract signings instead of closings.

The MBA Mortgage Application Index declined 3.3% last week, after ticking 3.3% lower in the previous week as well. The decrease came as a 4.9% fall in the Refinance Index coupled with a 1.0% downward move for the Purchase Index. The average 30-year mortgage rate ticked 1 basis point lower to 3.93%.

Treasuries finished nicely higher, with yield on the 2-year note declining 4 bps to 0.85%, while the yields on the 10-year note and the 30-year bond decreased 6 bps to 1.88% and 2.66%, respectively.

Please note: The domestic bond markets will be closing early tomorrow at 2:00 p.m. ET, and all U.S. markets will be shuttered the following day in observance of the Good Friday holiday.

Tomorrow, the domestic economic calendar will bring the release of preliminary February durable goods orders, projected to fall from January’s 4.7% m/m gain and drop 3.0%. Excluding transportation, orders are projected to decrease 0.3%, following the prior month’s 1.7% gain. Demand for non-defense capital goods excluding aircraft is forecasted to decline 0.5%, after January’s 3.4% increase.

Europe and Asia mostly lower

European equity markets were unable to hold modest early gains and finished mixed, but mostly lower, with pressure stemming from energy producers and banks to foil an attempt at reclaiming yesterday’s losses that formed after the deadly terror attacks in Brussels. On the heels of the attacks and with Britain’s referendum on the European Union (EU) exactly three months away, the U.K. Defense Secretary relayed remarks that it’s not the time to be walking away from the EU. Bank of England Governor Mark Carney declared an exit vote as the biggest domestic risk to financial stability for the island nation. In Germany, stocks rose as investors digested the Finance minister’s 2017 budget, with the draft showing plans to boost the nation’s defense and infrastructure spending as part of a proposed increase in government outlays. In light regional economic news, Italian wages unexpectedly ticked higher.

Stocks in Asia, though mostly lower, displayed some resiliency in the wake of the reported terrorist attacks at a Metro station and the main airport in Brussels. Securities trading in mainland China advanced, while those trading in Hong Kong dipped as recent statements by the People’s Bank of China Governor regarding his commitment to reforms, and Premier Li’s assurances that the country will avoid a hard landing, have helped to improve sentiment in the region. Japanese equities finished to the downside with machinery and oil stocks leading the decline, while a measure of volatility for the Japanese index neared its lowest level of this year. South Korean stocks ticked lower, though the won retreated from a three-month high as a more hawkish tone from the U.S. Federal Reserve and the recent terror attacks in the Belgium capital have boosted demand for safe-haven assets. The Federal Reserve held steady at its recent meeting, but kept future rate hikes in play. With a tight labor market, inflation rising, and financial markets calming down, we could see a couple of hikes still to come this year. Finally, Australian shares decreased and Indian stocks were nearly unchanged.

Tomorrow, the international economic docket will include retail sales from the U.K., the Import Price Index and the GfK Consumer Confidence report from Germany, industrial orders and retail sales from Italy and business confidence from France.

Market Insights 3/22/2016

Terrorist Attacks Dampen Sentiment

U.S. equities finished mixed and nearly the flatl, as news of a series of deadly terrorist attacks in Brussels was too much for upbeat global manufacturing data.

Treasuries reversed course and finished nearly unchanged, while gold and the U.S. dollar were higher, and crude oil prices were mixed.

The Markets..

The Dow Jones Industrial Average fell 41 points (0.2%) to 17,583

The S&P 500 Index lost 2 points (0.1%) to 2,050

The Nasdaq Composite increased 13 points (0.3%) to 4,822

In moderate volume, 838 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil inched $0.07 lower to $41.45 per barrel, wholesale gasoline was $0.04 higher at $1.50 per gallon

The Bloomberg gold spot price rose $3.91 to $1,247.66 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 95.67

Manufacturing reports show a rebound

The preliminary Markit U.S. Manufacturing PMI Index for March ticked slightly higher to 51.4 from February’s 51.3 level, but below the 52.4 that economists surveyed by Bloomberg were forecasting, with a reading above 50 denoting expansion in activity.

The Richmond Fed Manufacturing Activity Index unexpectedly moved solidly into expansion territory (a reading above zero), jumping to 22 in March—the highest since early 2010—from the -4 posted in February, while economists had expected a reading of zero.

Treasuries finished nearly unchanged, as the yields on the 2-year note and the 30-year bond were flat at 0.88% and 2.72%, respectively, while the yield on the 10-year note ticked 1 basis point (bp) higher to 1.93%.

Housing data will dominate tomorrow’s economic calendar, with February new home sales expected to show a 3.2% increase to an annual rate of 510,000 units, as well as MBA Mortgage Applications.

Europe mixed following explosions in Brussels, Asia sees another quiet session

European equities were able to pare back solid early losses and finish mixed following explosions at the main airport in Brussels and at Metro stations in the area, acts that are being reported as terrorist attacks, with airline and travel & leisure stocks leading the way downward. The events overshadowed a busy day of economic data, with the Markit Eurozone Manufacturing PMI Index coming in above expectations, with those in Germany and France only slightly lower, while Germany’s Ifo Business Climate Index was above forecasts, increasing for the first time in four months.

