Market Update: Thursday, September 29, 2016

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  • Markets drift lower following OPEC deal. U.S. stocks are retracing some of yesterday’s gains in early trading, as is WTI crude oil ($47/barrel) after yesterday’s more than 5% spike on news that OPEC has reached a production cap agreement. The energy sector jumped more than 4% on the report, by far the best performer on the day, leading the S&P 500 to a 0.6% gain. Asian markets closed their session mostly higher overnight, led by the Nikkei (+1.4%) amid a drop in the yen; European equities are also climbing, with major markets moving up about 1% as energy stocks rally on the OPEC agreement. Treasury yields are adding to yesterday’s bounce, with the yield on the 10-year Note back up to 1.58%, and COMEX gold is little changed at $1,324/oz.

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  • OPEC agrees to agree. Consistent with the rumors that had been circulating for a few days, a framework for actual production cuts from OPEC, as opposed to just a production freeze, has come out of Algeria. Any decision will need to be ratified at the formal OPEC meeting in November. But the possibility of production cuts caused oil and energy companies around the globe to rally. It’s a step in the right direction for those who own these investments, but there are a lot of details to work out between now and then. The two most pressing issues are: whether Iran will be included in any cuts, or be allowed to increase production, and whether Russia will participate in any changes to oil production.
  • Another decent move in equities. The S&P 500 continued its recent string of moves of at least half a percent, with a gain of 0.53% yesterday. This is now six straight days of a daily close of at least half a percent (up or down), the longest streak since six in a row around the Brexit vote. There were only five half a percent moves in August, while September has had 10 with two days to go. Remember, the next month or so is one of the historically most volatile times of the year.
  • A look at sentiment. The American Association of Individual Investors (AAII) saw the number of bulls in this week’s poll drop to 24% – the lowest since right before the Brexit vote. Incredibly, the bulls have now been beneath the long-term average of 38.5% for a record 47 straight weeks. According to the ICI, there have been outflows from domestic equity mutual funds for a record 30 consecutive weeks. Looking at mutual funds and ETFs, so far this year $87 billion has been pulled out of domestic funds. Safe to say investors are still rather cautious of equities here.
  • Little new on monetary policy as Yellen addresses Fed’s regulatory role. Federal Reserve Bank (Fed) Chair Janet Yellen testified yesterday before the House Financial Services Committee on the Fed’s regulatory role. While there were some political dust-ups along typical party lines, little new was revealed. Yellen did sound a little more cautious on monetary policy than during her press conference last week, reasserting that there was no fixed timetable for raising rates, but monetary policy was not in focus during the three hour session. The Fed remains likely to raise rates in December despite the added note of caution, but the decision remains data dependent.
  • Jobless claims remain near 40-year low. New jobless claims rose slightly to 254,000 for the week of September 24, lower than consensus expectations of 260,000. Claims continue to add to the picture of a stable labor market and point to low likelihood of a recession in the near term. While not robust, labor markets have reached a point consistent with prior expansions and contribute to the case for a second Fed rate hike over the next several months.
  • Second quarter GDP revised upward on stronger picture for consumer spending, business investment. Second quarter gross domestic product (GDP) growth was revised upward from 1.1% to 1.4% in the most recent estimate, just a shade ahead of expectations of 1.3%. The upward revision reflected strength in consumer spending, but also a more positive picture of the business environment, with non-residential investment accounting for about half of the revision, and upward revisions to exports and a smaller inventory drag also contributing. While the economy slowed overall in the first half of the year, data already received points to improved growth in the second half of the year with the third quarter tracking to near 3%.

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Thursday

  • Pending Home Sales (Aug)
  • Yellen (Dove)
  • Germany: Unemployment Change (Sep)
  • UK: Money Supply and Bank Lending (Aug)
  • Germany: CPI (Sep)
  • Japan: Minutes of the Sep 20-21 BOJ Meeting
  • China: Caixin Mfg. PMI (Sep)
  • Japan: Jobless Rate (Aug)
  • Japan: CPI (Aug)

Friday

  • Chicago Area PMI (Sep)
  • Eurozone: CPI (Sep)
  • China: Official Mfg. PMI (Sep)
  • China: Official Non-Mfg. PMI (Sep)

Saturday

  • Start of New Fiscal Year and Potential US Government Shutdown

Sunday

  • Japan: Tankan Survey (Q3)

Click Here for our detailed Weekly Economic Calendar

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