We’ve got a lot on the economic data docket this week, including a Federal Reserve policy meeting. Let’s take a look at trends in the financial futures markets last week, and what we might expect looking ahead from a fundamental and technical basis.
Stock Indexes
The stock market finally sparked last week amid growing optimism, albeit not entirely justified by the economic news.The economic data was mixed last week, with retail sales showing signs of having bottomed, but international trade indicating declining exports is a continuing problem.The consumer sector may be stabilizing, but there is no indication yet of strengthening and consumer sentiment remains near historic lows.This will keep the economy negative and then flat for some time.
We saw the best weekly performance for the stock market since November of last year. Curiously, the week got off to a bearish start, dipping significantly on Monday, March 9, after investor (the “Oracle of Omaha”) Warren Buffett said the economy is in shambles.But a Tuesday followed, as the DJIA jumped 5.8 percent; the S&P 500, 6.4 percent; and the Nasdaq, 7.1 percent.Financials got the markets fired up as Citigroup announced profits for the first two months of the year.An announcement by Representative Barney Frank that the uptick rule might be reinstated also helped fuel the rally, as it would limit short selling. The second really big day for the week was Thursday, March 12, with GE and GM playing key roles.
For the week, the financial sector posted many of the largest weekly gains in the market, with advances ranging from 49 percent to 86 percent for the five-day period. Stock indexes were up sharply, around 10 percent last week, amid four straight days of gains. Year-to-date, major indexes are still down as follows: the DJIA, down 17.7 percent; the S&P 500, down 16.2 percent; the Nasdaq, down 9.2 percent; and the Russell 2000, down 21.3 percent.
Turning to futures action, the June S&P 500 index closed higher on Friday, March 13, extending Thursday’s breakout above the 20-day moving average at 736. Technical momentum indicators, the Stochastics and the Relative Strength Index (RSI), remain bullish, signaling that sideways to higher prices are possible near-term. If June extends last week’s rally, the reaction high at 775 is the next upside target. On the flip side, closes below the 10-day moving average at 706 could temper the near-term friendly outlook. First resistance at Friday’s high near 758 was eclipsed in early trade, so look for second resistance at 775. First support is the 20-day moving average at 736, with second support at the 10-day moving average at 706.
Credit Markets
In the Treasury market, it was the unexpected that makes you question common wisdom. With the huge rally going on in stocks, you would have expected heavy reversal of flight-to-safety bid. But that did not happen.It seems that the bond market is not as optimistic as stocks.
A big issue this past week was a speech by Chinese Premier Wen Jiabao in which he expressed concern that the ballooning U.S. budget deficit will cause the value of the huge amounts of Treasury debt his country to decline.However, markets are shrugging off those concerns for now as a significant portion of this week’s auctions was taken by indirect bidders – a class of investors that includes foreign central banks.
Treasury interest rates barely budged except for the long bond (the 30-year Treasury bond) – and its yield rose only very moderately. Part of the problem is that credit markets are still nervous about the health of banks and other financial institutions.Banks are still having trouble building capital – meaning they are hoarding cash and not lending.
Crude Oil
Last week, crude oil futures had notable swings but ended up only slightly.Talk of OPEC production cuts helped prices to firm early in the week, only to be pulled down by an updated demand forecast from the U.S. Energy Information Administration (EIA).The EIA lowered its world oil demand forecast for 2009 to 84.27 million barrels per day, down 430,000 barrels from its earlier projection. Weighing on prices at mid-week was a jump in U.S. crude oil stocks while reports from China indicated that oil consumption had fallen more than anticipated.Yes, China is still a big player in the oil markets.
The big move was on Thursday, March 12, with a nearly $4-per-barrel boost from unexpectedly strong U.S. retail sales numbers, along with talk from OPEC of cutting production quotas. The improved retail sales numbers were seen as indicating that the consumer sector is not as weak as feared and will be keeping demand for crude oil and or gasoline from falling.
If the recovery comes from the consumer, that should boost crude oil and gasoline as we head into driving season. Technically, crude oil futures gapped lower overnight as we headed into this morning’s session, and momentum indicators show a short-term top may be in around $48 – $49. A close under 20-day moving average at $42.79 in the April contract would strengthen the topping argument, and we could see a move to $38 – $37.50. The market needs to get to $50.88 and close above that level to sustain the bull trend. First resistance is $48.83. Look for support at $43.62 and $42.79.
Forex
Foreign exchange markets were shaken by the Swiss National Bank announcement that it would intervene to halt the Swiss franc’s rise. The currency’s safe-haven status had been heightened by the recent market turmoil, and had helped the currency jump by about 9 percent on a trade-weighted basis since July, coming close to its record high in recent weeks. The Swiss National Bank (SNB) had been active in the market, selling Swiss francs against the euro and the dollar currencies said traders near the action. This was the first intervention by a major central bank since 2004 when the Bank of Japan sought to weaken the yen.
The yen currency was down against most of its major currency counterparts on speculation that the worst of the banking crisis may be over, which reduced demand for the yen as a safe haven. The U.S. dollar, which is a safe haven also, likewise fell last week.
The U.S. Dollar Index futures contract, which represents the dollar’s standing against a basket of six global currencies, is looking bearish at the start of a new trading week. Stochastics and the RSI are signaling further declines. If the safe-haven play in the dollar continues to be unwound, look for commodities to perk up. I see 86.75 as support in front-month Dollar Index futures.
Economic Data, Week of March 16, 2009
DateCTReleaseForConsensusPrior
Mar 1607:30Empire ManufacturingMar-32.0-34.65
Mar 1608:00Net Long-Term TIC JanNA$34.8B
Mar 1608:15Capacity UtilizationFeb71.1%72.0%
Mar 1608:15Industrial ProductionFeb-1.2%-1.8%
Mar 1707:30Building PermitsFeb510K531K
Mar 1707:30Core PPIFeb0.1%0.4%
Mar 1707:30Housing StartsFeb453K466K
Mar 1707:30PPIFeb0.4%0.8%
Mar 1807:30Core CPIFeb0.1%0.2%
Mar 1807:30CPIFeb0.3%0.3%
Mar 1807:30Current Account BalanceQ4-$136.7BNA
Mar 1809:30Crude Inventories03/13NA+749K
Mar 1813:15FOMC Rate DecisionNA0.00%
Mar 1907:30Initial Claims03/14NA654K
Mar 1909:00Leading IndicatorsFeb-0.6%0.4%
Mar 1909:00Philadelphia FedMar-40.0-41.3
Good luck and good trading!
Jeff Friedman is a Senior Market Strategist with Lind Plus. He can be reached at 866-231-7811 or via email at jfriedman@lind-waldock.com. Join Jeff for his monthly webinar, Friedman’s Futures Forecast, by visiting Lind-Waldock’s events page.
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