Retail sales in the U.K. showed an increase that was in line with forecasts and the nation’s net borrowing expanded, coming off a shrinkage last month, while inflation data came in cooler than expected. The mostly positive data is a key driver to the rally that has ensued in the global markets since November. Lastly, the euro was lower versus the U.S. dollar, while bond yields in the region fell.

Stocks in Asia diverged in another quiet session, amid mixed signals from China’s banking regulators regarding a prudent framework. Japanese equities returned to action after yesterday’s holiday, posting a solid increase amid a reprieve from strength in the yen as of late, and following a Yomiuri newspaper report that quoted a top official saying a scheduled tax hike for next April may be delayed. The move upward came despite the nation’s manufacturing PMI index, as measured by Markit, unexpectedly fell into contraction territory.

Mainland Chinese equities and those traded in Hong Kong Hang Seng Index ticked lower following conflicting messages from China’s banking regulator, which is said to be recommending processes for banks to curb risks, while at the same time, is contemplating a cut to the minimum bad loan coverage ratios for some of the country’s largest banks. Meanwhile, Australia’s markets finished lower, with resource-related stocks leading the way, while South Korean and Indian listings were higher.

Market Insights 3/21/2016

Stocks End Slightly Higher

U.S. equities were able to finish with modest gains in choppy action after a disappointing existing home sales report and remarks from Atlanta Federal Reserve President Dennis Lockhart that a rate hike was possible in April of this year tempered enthusiasm surrounding a number of M&A activity.

Treasuries were lower, the U.S. dollar and crude oil prices were higher, while gold was lower.

The Markets…

The Dow Jones Industrial Average advanced 22 points (0.1%) to 17,624

The S&P 500 Index added 2 points (0.1%) to 2,052, sectors leading the way higher include Industrials +.59%, HealthCare +.58% and Materials +.46%, while Energy -.35% and Financials -.18% lost ground.

The Nasdaq Composite increased 13 points (0.3%) to 4,809

In moderate volume, 836 million shares were traded on the NYSE and 1.6 billion shares changed hands on the Nasdaq

WTI crude oil rose $0.38 to $41.52 per barrel, wholesale gasoline was $0.03 higher at $1.46 per gallon

The Bloomberg gold spot price lost $11.12 to $1,244.28 per ounce

The Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% higher at 95.33

Existing home sales unexpectedly tumble

Existing-home sales in February tumbled 7.1% month-over-month to a 5.08 million annual rate—the slowest pace in three months—compared to the Bloomberg forecast of a decrease to a 5.30 million pace. January’s figure was revised slightly higher to a 5.47 million annual rate. Sales were 2.2% higher y/y. The median existing-home price was 4.4% higher versus a year ago at $210,800, and housing supply came in at a 4.4-month pace at the current sales rate. Sales were down in all four regions, with notable declines of 17.1% and 13.8% in the Northeast and Midwest, respectively. National Association of Realtors (NAR) chief economist Lawrence Yun said, “The question is, is this the beginning where home buyers are beginning to show resistance to higher prices or is this a one-month fluke in the data. Now we are seeing fewer renters interested in buying. They’re indicating affordability is an issue.”

Treasuries were lower, as the yields on the 2-year and 10-year notes, as well as the 30-year bond, all rose 3 basis points (bps) to 0.87%, 1.92% and 2.72%, respectively. Bond yields have been volatile on the heels of last week’s monetary policy decision from the Fed, where it reminded us that it continues to be a bit more hawkish than the market, but appeared to be more dovish than the market was expecting.

While the U.S. markets will be limited to four trading sessions this week with the observance of the Good Friday holiday, data will remain plentiful as tomorrow’s U.S. economic calendar will give investors a read on the manufacturing sector, beginning with Markit’s preliminary business activity report, with economists expecting an increase in March to a level of 52.4 from the 51.0 posted in February, with a reading above 50 indicting expansion in activity, as well as the Richmond Fed Manufacturing Index, forecasted to move higher to a reading of zero, the demarcation point between expansion and contraction, from a reading of -4 the month prior.

Europe mostly lower amid lack of catalyst, Asia mixed in quiet session

European equities pared early gains and finished mostly lower, as some potential M&A activity in the chemical space was offset by the disappointing housing report out of the U.S. Data was on the light side, with the lone major economic report showing the Eurozone current account balance fell slightly from the prior month’s level. However, the global markets continue to grapple with the global monetary policy landscape after last week’s monetary policy meetings from the European Central Bank and the Bank of England. The euro was lower against the U.S. dollar, while bond yields in the region fell.

Stocks in Asia finished mixed in a subdued session, with little news to sway investors, while volume was lighter than usual with markets in Japan closed for a holiday. Mainland Chinese shares rallied to a two-month high after a report that policy makers are relaxing rules on margin lending, but the issues traded in Hong Kong shrugged off the news, barely notching a gain for the day. Australian equities finished lower, with resource-related stocks leading the way, amid a decline on crude oil prices, and markets in South Korea declined, while stocks in India advanced to a ten-week high, getting a boost from lenders and property developers amid speculation that the Reserve Bank of India will cut rates after the government lowered rates on small savings plans.

The international economic calendar for tomorrow will offer the Markit Manufacturing PMI Index for Japan, as well as across Europe, while the island nation will also report the All Industry Index, Germany will release the Ifo Business Climate Index and the Zew Economic Sentiment Survey, and the U.K. will post PPI, CPI, public sector net borrowing and the Retail Sales Index.