Mining, Energy and retailers in focus following earnings reports and Yellen comments
The Dow was flat today but it was by no means a quiet day for trading. There has still been a lot of movement in different sectors and individual stocks as traders continue to digest recent political, economic and earnings developments and try to figure out where things are heading.
For example, the technology weighted NASDAQ and the resource weighted S&P/TSX indexes outperformed today Best Buy rallied 11.6% on the back of stellar earnings and same store sales while Cisco fell 5.6% after its earnings report. Resource stocks were mixed with base metal miners rising along with copper prices, gold and silver miners falling with precious metal prices news and energy producers. AUD has been under pressure falling about 1.0% against USD, weaker than other resource currencies like CAD and NZD plus EUR and JPY which are all down about 0.6% against the greenback. GBP is holding up better following a smashingly positive UK retail sales report.
The oil price was up and down through the day as traders continue to speculate on the prospects of a production cut deal with the big November 30th meeting now less than two weeks away. Traders continue to speculate on the prospects of an early deal, but I expect negotiations to go right down to the wire as they pretty much always do. Reports that North Dakota (shale) production fell to a two year low may also be providing support. The International Energy Agency indicated US shale production could come back at a price of about $60 which is higher than the low $50s where recent rallies have been capped.
Another flurry of Fed speakers came and went today with no changes to expectations for a December interest rate hike with the lowest weekly jobless claims reading since 1973 adding to the case. Fed Chair Yellen’s speech left the door open to a December move but also suggested follow in increases may be more gradual than traders are currently thinking. The US dollar index still up above 100.00 suggests four increases over the next month while the hikes prices in before the election when the Dollar Index was back at 95.00 remains more realistic at the moment.
Dr. Yellen indicated that she plans to stay on until the end of her term which ends in January 2018. Although President-Elect Trump had criticized the Fed through the campaign and indicated he plans to replace Chair Yellen at the end of her term, by staying on now and not quitting, she provides some stability and consistency on the monetary side while changes are being made on the political and fiscal side. This could be seen as a positive by the markets for the time being.
Interestingly, Lael Brainard, leader of the dovish faction at the Fed who threw a bucket of ice on speculation for a September rate hike didn’t say anything about monetary policy today in her speech on changes in employment. This can be seen as another sign a December rate hike is coming unless something major happens.
There is another flurry of Fed speakers Friday who could influence speculation on how many rate increases we could see in 2017. Meanwhile, the higher dollar has put a headwind in front of stocks because of its potential negative impact on US exports and corporate earnings, just as we saw ahead of last year’s December rate increase.
Between traders digesting the big moves of the last week and the US Thanksgiving holiday approaching next week, we could see more of a focus on individual stocks and sectors and specific markets in the coming days as traders work out who could be the winners and losers through this period of change.
There have been no major announcements after the US close today.
Significant announcements released overnight include:
US consumer prices 1.6% as expected
US core CPI 2.1% vs street 2.2%
US real average weekly earnings 0.9% vs previous 0.8%
US jobless claims 235K vs street 257K
US housing starts 1,323K vs street 1,159K
US building permits 1,229K vs street 1,195K
US Philadelphia Fed 7.6 vs street 7.8
US natural gas storage 30 BCF vs stret 28 BCF
UK retail sales 7.4% vs street 5.3% vs previous 4.1%
UK retail ex auto 7.6% vs street 5.4% vs previous 4.0%
Eurozone consumer prices 0.5% as expected
Eurozone core CPI 0.8% as expected
Eurozone construction output 1.8% vs previous 0.9%
Upcoming significant economic announcements include:
(Note: 11:30 am in Sydney/Melbourne is currently 1:30 pm in Auckland, 4:30 pm in Vancouver, 7:30 pm in Toronto/Montréal, 12:30 am in London and 8:30 am in Singapore)
11:00 am AEDT NZ ANZ consumer confidence previous 122.9
7:00 am BST Germany producer prices street (0.9%) vs previous (1.4%)
8:30 am EST Canada consumer prices street 1.5% vs previous 1.3%
8:30 am EST Canada core CPI street 1.8%
5:30 am EST FOMC Bullard speaking
9:30 am EST FOMC George speaking
9:30 am EST FOMC Dudley speaking
1:30 pm EST FOMC Kaplan speaking
9:45 pm EST FOMC Powell speaking