Morning Minutes 1/7/2019

Morning Minutes

Oil Keeps Climbing as Stocks Digest Payrolls Rally

January 7, 2019
8:45 am EDT

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

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Morning Market Commentary


Coming off a big rally Friday that saw the Dow Industrials nearly 750 points or 3.3%, world markets have been mixed overnight and into this morning. On Friday the US announced a spectacular December jobs gain of 312K, way above the 177K street estimate. Canada’s 9K job growth was nothing to sneeze at either, beating the 5K street estimate. Less hawkish comments from Fed Chair Powell on interest rate increases (open to changing plans depending on data) and running down the Fed’s balance sheet (could pause if necessary) were greeted positively, sparking a late surge in US stocks. Recall that Chair Powell’s stay the course tone after the December Fed meeting had sparked a plunge in US stocks.

Asia Pacific markets staged a catch-up rally with the Nikkei gaining 2.4% and the Hang Seng climbing 0.8% as investors await this week’s start to US-China trade talks.

Brexit chaos has resumed weighing on European markets where the FTSE and Dax are both down 0.5%. The UK is still scheduled to leave the EU in late March, but a lot is still uncertain with the UK Parliament expected to vote on PM May’s divorce deal with the EU next week. A 1.0% decline in German factory orders, which was worse than the 0.5% drop that had been expected, has reminded investors that political turmoil could potentially have a negative economic impact on both sides of the channel.

US futures have been pointing toward a mixed open with Dow futures up 16 points and S&P futures down 1 as some investors digest Friday’s gains and some return to work with the holiday season now over. Treasury yields are still getting a boost from Friday’s strong payrolls and higher than expected wage inflation (3.2% above street 3.0%), but the 30-year yield remains below the technically important 3.00% level for now.

Crude oil is up again today with Brent and WTI both trading up about 1.0%. Positive US economic news and anticipation of supply cuts kicking in this month for Canada, OPEC and Russia have helped to shore up prices. Oil appears to be bottoming out at the moment, but it would take breakouts over $50 for WTI and $60 for Brent to signal the start of a new uptrend.

Earnings reports don’t really start until next week and the economic calendar is lighter as well with the main events being a Bank of Canada decision on Wednesday, and US consumer prices Friday. With the exception of Apple’s warning last week, confession season has been quiet so far, it will be interesting to see if any other US multinationals have anything to say or not.

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