03|03|2016

Two Weeks in One

Parthenon_1839

The week started with optimism as quarterly earnings were better than expected. The week, however, ended on a sour note…

Monday – Thursday

The week started strong as financial companies reported positive earnings for the most part. Not only financials, but earnings in general have surpassed expectations.

Economic data also supported a market increase, retail sales rose 0.9% in March; the first increase in several months. Housing starts rose 2%[1]. All though an increase, it was a letdown, as it was presumed that March would see a pickup of slack from the February chill.

EU trade balances was favorable reflecting strengthening exports. Improving exports will lend to improving corporate profits for EU companies.

US crude oil inventories fell to 1.294M from 10.949M[2]. This shift in inventories increased optimism that US production is finally slowing, which gave new support to oil prices. Throughout the span from Monday to Thursday the S&P500 touched 2,111.50 briefly Wednesday.

Then there was Friday…

On Friday the wheels came off the bus. Economic data was not the culprit. CPI data showed strengthening for the US and for Europe. This should continue to be the case as oil prices continue to slowly firm. Michigan Consumer Sentiment rose to 95.9 in April[3].

So what drove the fall on Friday? Greece… Standard & Poors reduced the rating for Greek debt to CCC+. S&P cited concerns over their ability to make debt repayments without substantial economic reform. 2 and 10 year Greek debt rates soared to 27% and 13% respectively[4]. As the $ has strengthened against the €, domestic markets have become increasingly more sensitive to activity in Europe. The sensitivity is due to the impact European activity will have on the currency dynamic.

Not coming on Friday, but also of importance is continued softening of China. China reported 1st quarter annualized GDP at 7% on Monday[5]. This could drive to a very dangerous brink in the next 2 years depending on how China decides to handle the Yuan-Dollar peg. Should they support the peg, unprecedented stimulus will be required as the dollar strengthens. This could result in an epic collapse if China’s economy. Should they abandon the peg, there could be a ballooning of emerging market debt as people retreat to the safety of the US. This would further support our low rates[6].

 

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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

 

[1] www.investing.com – Economic Calendar

[2] www.investing.com – Economic Calendar

[3] www.mfs.com – Week in Review

[4] www.mfs.com – Week in Review

[5] www.investing.com – economic calendar

[6] www.oppenheimerfunds.com – The Beginning of the End of the Yuan-Dollar Peg