Market and Economic Commentary - Week Ending 01/24/2020
Market and Economic Commentary - Week Ending 01/24/2020
Market Recap – Key Take-Aways for the Week
Virtually all stock market and commodity indexes around the
world declined last week. There was a flight to safety as the safe-haven
Utilities, Government Bonds and Precious Metals were about the only asset
classes to rise for the week.
Two significant and troubling things happened last week. The
first was a large rise in the VIX, also known as the “Fear Gage. The second was
a large drop in the Baltic Dry Index.
The CBOE Volatility Index (VIX)
was up 20.33% for the week and was by far the largest increase in any asset
class for the week. The large increase in the VIX was a significant development
in the markets this week, as there has been a lack of fear or complacency in
the markets for quite some time. The Volatility Index (or VIX) is created by
the Chicago Board Options Exchange. The VIX represents the market’s expectation
of the 30-day forward looking volatility. It is derived from the price inputs
of the S&P 500 index put and call options and provides a measure of market
risk and investors’ sentiments. It is also known as the “Fear Gage” and the
“Fear Index”. While the calculation for the VIX is complicated, suffice to say
that it is measures Traders fear level for the S&P price level 30 days out.
The higher the VIX, the greater the fear of a decline. The increase in the VIX,
coupled with the flight to the relatively safety of Utilities and US Treasury
Notes this week, indicates a spike in fear in the markets. The reasons may
become more apparent in the upcoming days and weeks.
The Baltic Dry was down an extraordinary 26.13% for the
week. The Baltic Dry Index is a shipping and trade Index which measures the
cost of transporting various raw materials such as coal and steel. Recent
reports suggest that container shipments may drop for the first time in a
decade as global economic activity slows.For now, the global decline in the markets last week will be viewed as normal profit taking, and fear surrounding the Coronavirus originating in China.
I will be keeping a close eye on both the VIX and Baltic Dry. The other thing I’m watching closely is the 5 Year/10 Year US Treasury Yield Curve. If the Yield Curve inverts and shorter-term interest rates move higher than longer-term rates, the alarm bells will start ringing. An inverted yield curve is usually a sign of an upcoming recession.
Returns in the Markets for the week ending 01/24/2020 were
as follows:
The Dow Jones Industrial Average is down 1.22% for the week.
The S&P 500 is down 1.03%, the NASDAQ index is down 0.79%, and the US
Small-Cap index is down 2.37%.
US Sectors
Looking at US Sectors ETFs,
Utilities are up 2.40% for the week. Real Estate is up 1.01% and Technology is
up 0.32%, The rest of the sectors are down for the week including Energy down
4.23%, Materials down 2.29%, Financials down 2.06%, Healthcare down 1.94%,
Communication Services down 1.75% Consumer Discretionary down 1.59%,
Industrials down 1.02%, and Consumer
Staples down 0.36%.
Global Market ETFs
The
ACWI all-country World index EX US is down 1.28%for the week. China is down is
down 6.12% for the week, indicating that a problem may be brewing there. Chile
is down 4.87%, Thailand is down 4.06%, Saudi Arabis is down 2.97%, Russia is
down 2.67%, Malaysia is down 2.67%, Poland is down 2.46%, Singapore is down
2.36%, Taiwan is down 2.34%, Spain is down 2.25%, France is down 2.15%, Italy
is down 2.03%, South Africa is down 1.90%, the Philippines are down 1.89%,
South Korea is down 1.78%, Indonesia is down 1.77%, Sweden is down 1.75%, India
is down 1.63% Turkey is down 1.51%, Netherlands is down 1.29%, and Australia is
down 1.15%.The rest of the world countries were down less than 1% for the week.
There were only 2 countries up for the week, Israel up 0.83% and New Zealand up
0.34%.
Commodities
Most
Commodities were down for the week. Significant movers were:
In Energy
– Crude Oil down 7.40%, Brent Crude down 6.46%, Natural Gas down 5.71%,
Gasoline down 6.16%, and Heating Oil down 6.59%.
In
Precious Metals – Gold was up 0.99%, Silver was up 0.56%, and Platinum was down
1.61%.
