The U.S. equities finished the last trading day of the week higher following a stronger than expected job report. However, the gains were trimmed as investors are prepared for a potential interest rate hike announcement next Wednesday.
The Dow Jones industrial average was up 44.79 points (0.21%) to close at 20,902.98, mostly driven by UnitedHealth Group. The S&P 500 gained 7.73 points (0.33%) to settle at 2,372.60 as utilities sector outperformed the others. The Nasdaq composite advanced 22.92 points (0.39%) to finish at 5,861.73.
On Monday, China released its GDP growth target at 6.5% for 2017, slightly lower than the target range of 6.5 – 7% back in 2016. This seems to justify the current situation as the country remains focused on transforming from a manufacturing driven powerhouse to a consumption based economy. However, its economic growth will be more dependent on consumption and private investments as government continues to cool off the housing market and tighten its credit growth.
On Tuesday, the Eurostat released the final Q4 GDP growth figure for the eurozone, which grew 0.4% QoQ and 1.75% YoY, mostly driven by private consumption.
On Wednesday, Japan’s Cabinet Office released its final GDP, which grew by 0.3% in Q4, higher than the 0.2% preliminary reading issued in February, driven by private business investment. For 2016 as a whole, the country grew by 1.2% (compared 1.0% estimated previously). In addition, China surprisingly reported its first monthly trade deficit in three years for February, as higher commodity prices and domestic demand drove the surge in imports. Nevertheless, this is deemed to be temporary as the result is likely impelled by long holidays for the Chinese new year.
On Thursday, European Central Bank President Mario Draghi stated that deflation risks in the eurozone have largely disappeared and ECB revised its inflation forecast to 1.7% (from 1.3%) for 2017 and to 1.6% (from 1.5%) for 2018. In addition, the ECB dropped one of its key phrases in this remarks related to ECB’s willing “to use all the instruments available in its mandate” and Draghi subtly signaled that the necessity of further lowering the interest rates and remaining accommodative has subsided. As a result, the euro was up 0.7% to hit a weekly high of $1.0615 (full transcript and Q&A).
Headline Inflation meets ECB target, while Core Inflation remains subdued
On Friday, U.S. nonfarm payrolls rose 235,000 in February (vs. economist consensus of 190,000, surveyed by Reuters). The unemployment rate dropped to 4.7% (from 4.8%). In addition to a number of headlines regarding the potential for multiple rate hikes in 2017, some of the market participants are anticipating that the Fed will start reducing the size of its balance sheet late in 2017 or early in 2018.
Final thought: Both WTI & Brent crude oil prices were down 9% and 8% for this week, respectively. A series of events has taken place which are noteworthy:
- On Tuesday, U.S. Energy Information Administration (EIA) revised its FY2017 production to average 9.2 million barrels per day (from ~9.0 million barrels per day the previous estimate). Also, the American Petroleum Institute (API), reported crude inventories rose 11.6 million barrels in the week ending March 3.
- In addition, Saudi Arabia, which has been taking most of the production cut and compensating for other OPEC members, view last year’s cuts as temporary.
- On Wednesday, EIA reported its weekly petroleum status, stating that the commercial crude inventories increased by 8.2 million barrels last week, maintaining a total U.S. commercial crude inventory of 528.4 million barrels. This is the highest level since 1982.
- To add fuel to the fire, U.S. oil rig count rises for eight consecutive weeks and it is sitting at 617, nearly doubled from its summer lows last year (i.e.: 316 as of May 2016). While OPEC crude oil production and supply remain range bound between 31 to 32.5 and 37.5 to 39 million barrels per day since 2012, U.S. oil supply (see production figures above) has increased by ~40% to 14 million barrels per day for the same period. Note that U.S. is the third largest oil producer (~9mil barrels/day), after Saudi Arabia and Russia. The continued surge in U.S. oil production will not bode well for oil prices and energy companies that have/are planning to revive their CapEx plans, to say the least.
As a result of the aforementioned events, the oil prices finished the week sharply lower and WTI futures dropped below $50/barrel first time since the OPEC agreement last Novemeber.
The week ahead: China will release retail sales figures on Tuesday (Mar 14); U.S. will report retail sales for February and the Federal Reserve meets to set interest rates on Wednesday (Mar 15); Both Bank of Japan and Bank of England will hold rate-setting meetings on Thursday (Mar 16).
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AMJourney 
Market Commentary – March 10, 2017
The U.S. equities finished the last trading day of the week higher following a stronger than expected job report. However, the gains were trimmed as investors are prepared for a potential interest rate hike announcement next Wednesday.
The Dow Jones industrial average was up 44.79 points (0.21%) to close at 20,902.98, mostly driven by UnitedHealth Group. The S&P 500 gained 7.73 points (0.33%) to settle at 2,372.60 as utilities sector outperformed the others. The Nasdaq composite advanced 22.92 points (0.39%) to finish at 5,861.73.
On Monday, China released its GDP growth target at 6.5% for 2017, slightly lower than the target range of 6.5 – 7% back in 2016. This seems to justify the current situation as the country remains focused on transforming from a manufacturing driven powerhouse to a consumption based economy. However, its economic growth will be more dependent on consumption and private investments as government continues to cool off the housing market and tighten its credit growth.
On Tuesday, the Eurostat released the final Q4 GDP growth figure for the eurozone, which grew 0.4% QoQ and 1.75% YoY, mostly driven by private consumption.
On Wednesday, Japan’s Cabinet Office released its final GDP, which grew by 0.3% in Q4, higher than the 0.2% preliminary reading issued in February, driven by private business investment. For 2016 as a whole, the country grew by 1.2% (compared 1.0% estimated previously). In addition, China surprisingly reported its first monthly trade deficit in three years for February, as higher commodity prices and domestic demand drove the surge in imports. Nevertheless, this is deemed to be temporary as the result is likely impelled by long holidays for the Chinese new year.
On Thursday, European Central Bank President Mario Draghi stated that deflation risks in the eurozone have largely disappeared and ECB revised its inflation forecast to 1.7% (from 1.3%) for 2017 and to 1.6% (from 1.5%) for 2018. In addition, the ECB dropped one of its key phrases in this remarks related to ECB’s willing “to use all the instruments available in its mandate” and Draghi subtly signaled that the necessity of further lowering the interest rates and remaining accommodative has subsided. As a result, the euro was up 0.7% to hit a weekly high of $1.0615 (full transcript and Q&A).
Headline Inflation meets ECB target, while Core Inflation remains subdued
On Friday, U.S. nonfarm payrolls rose 235,000 in February (vs. economist consensus of 190,000, surveyed by Reuters). The unemployment rate dropped to 4.7% (from 4.8%). In addition to a number of headlines regarding the potential for multiple rate hikes in 2017, some of the market participants are anticipating that the Fed will start reducing the size of its balance sheet late in 2017 or early in 2018.
Final thought: Both WTI & Brent crude oil prices were down 9% and 8% for this week, respectively. A series of events has taken place which are noteworthy:
As a result of the aforementioned events, the oil prices finished the week sharply lower and WTI futures dropped below $50/barrel first time since the OPEC agreement last Novemeber.
The week ahead: China will release retail sales figures on Tuesday (Mar 14); U.S. will report retail sales for February and the Federal Reserve meets to set interest rates on Wednesday (Mar 15); Both Bank of Japan and Bank of England will hold rate-setting meetings on Thursday (Mar 16).
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A small potato working on Bay Street