U.S. markets showed some strength at the start of Thursday’s action following better than expected economic news ahead of the open. The slight momentum faded shortly afterwards with the major indexes turning south on Fedspeak while trading in tight ranges into the closing bell.

The overall market pullback held near-term support levels with volatility easing to lower levels.

Friday’s earnings from a number of banking stocks will likely set the tone for how the week winds up and next week begins.

The Russell 2000 was lower by 0.2% after testing an intraday low of 1,577.

Upper support at 1,575-1,560 and the 200-day moving average held with risk towards 1,550 and the 50-day moving average on a move below the latter.

The Nasdaq was also off 0.2% following the backtest to 7,935.

Rising support at 7,925-7,875 held with a move below 7,850 now signaling a possible near-term top.

The Dow was down 14 points, or 0.05%, following the intraday pullback to 26,062.

Near-term and major support at 26,000 held with a move below the latter opening up risk towards 25,750 and the 50-day moving average.

The S&P 500 nudged up a tenth-point after trading in a 12-point range and testing an intraday low of 2,881. Upper support at 2,875-2,850 easily held with a move below the latter being a bearish signal.

Industrials and Financials led sector strength after gaining 0.9% and 0.6%, respectively. Utilities rose 0.5%.

Healthcare was the worst performing sector after tanking 1.2%. Technology, Real Estate and Materials fell 0.1% to round out the laggards.

Global Economy – European markets settled mostly higher after European Union leaders and the U.K. agreed to a flexible extension of Brexit until October 31st.

The Belgium20 rallied 0.8% and France’s CAC 40 advanced 0.7%. Germany’s DAX 30 climbed 0.3% while the Stoxx 600 Europe added 0.1%. UK’s FTSE 100 dipped 0.1%.

Asian markets closed mixed following economic news out of China that showed improvement but missed expectations.

China’s Shanghai sank 1.6% and Hong Kong’s Hang Seng dropped 0.9%.

Australia’s S&P/ASX 200 was down 0.4%. Japan’s Nikkei edged up 0.1% and South Korea’s Kospi was up less than a point.

China’s Consumer Price Index for March rose 2.3% the quickest pace since October 2018, but slightly below forecasts of 2.4%. Food CPI was up 4.1%, up sharply from a 0.7% rise in February.

Non-food CPI was at 1.8%, just above February’s 1.7% rise.

China’s PPI rose 0.4% from a year ago in March, matching expectations, and topping February rise of 0.1%.

Initial Jobless Claims dropped another 8,000 to 196,000, marking a fresh 49-year low, and topping estimates for a rise of 3,000. The 4-week moving average declined to 207,000 from 214,000, also a 49-year low.

Continuing claims were down 13,000 to 1,713,000 following the prior 29,000 decline to 1,726,000.

PPI rose 0.6% in March, with the core rate 0.3% higher, stronger than expectations of 0.4% and 0.2%, respectively. There were no changes to February’s gains of 0.1% for both.

The 12-month pace accelerated to a 2.2% year-over-year clip for the headline, versus the prior 1.9%, while the core rate slowed to 2.4% year-over-year versus 2.5%.

Energy costs boosted the headline, rising 5.6% versus the prior 1.8%. Food prices rose 0.3%. Goods prices were up to 1% from February’s 0.4%. Services prices rose 0.3% versus unchanged last month.

Market Sentiment – Fed Vice Chair Richard Clarida sees signs of the economy slowing from a robust pace in 2018, while international risk such as Brexit still cloud the U.S. outlook.

He views inflation as muted and long-run inflation expectations at the low end of the range, consistent with price stability. He considers the current policy settings and patient stance on future changes to be appropriate.

Clarida said he expects global growth to rebound later this year, as is customary. He views tariffs put in place so far as having had only a modest effect on prices.

He said he won’t be doctrinaire in the rate decision, but will take his cue from inflation and unemployment data.

As to outside political pressure on the Fed, he said the Fed is independent and answerable to its Congressional mandates.

He pegs globalization and low inflation expectations for suppressing inflation and changing the response of inflation to low unemployment.

New York Fed John Williams said unemployment is at historically low levels and inflation near its 2% target.

From a pure monetary policy perspective, he said this is a healthy economy.

Fed Reserve Governor Lael Brainard said analysts are extremely focused on keeping inflation anchored at 2%, and that commitment is reflected in the patient, flat rate path.

She said growth continues to come in slightly above potential, though there are downside risks.

Minneapolis Fed Kashkari noted the economy is not yet at maximum on employment and below target on inflation. He would like to see more wage growth, net of inflation.

He views the inflation target as perfectly symmetrical, but would tolerate a 2.3% level for several years.

Kashkari is skeptical about Modern Monetary Theory (MMT), given risks of printing money. He thinks maximum employment could come with wage growth of 3.5% or above.

He believes big banks could use more capital as they are still too big to fail. He said that keeping rates low helps spur wage growth and housing.

Stephen Moore says growth does not cause inflation and said he would bring real-world experience to the Fed, along with more transparency.

Moore, a candidate for a Fed governor spot, said he’s independent of President Trump.

Moore believes the single most important thing the Fed can do is maintain stable prices. He questioned the FOMC’s decisions to raise rates in 2018 while the economic growth was solid and inflation was quiet.

Moore added he would look at a variety of commodity prices as a guide as they are a pretty good lead indicator of prices.

The iShares 20+ Year Treasury Bond ETF (TLT) fell for the 1st time in 3 sessions following the pullback to $123.41. Prior and upper support at $123.50-$123 was breached but held.

A close below the latter opens up risk towards $122.50-$122 and the 50-day moving average.

Lowered resistance has returned to $123.75-$124.25.

Market Analysis – The Spider S&P 500 ETF (SPY) tested a morning high of $288.84 with prior and lower resistance at $289-$289.50 holding.

Continued closes above $290 would be a more bullish signal for a possible run towards $292-$292.50.

The midday fade to $287.58 held near-term support at $287.50-$287. A move below the latter opens up risk towards $285.50-$285.

RSI is flatlining with support at 65-60. A move below this level would signal additional weakness towards 55-50 with the latter representing the March low.

Resistance is at 70 and a level that has been holding since early February.

The Health Care Select Sector Spider (XLV) closed lower for the 3rd time in 4 sessions following Thursday’s plunge to $90.24.

Prior and upper support at $90-$89.50 held with a move below the latter and the 200-day moving average being a bearish development.

Lowered resistance is at $91-$91.50 and the 50-day moving average.

RSI is a downtrend with early March support at 40.

A close below this level would signal additional weakness towards 35-30 and mid-December lows. Resistance is at 45-50.

All the best,
Roger Scott.