U.S. markets showed strength from the start of Thursday’s open with Wall Street looking for more clarity, and the passage, of the tax bill by the House.
The bill still needs approval by the Senate but the news was clearly a relief as the Nasdaq surged to an all-time peak north of 6,800. The Dow and S&P 500 snapped 2-session slides and are back within a stone’s throw of record highs after advancing 0.8%.
The Russell 2000 had the biggest snapback after rallying 1.6% to clear a strong up-trending 50-day moving average.
Technology and Consumer Staples were the strongest sectors after jumping 1.4%. Materials and Health Care gained 1.2% and 1%, respectively. Utilities and Energy were the only laggards with the sectors giving back 0.4% and 0.3%.
Global Economy- European markets closed higher across the board with UK’s FTSE 100 gaining 0.2% to snap a 5-session slide and its longest losing streak of the year. The Stoxx Europe 600 jumped 0.8% while the Belgium20 and France’s CAC 40 added 0.7%. Germany’s DAX 30 rose 0.6%.
ECB Executive Board member Praet said they have not yet accomplished their mission, and would remain patient and persistent on monetary policy as inflation developments are subdued despite solid growth.
Eurozone October new car registrations rose 5.9% year-over-year to 1,169,672 and the largest increase in 5-months. Year-to-date Eurozone new car registrations were up 3.9% at 12,830,216.
Asian markets were mostly higher with China’s Shanghai Composite being the exception after slipping 0.1%. Japan’s Nikkei rallied 1.5% while South Korea’s Kospi was higher by 0.7%. Hong Kong’s Hang Seng Index advanced 0.6% and Australia’s S&P/ASX 200 was up 0.2%.
China’s PBOC added 310 billion yuan ($47 billion) through reverse-repurchase agreements, the biggest one-day injection in 10 months, which eased interest rate concerns after the China 10-year note climbed above 4%.
U.S. initial jobless claims rose 10,000 to 249,000 in the week ending November 11th, topping expectations of 236,000. This lifted the 4-week average to 237,750 from 231,250. Continuing claims dropped 44,000 to 1,860,000 in the week for November 4th, the lowest since December 1973.
November Philadelphia Fed Business Outlook Survey fell 5.2 points to 22.7 from 27.9 in October.
U.S. October import prices were up 0.2% versus expectations for a rise of 0.6%. Export prices were flat with forecasts at 0.5% month-over-month.
October Industrial Production grew 0.9% versus expectations for a rise of 0.5%, while capacity utilization stood at 77% with expectations at 76.3%.
The Bloomberg Consumer Comfort Index checked in at 52.1, up from 51.5.
November Housing Market Index came in at 70 versus consensus of 67.
Market Sentiment- Federal Reserve Bank of Cleveland president, Loretta Mester, was quiet on Fed policy but said analysts are starting to see inflation moving gradually back up when answering questions.
She added there is good reason to believe inflation will be near 2% and that a gradual path remains the appropriate one for policy.
Dallas Fed’s Robert Kaplan said the balance sheet unwinding began when the Fed thought it was unlikely to return to zero interest rates. He’s confident in economic growth, since household leverage has fallen, expecting 2% plus growth next year.
He also expects more slack to come out of the labor sector, but if the unemployment rate rises that could be a sign of impending recession.
Kaplan went on to add he endorses reviewing Fed governance, frameworks, targets and small bank supervision, as any organization needs to make changes. He sees some low volatility regarding the Volcker Rule and he would welcome a review of it, while stress tests and capital requirements for big banks are not hurting economic growth.
Fed Governor Lael Brainard and San Francisco’s John Williams spoke late this afternoon but their comments weren’t immediately available.
The iShares 20+ Year Treasury Bond ETF (TLT) lost some steam after pulling back 0.9% and trading down to $125.44. Fresh support at $125.50-$125 and a downtrending 50-day moving average held. Lowered resistance at $126-$126.25.
Market Analysis- The Russell 2000 ETF (IWM) made a key reversal off it recent lows after making an intraday push to $148.40.
We warned of a continued backtest earlier this month towards $145-$144 and the late September breakout above these levels if $146-$145.75 failed to hold. Yesterday’s low tapped $144.50 before today’s 1.5% bounce.
RSI held late August support near the 40 level before today’s surge back above 50. Continued closes above this level would be a slightly bullish sign for another run towards 60-70 on continued momentum.
The Energy Select Sector Spider (XLE) recently peaked at $70.47 earlier this month but has been in a 5-session downtrend with today’s low tapping $66.91. It was the second-straight close below the 50-day moving average with fresh support now at $67-$66.75.
A move below $66.50 and the 200-day moving average would be a bearish signal.
We mentioned at the start of the month the 50-day moving average was on track to clear the 200-day moving average to form a golden cross. We also predicted a possible run towards $69-$70 once formed. XLE tapped $70.47 seven sessions ago.
It will important for XLE to recover near-term resistance at $67.50-$67.75 to show momentum has returned. RSI has been in a major downtrend after peaking just above 70 earlier this month but is trying to flatten out.
There is continued risk to 35-30 that represents July/ August support and resistance levels on continued closes below the 40 level.
All the best,
Roger Scott