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Street Celebrates Friday with Early Strength, Helped by Europe, Oil

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March 11, 2016

(Friday Pre-Market) U.S. stocks began Friday with strength, supported by market rallies in Europe and Asia, rising oil prices, and the European Central Bank’s (ECB’s) bigger-than-expected stimulus plan, which was announced Thursday.

The ECB on Thursday announced a 10-basis-point cut in the deposit rate to -0.4%, expanded its monthly asset purchases to 80 billion euros from 60 billion, and cut its key lending rate to zero. One day later, markets continue to digest the implications of these moves. ECB President Mario Draghi spoke after the rate announcement, saying that rates aren’t likely to fall further, and his comments gave markets a pause. But U.S. equities rallied into Thursday’s close, and Asian and European markets followed suit early Friday. In Europe, banking stocks were especially strong on Friday, helped in part by the rate announcement, economists told the media.

Typically, stimulus measures like those announced Thursday can help strengthen equities, and the ECB meeting was the first of three major monetary policy meetings on the near-term agenda, with the Bank of Japan (BOJ) and the U.S. Fed holding meetings next week. Economists don’t expect the Fed to make any interest rate moves at its meeting next week.

Equities markets also got a lift early Friday from a rally in oil prices, which are now at two-month highs. A weaker dollar contributed to oil’s gains early Friday, CNBC reported.

S&P 500 (SPX) futures neared psychological resistance at 2000 early Friday. The index closed above that level on Monday, but for three consecutive sessions it hasn’t been able to achieve that feat again. It bears watching whether the index can hold above that level on Friday. On Thursday, the SPX closed up approximately 10% from last month’s lows. Still, the index remains slightly down for the year to date. Thursday’s late recovery from intraday lows was positive from a technical standpoint.

It’s a light day for new U.S. data. Next week, however, is filled with data, including retail sales, PPI, CPI, and housing starts. Retail sales can often give investors insight into the health of the U.S. consumer, so that report looms large.

S&P 500

FIGURE 1: 2000 MARK REMAINS ELUSIVE.

The S&P 500 (SPX), plotted here through Thursday on the TD Ameritrade thinkorswim® platform, rose above 2000 early Thursday but finished below that psychological resistance. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Euro Did a 180 on Thursday: After falling toward recent lows of around $1.08 early in the U.S. trading day Thursday on more aggressive than expected monetary stimulus from the European Central Bank (ECB), the euro quickly reversed itself and climbed above $1.12 intraday Thursday, near recent highs, in an impressive rally. It traded around $1.11 early Friday. The reversal on Thursday came after remarks by ECB President Draghi, who indicated he doesn’t see the need for further rate cuts. Draghi did say he expects interest rates to remain low for a long time, according to media reports. The sharp euro reversal, which was accompanied by a downward reversal in U.S. equities on Thursday after an early rally, served as a reminder that investors typically pay close attention to Draghi’s statements after rate announcements.

U.S. 10-Year Yield Slowly Climbing: U.S. 10-year Treasury yields have been steadily climbing since last month’s lows and reached 1.96% early Friday, boosted by Draghi’s remarks that suggested European rates wouldn’t be cut further. The 10-year yield hasn’t been at 2% since late January, and remains well below the 52-week high of nearly 2.5%. The 52-week low, set last month, was 1.63%, and represented the lowest mark since 2012.

Energy Agency Report Lifts Oil: The oil market rose early Friday after the International Energy Agency (IEA) said in its monthly report that oil prices may have “bottomed out,” various media reports said. The IEA said Iran’s return to the market isn’t having a dramatic impact on supplies, and output is falling faster than expected in non-OPEC countries. “Global supplies eased by 180,000 barrels per day in February, to 96.5 million barrels per day, on lower OPEC and non-OPEC output,” the IEA said. U.S. oil futures rose nearly 2% to above $38.50 a barrel and are on pace for a fourth-straight week of gains.

Good Trading,
JJ
@TDAJJKinahan

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