In
Agriculture – Soybeans were down 3.18%, and Rubber was down 6.18%.
In
Livestock – Beef was down 3.01%, Poultry was down 6.45%, and Feeder Cattle was
down 3.42%.
In
Industrial Metals – Rhodium was up 16.10%. Copper was down 5.69%, Steel was
down 3.96%, Coal was down 4.13%, Tin was down 4.64%, Zinc was down 3.34%, and
Nickel was down 6.97%.
In
the Commodity Indexes – The CRB Index was down 3.87%, the LME Index was down
3.46 and the S&P GSCI Index was down 4.81% for the week.
Bond
Market
In
the bond market, the 10-year us treasury interest rate went 1.825% on January 17th to 1.676% on January 24th for
a percentage drop of 7.62% for the week.
Currencies
In
currencies, the US Dollar DXY Index went from 97.359 on January 17th
to 97.650 on January 24th
Other
Significant Events
US Stocks Slump on Friday
Wall Street closed deeply in the red, as a second case of coronavirus was confirmed. On Friday, US Senator John Barrasso said a third case of the Wuhan virus may be confirmed as well. Stocks were mainly dragged by United Airlines, American, Las Vegas Sands and Wynn Resorts. The Dow Jones lost 170 points or 0.6% to 28990. The S&P 500 retreated 30 points or 0.9% to 3296. The Nasdaq shed 88 points or 0.9% to 9315.
Wall Street closed deeply in the red, as a second case of coronavirus was confirmed. On Friday, US Senator John Barrasso said a third case of the Wuhan virus may be confirmed as well. Stocks were mainly dragged by United Airlines, American, Las Vegas Sands and Wynn Resorts. The Dow Jones lost 170 points or 0.6% to 28990. The S&P 500 retreated 30 points or 0.9% to 3296. The Nasdaq shed 88 points or 0.9% to 9315.
Gasoline Prices Slump to 4-Month Low
US gasoline prices plunged as much as 3.4% to $1.5 per gallon around 12:30 PM NY time on Friday, a level not seen since September 2019, after the latest EIA data showed inventories in the US build even as demand kept subdued.
US gasoline prices plunged as much as 3.4% to $1.5 per gallon around 12:30 PM NY time on Friday, a level not seen since September 2019, after the latest EIA data showed inventories in the US build even as demand kept subdued.
Gold
Rebounds after Weak US Manufacturing Data
Gold prices reversed early losses on Friday after manufacturing PMI for the world’s biggest economy came lower-than-expected. Also, investors seek safe-haven assets on deepening fears about the outbreak of a deadly new coronavirus. Gold prices rose to a two-week high of $1,573 an ounce around 12:30 PM NY time.
Gold prices reversed early losses on Friday after manufacturing PMI for the world’s biggest economy came lower-than-expected. Also, investors seek safe-haven assets on deepening fears about the outbreak of a deadly new coronavirus. Gold prices rose to a two-week high of $1,573 an ounce around 12:30 PM NY time.
Baltic
Index Hits Lowest Since 2016
The Baltic index, which measures the cost of shipping goods around the world, slumped 19 points, or 3.3%, to 557 points on Friday, a level not seen since April 2016, as weaker demand was reported for all vessel categories. Higher fuel costs under the new International Maritime 2020 regulations led to a significant rise in the cost of operating cargo ships.
The Baltic index, which measures the cost of shipping goods around the world, slumped 19 points, or 3.3%, to 557 points on Friday, a level not seen since April 2016, as weaker demand was reported for all vessel categories. Higher fuel costs under the new International Maritime 2020 regulations led to a significant rise in the cost of operating cargo ships.
US Crude Falls Nearly 2%
WTI crude oil slumped as much as 2.5% to $54.26 a barrel around 12:30 PM NY time on Friday, a level not seen since October 31st, as investors are concerned about the impact of coronavirus from China on economic growth and oil demand. Chinese authorities have imposed restrictions on transport, public events and tourist attractions in an unprecedented effort to contain the outbreak of the deadly new virus. Keeping a floor on prices, EIA data Thursday showed crude stocks decreased 405,00 barrels last week. Brent crude dropped as much as 2.4% to $60.48 a barrel.
