The story of the day yesterday was oil. With Trump backing out of the nuclear deal with Iran, the commodity received a new catalyst, not to mention renewed Middle East tensions. Thursday morning, the black gold rode the wave of military action in Syria and the Arabian peninsula to surge to a 3.5 year high. Over the last few days, the global crude market has seen gains not seen since November ’14. More than anything it was Trump’s key decision to back out of Barack Obama’s landmark deal, leaving the EU in the lurch. Crude yesterday crossed past the $71 barrel mark, rising almost 3% on the day.
Yesterday, the U.S. published its own crude inventory figures, which were all the more in the spotlight given the recent geopolitical developments. Forecasts had had inventories shrinking by 200 thousand barrels; in effect, U.S. inventories had shrunk by 2 million barrels, giving the world price of crude another boost. The previous U.S. reading had been a rise of 6.2 million barrels, in part explaining the recent bullish trend.
Yesterday, the Producer Price Index recorded a rise of 0.1%, core consumer inflation seeing an uptick of 0.2%.
Economic Diary: The Economic Diary will be jam-packed today with the Consumer Price Index coming out at 8:30, followed by weekly jobless claims at 8:30. The EIA Natural Gas Report will be released at 10:30, with the Fed Balance Sheet and Money Supply both expected for 16:30.
Market Summary: The Dow jumped 0.75%, the S&P 500 surging 0.97%. The NASDAQ took the pot with gains of 1.00%. The NASDAQ is up 3.37% over the last 5 trading days. On the S&P 500, most sectors ended higher, only 4 out of 11 ending down. IT is up 4.05% over the last 5 trading days. Energy stocks were up 0.93% yesterday, followed by materials stocks which ended up 0.81%. Consumer staples fell 0.39% on the day.
One of the things to watch today is consumer inflation. If the figure is too strong today, i.e. too hot, it could spark a rate move. At 8:30 ET, traders will be waiting to see how the 10-year T-bond responds to CPI figures. Yesterday, the yield on the 10-year T-bond was stagnating at around 3%, a notch below its recent 3.033% high. As we’ve noted time and time again, the yield on the 10-year T-bond is a critical metric for the attractiveness of stocks, especially in light of recent uncertainty, which has spanned investigations intro Trump, and geopolitical tensions with Iran, North Korea and China.
Likewise, as noted earlier, the rate on the 10-year T-bond affects the amount of disposable income consumers have, seeing that many loans, and especially home mortgage loans are tied to the yield of the T-bond.
As for expectations, economists see the CPI rising 0.3%, or 2.5% year over year. They expect core inflation to rise 0.2%, or 2.2% year over year. BMO fixed income strategist, Aaron Kohli, noted, “The CPI is going to decide the winners from the losers. PCE is something the Fed tracks, but this is the prices that most people see,” adding, “Which side of that tripwire of 3.033 you fall on is really up to CPI.”
Many analysts weighed in on the significance of the next move, Prudential’s Quincy Krosby taking a similar approach, “When all is said and done this market is looking for direction. There’s a tug of war in the market over where we’re going with the economic data, the Fed, oil prices … we could go on and on.”
Thursday’s Hot Stocks: TWNK, QCOM, NUAN, BKNG, ROKU
Have a great trading day!
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