Typically, a hangover is a bad thing, but given the soft Jobs report from a week ago this hangover has been a win-fall for markets!
US Data
Federal Reserve Board (FRB) chair, Janet Yellen, made comments that omitted the term “in the coming months” when discussing a rate hike. This omission gives investors the idea that she realizes that risks in the job market may warrant a delay in rate increases. The next day API weekly crude oil stocks drew down more for the week than expected. Wednesday brought a strong JOLT’s report, with 5.788M job openings[1]. The market advanced well through the first three days of the week, just to give it all back on the last two days.
Late in the week oil prices retreated and as the tandem between oil and stocks has been, stocks followed course.
International Data
In addition to oil prices, ‘Brexit’ seems to be causing more concerns. Polling is swaying back in forth between staying and leaving, making the vote very hard to judge. At this point, the outcome is completely indiscernible, with current polling leaning towards a Brexit.
The bond buying program that the European Central Bank (ECB) announced months ago, got under way this past week. This sent yields to low levels as the program created additional demand.
Mario Draghi has become tired of carrying the weight of the economic weakness in the Eurozone and was vocal about it this last week. While the ECB has made many efforts to stimulate the economy, the process is most effective when legislative action to loosen fiscal policy accompanies ECB monetary policy; such as, alleviating tax burdens and increasing spending that would create jobs.
Japan continues to struggle with a strengthening Yen. Much like the US did in 2015, Japanese equity markets have struggled year to date to overcome the strength of the Yen.
Conclusion
The markets climb early in the week was likely an over-reaction to Janet Yellen’s dovish statement. There was a certain level of price appreciation that would come with the FRB not raising rates in coming months. That may well have been exhausted at this point. Things should refocus this week on economic data.
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[1] www.investing.com – economic calendar