WTI crude oil slumped as much as 2.5% to $54.26 a barrel around 12:30 PM NY time on Friday, a level not seen since October 31st, as investors are concerned about the impact of coronavirus from China on economic growth and oil demand. Chinese authorities have imposed restrictions on transport, public events and tourist attractions in an unprecedented effort to contain the outbreak of the deadly new virus. Keeping a floor on prices, EIA data Thursday showed crude stocks decreased 405,00 barrels last week. Brent crude dropped as much as 2.4% to $60.48 a barrel.
US Private Sector Output Grows the Most in 10 Months
The IHS Markit US Composite PMI rose to 53.1 in January 2020 from 52.7 in the previous month and above market expectations of 52.5, a preliminary estimate showed. The latest reading pointed to the quickest rise in output since last March, as service sector expanded at a faster pace (PMI at 53.2 vs 52.8 in December) while manufacturing growth eased to a three-month low (PMI at 51.7 vs 52.4 in December). New business increased at a slower rate amid a decline in exports, while employment rose the most since last July. On the price front, input cost inflation hit a seven-month high, while average output charge inflation slowed from December’s ten-month high. Looking ahead, business sentiment was the strongest for seven months.
The IHS Markit US Composite PMI rose to 53.1 in January 2020 from 52.7 in the previous month and above market expectations of 52.5, a preliminary estimate showed. The latest reading pointed to the quickest rise in output since last March, as service sector expanded at a faster pace (PMI at 53.2 vs 52.8 in December) while manufacturing growth eased to a three-month low (PMI at 51.7 vs 52.4 in December). New business increased at a slower rate amid a decline in exports, while employment rose the most since last July. On the price front, input cost inflation hit a seven-month high, while average output charge inflation slowed from December’s ten-month high. Looking ahead, business sentiment was the strongest for seven months.
US Services Sector Grows the Most in 10 Months
The IHS Markit US Services PMI rose to 53.2 in January 2020 from 52.8 in the previous month, above market expectations of 52.9, a preliminary estimate showed. The latest reading pointed to the strongest pace of expansion in the service sector since last March, as employment increased the most in six months while new order growth eased. In addition, business optimism reached a seven-month high, still remaining well below the series trend. Finally, input prices rose the most since last July and output charges were raised only at a modest pace.
The IHS Markit US Services PMI rose to 53.2 in January 2020 from 52.8 in the previous month, above market expectations of 52.9, a preliminary estimate showed. The latest reading pointed to the strongest pace of expansion in the service sector since last March, as employment increased the most in six months while new order growth eased. In addition, business optimism reached a seven-month high, still remaining well below the series trend. Finally, input prices rose the most since last July and output charges were raised only at a modest pace.
US Manufacturing Growth at 3-Month Low: PMI
The IHS Markit US Manufacturing PMI fell to 51.7 in January of 2020 from 52.4 in December, below market expectations of 52.5. It was the the slowest increase in factory activity in three months, flash figures showed. Although output continued to rise at a moderate pace, new business growth was only marginal as both domestic and foreign client demand softened. Employment continued to rise albeit at the slowest pace for four months. The softer rise in employment coincided with signs of easing capacity pressures, with January seeing the first fall in backlogs for four months. At the same time, price pressures eased as a weaker increase in cost burdens occurred alongside only a fractional rise in factory gate charges.
The IHS Markit US Manufacturing PMI fell to 51.7 in January of 2020 from 52.4 in December, below market expectations of 52.5. It was the the slowest increase in factory activity in three months, flash figures showed. Although output continued to rise at a moderate pace, new business growth was only marginal as both domestic and foreign client demand softened. Employment continued to rise albeit at the slowest pace for four months. The softer rise in employment coincided with signs of easing capacity pressures, with January seeing the first fall in backlogs for four months. At the same time, price pressures eased as a weaker increase in cost burdens occurred alongside only a fractional rise in factory gate charges.
