The market posted its fourth consecutive week of gains

BY  | FROM  | 2016-03-14 15:34

Last December, the ECB disappointed the market, so the market fell.  This week (on Thursday), the ECB reduced its interest rates (the deposit rate went down to negative 0.40%), increased the type of assets it would buy (to include non-bank debt), and increased the amount of those asset purchases (to USD 87 billion).  So the market went up—for two hours.  Then, the market decided that the event was two hours ago and therefore “yesterday,” and since ECB President Mario Draghi said the central bank didn’t “anticipate that it will be necessary to reduce rates further,” meaning “tomorrow” to the market, equities (as well as the euro) pulled back. 

Sounds like the sales guy who gets a record sale and his manager tells him he now has to beat that just to stay on par.  However, not to worry, as the day after’s (Friday morning) “tomorrow” was became by “today,” and since the market preaches tomorrow but lives on today, more stimulus today pushed markets up, led by banks; and the lift (1.65 – the best day of the week) was enough to push the market into positive territory for the week, which was its fourth consecutive week of gains. 

The euro, however, was left behind, as it increased, closing the week up 1.3% against the U.S. dollar (not sure how that worked out for currency traders—they just seemed to grunt).  Outside of the highlighted ECB event, the market traded on, as global background news, such as poor import and export numbers, continued.  Chinese exports were down 25.4% (year-over-year), and the U.S. posted a 6.0% decline, with Chinese imports down 13.8%, compared with the 6.1% fall for U.S. imports. Oil also continued to affect markets, as it continued its rebound, closing up 5.9% for the week. U.S. politics remained a popular news item, but the market has yet to trade on it. 

Next Tuesday will host several major primaries, which could clear up who will be each party’s presidential nominee.  Once the market gets a clearer picture of the candidates (and their chances of victory), it may start to act on the expected outcome, which may translate into movement for issues with ties to trade, energy, and social programs.  In M&A, Japanese company Canon (CAJ; up 0.9% for the week) was reported to be ready to buy the medical equipment unit of Japanese company Toshiba (TOSYY; up 0.5% for the week) for USD 6.2 billion.  Canadian energy infrastructure issue TransCanada (TRP; down 3.1% for the week) was reportedly in talks to acquire Columbia Pipeline (CPGX; up 16.3% for the week).

In economic news, Chinese exports for February decreased 25.4% year-over-year (in U.S. dollars) and imports fell 13.8%, with the resulting Chinese trade surplus falling to USD 32.59 billion from January’s USD 63.29 billion. Chinese consumer inflation, which is heavily weighted from the cost of food, came in up 2.3% for the year-over-year February posting, with Chinese equities declining on the higher-than-expected rate. German January Industrial Production posted a 0.3% gain, the best gain in six years.  At its policy meeting, the ECB reduced its deposit rate to negative 0.40% (from negative 0.30%), cut its interest rate to zero (from plus 0.05%), and reduced its marginal lending rate to 0.25% (from 0.30%).  The bank also added non-bank corporate debt to its asset-buying list, as it increased its monthly asset buying to EUR 80 billion (USD 87 billion) from EUR 60 billion.  The bank also set its growth rate for the EU for 2016 at 1.4% and at 1.7% for 2017. 

The initial reaction was positive for both the market and the euro.  Then in the news conference, ECB President Mario Draghi said the central bank didn’t “anticipate that it will be necessary to reduce rates further”. The January Consumer Credit report came in with an increase in credit of USD 10.5 billion, when a larger increase of USD 16.5 billion was expected, and the December amount was restated downward to USD 6.4 billion from the originally reported USD 21.3 billion.  The report, which is not considered a major indicator, received a lot of attention for the miss and sharp restatement, as it implied that consumers were not taking on as much new debt as thought. The U.S. Import/Export reports posted a 0.3% decline in imports, when a deeper 0.8% decline was expected.  The year-over-year rate was down 6.1%, and exports fell 0.4%, when they were expected to decline 0.5%.  The year-over-year rate was down 6.0%. In issues, Social media issue Twitter (TWTR; off 13.2% for the week) said it was experiencing a “brain drain,” as employees left; the company was countering the departures with incentives to stay. Of note, the U.S. Energy Information Agency (EIA) lowered its Brent crude oil average price estimate for 2016 to USD 34 from USD 37, and it lowered the estimate for 2017 to USD 40 from USD 50.  A report said the Saudi Arabian government had asked for proposals to borrow USD 6-8 billion to assist it in addressing the kingdom’s USD 100 billion deficit (which was due to lower oil prices). 

It would be its first foreign borrowing in over 10 years. The market posted a positive week, which was its fourth consecutive week of gains, as Friday’s 1.64% gain (the best of the five days) left the close at 2,022.19, up 1.11% for the week.  The four-week gain was 8.44%, and the gain from the Feb. 11, 2016, low (1,829.08) was a double-digit 10.56%; the year-to-date, however, is still off 1.06% (2,043.94), with the market off 5.10% from the May 21, 2015, closing high (2,130.82).  The gains were attributed to the ECB action, with the current take being that it was good, as traders saw their action playing well with the U.S. Fed, which will have its two-day meeting next week, starting Tuesday and ending Wednesday, with its quarterly forecast and 2:30 p.m. Chair news conference. Breadth stayed positive, but declined, as Friday’s gains turned the breadth and the market positive.  For the week, 354 issues gained, down from last week’s dominating 429 issues and the prior week’s 403.  Decliners increased to 149 issues, up from last week’s 74 issues and the prior week’s 98.  Five issues gained at least 10% (33 did last week), and 29 others were up at least 5% (99 were last week).  Two issues declined at least 10% (four did so last week), and another 24 issues lost at least 5% (five did so in the prior week). 

Year-to-date, breadth was negative, with 272 issues up, which was down from the 252 that were positive year-to-date last week, with 83 up at least 10% (61 were last week), compared with 232 down issues, slightly up from last week’s 251, with 84 of them off at least 10% (down from the 92 count last week). For the third week in a row, all ten sectors posted gains (thanks to Friday’s action – which was thanks to the ECB). Materials did the best, up 2.14%, and are now up 1.77% year-to-date. Utilities were right behind them, with a 2.13% gain, and are up 10.47% year-to-date gain.  Telecommunication services added 1.38%, as it posted the best year-to-date return, up 12.38%.  Energy added 2.23% on Friday, as it posted a 1.90% weekly gain, leaving it up for the year by 3.00%.  Financials, which added 2.66% on Friday, closed the week up 0.99%, and off 6.01% year-to-date, the worst of any sector.  Industrials did the worst, but managed a 0.48% for the week and off 3.68% year-to-date. Trading volume decreased 10% after last week’s gain (which came after two weeks of declines), but it was still 17% above the one-year average weekly volume.  Measurable volatility (the high-over-low price variance) noticeably decreased to 1.87% from last week’s 4.00% and the prior week’s 3.81% (the one-year average is 3.01%), as Thursday’s 1.82% high/low volatility, due to the ECB reaction, was the only day above the 1% level.  The week posted one 1% move, down 1.12% on Tuesday (five of the last six Tuesday’s has moved at least 1%: three down and two up), the same as it did last week.  The VIX slightly decreased for the week, to 16.50 from last week’s 16.86, and it was more in line with the prior week’s 19.81 (and 20.53 the week before that).  Interest rates moved up for the week, as the 10-year U.S. Treasury closed at 1.98%, up from last week’s 1.88% (and the prior week’s 1.76%).  The 30-year U.S. Treasury closed at 2.75%, a tick up from last week’s 2.70% (and 2.64% the week before that).

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