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Markets Struggle to Rebound; Await Minutes from Fed Meeting

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April 6, 2016

(Wednesday Market Open) Stocks are struggling to rebound from two days of losses in early trading as oil prices find higher territory amid bullish reports on inventories and renewed hope that a freeze in production is on the horizon, according to Wall Street analysts.

If the gains hold throughout the session, it may turn around two not-so-pretty days in the markets, which have been riding heavy waves of red in recent sessions as part of a global rout. Tuesday’s ended with the Dow (DJIA) closing down in triple digits—133 points—for the first time since March 8. Cisco Systems (CSCO) was the Dow’s biggest decliner, losing 2%, while Disney (DIS) gave back 1.7% amid succession issues.

The S&P 500 (SPX) was dashed with all 10 sectors sinking for a cumulative drop deeper than 1%. That’s the first time since Feb. 11 that the entire index backtracked, according to the Wall Street Journal’s Market Data Group. The utilities sector took the biggest toll with its worst day since Feb. 26.

Investors took refuge in gold, silver and copper, all of which rose. Gold prices have advanced 16.5% from January through March, according the WSJ. That marks the best quarterly advance in 30 years. Today, however, we’re seeing those gains reverse. Yields on the 10-year Treasury notes are moving higher while bonds retreat.

Crude prices are heading toward $37 a barrel after a choppy day of trading yesterday. Some analysts attributed late-day gains yesterday to comments from a Kuwaiti official who predicted that leaders from global oil-producing countries would indeed make a pact on an output freeze when they all meet April 17. Comments from Saudi Arabia and Iran put a damper on that assessment in recent sessions.

Also late yesterday, the American Petroleum Institute, an industry trade group, reported a surprise drawdown in crude-oil inventories by 4.3 million barrels. Analysts surveyed by Platts, the oil-data firm, forecast a 2.9 million-barrel rise in inventories. We’re waiting for the official government report later today from the Energy Information Administration.

In the data world, yesterday’s JOLTS report, the Labor Department’s Job Openings and Labor Turnover survey, showed that quitters can win. JOLTS tracked 5.4 million new hires in February, the most since the November 2006 and a sign of a tightening labor market. Those who voluntarily left jobs edged higher to 3 million from 2.9 million. The government considers that a good measure of employment because typically people don’t willingly leave a job if they’re not pretty sure they’re going to find another one soon or they already have one lined up. The layoff rate also is low at 1.2%.  

How much discord is there at the Federal Reserve? What is the debate around inflation? We’ll find out today when the Fed releases minutes from the March meeting at 2 p.m. ET. Let’s quickly recap what happened since then, when the committee held pat on interest rates: Fed speakers came out that week and the next talking about putting interest-rate hikes on the table as soon as June; then Chairwoman Janet Yellen tells economists in New York that the Fed continues to look at the global risks and likely will stay on a more gradual rate-hike plane, reiterating her dovish stance. This week, other Fed members admit they’re hawkish. As we noted yesterday, Yellen’s the boss and it ultimately is her call.

Every-sector-falls-on-SP500

FIGURE 1. A SEA OF RED.

The S&P 500 (SPX), plotted through the end of Tuesday on the TD Ameritrade thinkorswim platform, retreated again, losing 1% as every sector in the index fell. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

U.S. 1-Corporate America 0. The Obama Administration scored a victory late Wednesday when Pfizer (PFE) said it would walk away from its planned $150 billion deal with Allergan (AGN). At issue were the so-called corporate inversions that the Treasury Department hunkered down on this week and that have been a hot topic among presidential candidates. Inversions occur when a U.S. company buys a foreign one and adopts its lower-tax home base as its own. AGN’s Ireland headquarters could have slashed PFE’s taxes big time. The president called corporate inversions “one of the most insidious tax loopholes out there.”  

Kashkari’s #TBTF Mission. Minneapolis Fed President Neel Kashkari has been roiling Wall Street as he stirs up the conversation, five years later, over mega-banks that are “too big to fail,” some experts say. He started on his tear in February and brought it to the forefront this week at a conference in Minneapolis called “Ending Too Big to Fail.” It even had its own Twitter handle #EndingTBTF. He was all over the media Tuesday, talking about how financial reform wasn’t enough to keep the biggest banks from being too big to fail. He’s looking for “bold and transformational solutions to address TBTF once and for all” according to the Minneapolis Fed. “There’s a false sense of security that this crisis can’t happen again,” Kashkari said on CNBC. “You could never eliminate all the risk…but I think we can go further than where we are today.” What that might mean, he doesn’t yet know but is looking for input from anyone with some good ideas, he said. Suggestions anyone?

Would You Watch Football on Twitter? In a deal that some analysts claim has no losers, the National Football League gave Twitter (TWTR) the rights to stream 10 NFL Thursday night games. That means you can skip lounging on the couch in front of the big screen or you can forgo forking over big bucks for cable or network subscriptions because it’s free—with an Internet subscription. You might wonder who would want to watch a competitive football game on a Twitter feed, but Twitter is a magnet for sports fans and it tends to explode during most sports events. Don’t believe it? Some 108,000 tweets were sent in the first minute Monday after Villanova’s dramatic three-point buzzer-beater against North Carolina for the NCAA championship. That’s 1,800 tweets a second.

Good Trading,
JJ
@TDAJJKinahan

Economic Report Calendar

FIGURE 2: THIS WEEK'S ECONOMIC REPORT CALENDAR

Source: Briefing.com

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