Morning Minutes 12/04/2018

Oil Rally Continues While Stocks Pause and Yields Drop

December 4, 2018
8:45 am EDT

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

Stocks and commodities got off to a strong start Monday but as has been the case for much of the last two months, it’s what the follow-through (or lack thereof) rather than the initial burst that’s most important. In the case of stocks, North American markets finished off their highs Monday but still well in the green as the Dow gained 1.1% and the NASDAQ popped 1.5%.

Overnight, the Hang Seng continued to advance, gaining 0.3%, but the Nikkei plunged 2.4% and in Europe, the FTSE and Dax are down 0.7% this morning. The FTSE decline, however, may be related to a 0.7% gain in GBPUSD on reports of legal advice suggesting the UK could end Brexit and stay in the EU just by revoking its Article 50 notice. It appears that investors are seeing this as opening the door to a potential second referendum. Debate on PM May’s Brexit agreement with the EU starts in the UK parliament today with the key vote expected in a week from now.

US index futures are a bit soft this morning with Dow Futures pointing down 108 points, which is still let than half of yesterday’s 287-point gain. The VIX is up slightly but still closer to 15 then 20 as it continues to trend back downward indicating that fears are easing overall. It seems like stocks are just digesting yesterday’s gains, but we may also be seeing some hesitation among investors with US markets closing tomorrow for President Bush’s funeral. US Economic reports scheduled for tomorrow have been postponed to Thursday, but Wednesday’s Bank of Canada meeting is still on.

The bigger news in the US, this morning, however, is that the 10-year US treasury yield has slipped back under 3.00%.  This is significant because the 10-year yield breaking out over 3.00% was one of the events that triggered the October meltdown in US stocks. Falling treasury yields could benefit interest sensitive sectors of the stock market including Financials, Real Estate and Utilities. The US Dollar has been falling in tandem with yields, lifting the lid off of Gold.

Crude Oil, meanwhile, has been seeing follow-through on its turnaround, an encouraging sign. Brent and WTI are up 1.5%-1.8% this morning as investors continue to anticipate news of a potential production cut at Thursday’s OPEC meeting. Saudi Arabia and Russia apparently remain committed to their supply management program.  Rebounding oil and natural gas prices sparked renewed interest in energy stocks on both sides of the border.

SIA Wealth In The Media:

Colin Cieszynski appeared on BNN yesterday talking about the turnaround in the markets, and the potential for a Santa Claus Rally this month.

Correction over as Santa Claus rally begins: Strategist

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