Markets started the week as they had the prior 2 weeks… Plummeting oil, and continued turbulence out of China. Halfway through the week, markets turned and gave us our first back-to-back gains for 2016.
Data was mixed on the week:
- Building Permits, -3.9%, down from 11%
- Core CPI, 2.1% year over year
- Housing starts, -2.5%, down from 10.1%
- Existing home sales, 14.7% MoM
- Manufacturing, 52.7 up from 51.2
Mario Draghi, president of the European Central Bank, made the following statement… “We are not surrendering… we will confirm our determination to continue to comply with our mandate even in the face of adverse developments.” It almost sounds as though he is talking about war. Regardless it sounds inspiring and that is exactly what it did. Draghi’s statements caused a rebound in oil prices and subsequently stock prices.
German current conditions improved to 59.7 from 55.0, CPI remained near zero, at 0.2% annualized. Manufacturing PMI expanded at a rate of 52.3 and Services PMI came in at 53.6. While both rates were moderations from the prior month they still represent expansion.
GDP for China during the 4th quarter came in at 6.8% annualized and 6.9% for 2015. This is the lowest level of annual GDP for China since 1990, yes 1990. Yet their GDP is 6.8%, a massive rate given they are the second largest economy in the world. Their rate of growth, while moderating is still healthily expansionary.
It is still to be determined if the turn in sentiment last week will grab hold. What is clear is that with softening global data the markets are exceedingly sensitive to central bank actions.
Janet Yellen should take a cue from Mario Draghi. The market has begun to back off pricing leaving many to believe that the Federal Reserve Board (FRB) may only raise rates one more time this year as the global slowdown has begun to take a toll on the US.
Some analysts have begun to call for the resurgence of the bull market based on the FRB deciding to back off there rate hiking stance. If there is truth to that thought, it will take a while for the economic damage to be reversed. Should it happen, it could lead us to a longer expansion than anyone would have anticipated.
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