Dollar at Near 2-Month High
The dollar index was trading up as much as 0.2% surpassing 97.85 around 6:30 AM New York time on Friday, a level not seen since December 2nd as ECB and BoE remain dovish and China is struggling in controlling the spread of coronavirus. Yesterday, ECB President Lagarde said during the press conference that risks to Euro Zone growth remained on the downside which was confirmed today by a release of weaker than expected business activity data. Also, some investors still expect an interest rate cut by the Bank of England next week despite significant improvement in manufacturing and services PMI.
The dollar index was trading up as much as 0.2% surpassing 97.85 around 6:30 AM New York time on Friday, a level not seen since December 2nd as ECB and BoE remain dovish and China is struggling in controlling the spread of coronavirus. Yesterday, ECB President Lagarde said during the press conference that risks to Euro Zone growth remained on the downside which was confirmed today by a release of weaker than expected business activity data. Also, some investors still expect an interest rate cut by the Bank of England next week despite significant improvement in manufacturing and services PMI.
Copper
Declines to Over 7-Week Low
Copper dropped to the lowest level since December 5th on Friday and was on track for its biggest weekly loss in nearly 19 months amid concerns that coronavirus may spread further and impact the growth of China’s economy. Copper prices fell as much as 2% to $2.68 per pound around 12:30 PM NY time.
Copper dropped to the lowest level since December 5th on Friday and was on track for its biggest weekly loss in nearly 19 months amid concerns that coronavirus may spread further and impact the growth of China’s economy. Copper prices fell as much as 2% to $2.68 per pound around 12:30 PM NY time.
US Jobless Claims Rise Less than Expected
The number of Americans filling for unemployment benefits increased by 6 thousand to 211 thousand in the week ended January 18th from the previous week’s revised level of 205 thousand and compared with market expectations of 211 thousand. The Labor Department said claims for Alabama, California, Delaware, Hawaii, Kansas, Puerto Rico and Virginia were estimated because of Monday's Martin Luther King holiday. The 4-week moving average was 213,250, a decrease of 3,250 from the previous week's revised average of 216,500. According to unadjusted data, the biggest rises were seen in Illinois (+2,128), California (+1,226) and Washington (+525) while the largest declines were reported in Pennsylvania (-10,127), Georgia (-10,028) and Texas (-6,515). Meantime, continuing jobless claims decreased by 37 thousand to 1731 thousand.
The number of Americans filling for unemployment benefits increased by 6 thousand to 211 thousand in the week ended January 18th from the previous week’s revised level of 205 thousand and compared with market expectations of 211 thousand. The Labor Department said claims for Alabama, California, Delaware, Hawaii, Kansas, Puerto Rico and Virginia were estimated because of Monday's Martin Luther King holiday. The 4-week moving average was 213,250, a decrease of 3,250 from the previous week's revised average of 216,500. According to unadjusted data, the biggest rises were seen in Illinois (+2,128), California (+1,226) and Washington (+525) while the largest declines were reported in Pennsylvania (-10,127), Georgia (-10,028) and Texas (-6,515). Meantime, continuing jobless claims decreased by 37 thousand to 1731 thousand.
US Existing Home Sales Rise to Near 2-Year High
Sales of previously owned houses in the US increased 3.6 percent from the previous month to a seasonally adjusted annual rate of 5.54 million units in December 2019, above market expectations of a 1.3 percent rise. It is the highest level since February 2018. Sales of single family homes went up 2.7 percent to 4.92 million in December and sales of condos surged 10.7 percent to 0.620 million. The median house price stood at $274,500 in December, up 7.8 percent from last year's level and the most since January 2016. There were 1.40 million houses available; at December's sales pace, it would take 3.0 months to clear the current inventory, down from 3.7 months in November. In 2019, total existing-home sales ended at 5.34 million, the same level as in 2018, as sales in the South region (+2.2 percent) offset declines in the West (-1.8 percent) and Midwest (-1.6 percent), as the Northeast remained unchanged. House prices increased 4.8 percent in 2019.
