The stock market seems a little tentative early Tuesday, as most participants await a “triple crown” of events later this week that could potentially provide more direction. For the moment, the bias appears slightly lower, with weak oil sending some negative signals and the yen hitting a seven-week high vs. the dollar.
The big three events up ahead all come Thursday and include the U.K. election, scheduled testimony to Congress by former FBI Director James Comey, and a European Central Bank meeting (see below). The Comey testimony looms particularly large for U.S. markets, considering how stocks reacted so negatively in mid-May when a New York Times’ article reported President Trump asked Comey to halt the investigation of former National Security Adviser Michael Flynn. The concern then, and perhaps again now, is how this kind of D.C. drama might affect the chances of Trump getting initiatives like tax and bank reform enacted.
Crude oil continues to wilt in the summer heat, sinking toward $47 a barrel early Tuesday. Front-month U.S. oil futures haven’t closed below $47 in about a month, so that could be a level to watch as new doubts surface about whether OPEC can keep its production cuts intact amid some squabbling among its members. The energy sector managed to climb Monday in spite of weak oil, and financial stocks also edged higher. However, a number of key sectors sagged yesterday, including materials and industrials.
The yen’s strength helped drag some Asian markets lower overnight, and also might signal a defensive stance by some market participants. The yen is often seen as a safe haven. European stocks also moved lower early Tuesday.
On the data front, there’s not much news to digest Tuesday except for the monthly Job Openings and Labor Turnover Survey (JOLTS) report (see below). A few numbers came in Monday and presented a bit of a mixed picture. Productivity for Q1 was flat, which doesn’t sound good on the surface but certainly improved from the government’s original estimate of a 0.6% drop. Still, we’re not seeing much growth in productivity, and that remains a concern when it comes to speeding up economic growth.
In addition, factory orders fell 0.2% in April, about as expected and not a particularly strong indication for the economy. On the other hand, March factory orders got revised to 1% growth from the previous 0.2%. So, it’s something of a mixed bag.
Volatility scraped near new 2017 lows Monday, with VIX falling well below 10 before recovering a bit by the end of the day. Though VIX moved up slightly in pre-market action Tuesday, its recent performance suggests the market doesn’t see anything out there at least in the short term that will upset the apple cart.
Summer Trip to Europe: Stay tuned early Thursday for the European Central Bank (ECB), which is expected to deliver its latest analysis of Europe’s economy and the ECB’s monetary strategy at its meeting that day. Generally, economies across the pond have shown a bit more life lately, but that doesn’t mean analysts necessarily expect the ECB to start making major changes to its relaxed monetary policy and bond-buying stimulus program, at least for the present. ECB President Mario Draghi said at the last ECB meeting that risks to growth were still “tilted toward the downside.” The question is if that “downside” language falls by the wayside at this week’s meeting, Bloomberg News reported, which would potentially be seen as a smoke signal that the ECB might at some point consider pulling back its bond-buying stimulus.
Quitting Time? The only major economic report on today’s calendar is the Job Openings and Labor Turnover Survey (JOLTS) for April, and one category investors might want to watch is the so-called “quits” rate. That’s the number that tracks the percentage of employees who quit their jobs during the month. In March, the rate was 2.1%, down from the post-recession high of 2.2% reached in January. A higher quits rate is generally a good sign as far as the job market is concerned, because it tends to show that workers feel confident enough to find a new job if they leave their old one. After Friday’s jobs report, the media quoted some employers saying they’re having trouble filling positions, a sign that the economy might be reaching full employment and sometimes an inflation signal. The JOLTS report could offer more perspective, but it’s really only mildly interesting this time considering odds of a Fed rate hike remain so high. Fed funds futures show a better than 90% chance of rates rising this month.
Retail Investors Increased Equity Exposure Last Month: The May Investor Movement Index® (IMX), which tracks TD Ameritrade retail client activity, came out Monday and maintained its momentum. The index reached 6.13, up from 6.06 the previous month. Bullish market performance appeared to drive investors toward equity exposure, with lots of buying recorded in some of the big-name tech stocks. The report also showed retail investors looking for yield within stocks.
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