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Busy Stock Week Ahead: Global Action, Oil Swings, Earnings, Jobs

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February 1, 2016

(Monday Pre-Market) The U.S. stock market remains tethered to oil but Friday’s action offered another gentle reminder: global stock and economic moves reach U.S. shores quickly. Watch for continued attention on Asian economies and markets, and those of other global giants, in coming sessions.

Friday’s story centered on a surprise move from the Bank of Japan, whose actions to shore up their economy touched off a global stock rally. Policymakers there surprised with a shift to negative interest rates. It’s the first such move in Japan’s history and was meant to “pre-empt the manifestation of [downside] risk and to maintain momentum to achieve the price stability target of 2%,” members said in a statement released after a two-day policy meeting. “We will cut the interest further into negative territory if judged as necessary,” the central bank said.

It’s one more wrinkle for a Federal Reserve that has been leaning the other way—toward removing loose interest rate policy in the U.S. For traders, it could become increasingly important to sift through Fed speeches for clues about how future Fed policy could fit in with a global aim to keep a slowing economy from eroding too quickly. The Fed next takes up interest rate policy in March. It raised its key short-term lending benchmark in December for the first time in nearly a decade.

Don’t Forget Earnings

Part of Friday’s broad-market boost came courtesy of Microsoft’s (MSFT) earnings beat. It was a nice reminder that stock-by-stock and sector-by-sector trading still matters even if macroeconomic themes seem to dominate.

The earnings parade stretches into a new week, with big energy and pharmaceutical names among those slated to report. Exxon Mobil (XOM) will issue its earnings report pre-open on Tuesday. Pfizer (PFE) is due out with its results pre-open on Tuesday and Merck (MRK) reports pre-open on Wednesday. Yahoo (YHOO) and Chipotle (CMG) report post-close Tuesday, while General Motors (GM) hits the tape early Wednesday.

SPX stock chart

FIGURE 1: STAYING POWER?

The S&P 500 (SPX), plotted here through midday Friday on TD Ameritrade’s thinkorswim® platform, put up a late-week recovery but will finish January lower. Oil’s swings, earnings news, and a looming jobs report could keep wide intraday moves in place for SPX this week. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Keen Eye on Crude

Oil prices were mixed Friday but on track for a second straight weekly gain. Oil market volatility could continue into a new week (that has meant energy stocks, too) as traders digest news that major producers might cooperate on production cuts. Slower oil pumping could alleviate the huge supplies that have pushed prices to 12-year lows.

On Friday, crude prices rose to a three-week high—Brent was near $35 a barrel and U.S. WTI was at $33 a barrel—after Russia’s energy minister said that his country and the Organization of the Petroleum Exporting Countries, the 12-nation oil producers’ cartel, could discuss 5% output cuts at a meeting in February, according to financial media reports. A senior OPEC official, however, refuted the claim and many industry analysts remain skeptical of the chances of such an agreement, MarketWatch reported.

Loaded Economic Schedule

Oil’s drag on inflation is just one factor preoccupying a Fed that will next contemplate an interest change in March. The Fed met last week, left rates untouched as expected, but did acknowledge low inflation and stock market turmoil. Members expressed confidence in job growth, however.

In fact, another potentially market-moving reading on job growth may be the highlight of a heavily populated economic calendar this week.

Friday features the January non-farm payrolls report and a look at wages. In December, the U.S. economy welcomed 292,000 new hires, topping Street expectations. The unemployment rate remained at 5%, largely because almost a half-million people joined the labor force. Employment gains for November and October were revised up by a combined 50,000.

Did the pace of hiring accelerate to start the year? Economists don’t think so. The median forecast in a MarketWatch survey is at 185,000 payroll gains. The jobless rate is expected to slip to 4.9% from 5%.

Perhaps more importantly, traders will want to know if the newly hired and newly promoted are turning those paychecks into spending on new homes and new cars? Construction and auto sales data will be issued toward the front end of the week (see the calendar below). Both reports have potential short-term implications for traders and longer-term implications for the Fed.

Good Trading,

JJ

@TDAJJKinahan

economic report calendar

FIGURE 2: ECONOMIC AGENDA.

This week’s U.S. economic report calendar. Source: Briefing.com.

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