Sales of previously owned houses in the US increased 3.6 percent from the previous month to a seasonally adjusted annual rate of 5.54 million units in December 2019, above market expectations of a 1.3 percent rise. It is the highest level since February 2018. Sales of single family homes went up 2.7 percent to 4.92 million in December and sales of condos surged 10.7 percent to 0.620 million. The median house price stood at $274,500 in December, up 7.8 percent from last year's level and the most since January 2016. There were 1.40 million houses available; at December's sales pace, it would take 3.0 months to clear the current inventory, down from 3.7 months in November. In 2019, total existing-home sales ended at 5.34 million, the same level as in 2018, as sales in the South region (+2.2 percent) offset declines in the West (-1.8 percent) and Midwest (-1.6 percent), as the Northeast remained unchanged. House prices increased 4.8 percent in 2019.
US House Prices Rise 0.2% in November: FHFA
The average prices of single-family houses with mortgages guaranteed by Fannie Mae and Freddie Mac in the United States went up 0.2 percent from a month earlier in November 2019, following an upwardly revised 0.4 percent advance in October and matching market expectations. Among Census divisions, the biggest increases were recorded in East South Central (0.8 percent), Pacific (0.2 percent), and West North Central (0.2 percent), while a decline was seen in Mountain (-0.1 percent). Year-on-year, house prices rose 4.9 percent, with prices ranging from 3.8 percent in the New England and the West South Central divisions to 6.3 percent in the Mountain division.
The average prices of single-family houses with mortgages guaranteed by Fannie Mae and Freddie Mac in the United States went up 0.2 percent from a month earlier in November 2019, following an upwardly revised 0.4 percent advance in October and matching market expectations. Among Census divisions, the biggest increases were recorded in East South Central (0.8 percent), Pacific (0.2 percent), and West North Central (0.2 percent), while a decline was seen in Mountain (-0.1 percent). Year-on-year, house prices rose 4.9 percent, with prices ranging from 3.8 percent in the New England and the West South Central divisions to 6.3 percent in the Mountain division.
US Mortgage Applications Fall: MBA
Mortgage applications in the United States went down 1.2 percent in the week ended January 22nd 2019, after a 30.2 percent rise in the previous week, data from the Mortgage Bankers Association showed. Refinance applications decreased 1.8 percent while applications to purchase a home fell 2.0 percent. The average fixed 30-year mortgage rate was unchanged at 3.87 percent.
Mortgage applications in the United States went down 1.2 percent in the week ended January 22nd 2019, after a 30.2 percent rise in the previous week, data from the Mortgage Bankers Association showed. Refinance applications decreased 1.8 percent while applications to purchase a home fell 2.0 percent. The average fixed 30-year mortgage rate was unchanged at 3.87 percent.
Week Ahead
Market volatility is expected in the coming week as coronavirus originated in China is spreading, Britain finally leaves the EU, and Fed and the Bank of England will hold monetary policy meetings. Other important publications are US GDP growth for Q4, personal income and outlays, and durable goods orders; Eurozone GDP figures for Q4; China official PMIs; Japan consumer morale, retail trade and industrial output; and Australia inflation rate and NAB business confidence.
Market volatility is expected in the coming week as coronavirus originated in China is spreading, Britain finally leaves the EU, and Fed and the Bank of England will hold monetary policy meetings. Other important publications are US GDP growth for Q4, personal income and outlays, and durable goods orders; Eurozone GDP figures for Q4; China official PMIs; Japan consumer morale, retail trade and industrial output; and Australia inflation rate and NAB business confidence.
Thank
you and please stay tuned for more upcoming reports.
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Len Martinez is a Financial Consultant. Information in the
"Bull Valley Advisor” newsletter should not be considered as investment
advice or an offer to buy or sell securities. Data is derived from sources
considered to be reliable including Morningstar, StockCharts.com, YAHOO
Finance, FINVIZ, TipRanks, Investing.com, ECRI OCED, gurufocus, Crestmont
Research, Trading Economics and S2O. Results are not guaranteed. Len Martinez
is not an RIA. The data is shown for informational purposes and should not be
considered investment advice or an offer to buy or sell securities.
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