The price action this week was very choppy with several false technical signals that indicated prices moving higher and lower. However, the stock indexes provided a clearer signal by closing below the 50 day moving average on Thursday. We haven’t closed below the 50 day since the Presidential election last November. We may have an answer to the frenetic price action so a sharper correction that has been in the works since early March is eminent.
The news cycle has not helped this past week, either. The weak payrolls report last Friday combined with the military action in Syria and Afghanistan has put a damper on the financial markets. Bank earnings released this week were good but there is growing evidence that lending activity is slowing down as I mentioned last week regarding C&I loans.
Despite the weakening sentiment, I do think this will present a buying opportunity but patience in finding a buyable bottom is required. We haven’t seen a sustained impulsive move lower so that may be on tap for next week. I presented some potential support levels in the Chart Time section below.
We also have options expiration on the 21st (Friday) so that could add to some volatility to end next week.
Happy Easter to those who celebrate!
Economic & Central Banking Snippets
- US consumer sentiment improved in April to 98, from 96.9 in March according to the University of Michigan.
- US producer prices had their first monthly decline since August 2016 as producer prices inched lower by 0.1% in March. Excluding more volatile items like food and energy, producer prices were unchanged from the previous month and up 1.6% from a year ago. Investors watch these figures as these prices are measured before they are passed on to consumers.
- China’s 2017 export outlook brightened as exports rose at the fastest pace in more than two years. Analysts said the stronger trade data reinforces the growing view that economic activity in China has remained resilient and that global manufacturing is improving. (FT)
- The homebuilders’ survey jumped to a twelve-year high in March, as builders cheered regulatory changes that could help ease some of the “supply-side restraints” that have slowed homebuilding. That should support a lot more new home construction going forward, but the 6.5% surge in single-family starts in February to a cycle high 872,000 units annualized was probably exaggerated by the unusually warm weather in March. (Morgan Stanley)
- NAR (real estate brokers) membership has rebounded strongly, pushing near-2005 levels despite far fewer transactions than in 2005. Another sign of a market top?
Chart Time!
Market Snippets
- An activist investor has amassed a large stake in Whole Foods Market and wants to accelerate its turnaround by exploring a possible sale, increasing pressure on the upscale organic grocer to find its footing after its rapid
growth stalled. (FT) - Bankruptcy for Puerto Rico is looking ever more likely as the clock ticks down toward a May 1 deadline to restructure $70B in debt.
- JPMorgan Chase got the US banks’ reporting season off to a solid start on Thursday, posting a 17% rise in net income for Q1 despite signs of a marked slowdown in the retail banking unit. Earnings per share came to $1.65, comfortably ahead of the consensus forecast of $1.52. Net revenues for the period were $24.68B, lighter than estimates of $25.15B. Net income was reported 17% higher than a year earlier. (FT)
- Citigroup posted a better-than-expected 17% rise in quarterly profits, propelled by revenue growth in the big US bank’s institutional business. Net earnings rose to $4.09B in Q1, from $3.5B in the same period in 2016. The figure exceeded Wall Street expectations of $3.41B.
- Tesla shares revved higher on Thursday after Elon Musk tweeted that the automaker would unveil its semi truck in September. The company recently overtook General Motors as the most valuable auto company in the US. Mr. Musk tweeted: “Tesla semi truck unveil set for September. Team has done an amazing job. Seriously, next level.” Mr Musk first announced Tesla would be expanding into trucks back in July as part two of his masterplan for the company. At the time he said, “in addition to consumer vehicles, there are two other types of electric vehicle needed: heavy-duty trucks and high passenger-density urban transport” and that both of those were invdevelopment and would be unveiled this year. (FT)
International Snippets
- Iron ore prices in China have given up all the gains added on since Donald Trump was elected US president. Prices are around their lowest in five months following a forecast published last week predicting iron ore could fall to $65 a tonne by the end of this year. Iron ore prices are a barometer of economic activity as steel is used in the production of many durable goods.
- HSBC said some of its largest clients have already asked for their business to be routed through the bank’s offices in mainland Europe and aren’t waiting to see what Brexit deal the UK hammers out. They are also considering ‘flipping’ their regional head offices from EU cities from Britain. (Bloomberg)
- Canada has introduced a bill to legalize recreational marijuana use by next year, which would make it the first G7 country to do so. Prime Minister, Justin Trudeau’s Liberal Party aims for all Canadians over the age of 18 to be able to buy marijuana by July 2018. Under the plan announced on Thursday, the government would license marijuana producers, leaving provinces to decide how to sell and distribute it. The bill also aims to make it tougher for young Canadians to access cannabis, criminalizing the sale of marijuana to a minor.