Tuesday, July 19, 2016, 11:31 AM, EST
- Dow -0.02% S&P 500 -0.2% NASDAQ Composite -0.3% Russell 2000 -0.2%
- NASDAQ Advancers: 814/Decliners: 1280
- Today’s Volume: -4%
Market Update:
Stocks are mixed this morning, with the US dollar Index moving to its highest level since March, helped by monthly housing starts number beat expectations. The Brexit prompted the IMF to revise its global economic outlook, and might be weighing on Euro/US Dollar Index trade this morning. Nine out of ten S&P Industry sectors are lower, with Energy, Materials, Telecom and Utilities all lower by about 0.5%.
MID Stat: We’re seeing a trend comparing the US Dollar Index vs the S&P 500 this month, as the US currency and US equities have started divert from each other. In July, there have been 12 trading days and only once the DXY and SPX have finished the session on the same side of the tape.
- Housing Starts came in at 1.19 million, better than the survey estimate of 1.17 million. Starts rose 4.8% in June (MoM), well in excess of the 0.2% survey estimate. Building permits were and in-line 1.15 million.
- Fed Fund Futures assign about a 20% probability of a rate hike in September but the WSJ has an article that says Fed officials might consider a September rate hike now that the markets have recovered after the Brexit vote selloff and the economy is looking better. Economic data will need to cooperate in between now and then of course. While there is very little chance of a July move by the Fed, the post-meeting statement might give additional clues.
- On the other side of the rate spectrum, Bloomberg notes that Morgan Stanley’s head of global interest rate strategy expects the US 10-year treasury yield will fall to 1% by 1Q 2017.
- Part of the reason for the low rate forecasts may have to do with the IMF (again) cutting global growth forecasts for 2016 to 3.1% vs. the prior 3.2%. The IMF also cut 2017’s forecast by 0.1% to 3.4% and lowered the US growth forecast to 2.2% from 2.4%.
- And from our friends at StreetAccount: Bloomberg cites data from Morningstar showing investors withdrew $21.7B from actively managed US funds in June, the biggest outflow since the height of the financial crisis in October 2008. By contrast, passively managed index funds and ETFs attracted inflows of $29.2B.
Technical Take:
In yesterday’s blog we highlighted the US Dollar’s (USD) coiling price action over the prior three weeks, and its potential for an upside breakout. Today that breakout is reality as the basket has broken through resistance to four month highs. A strengthening dollar can at times have a profound impact on other asset classes, particularly as it relates to commodities. The below chart of the Bloomberg Commodity Index and a basket of the USD clearly depicts an inverse relationship between the two asset classes.
Taking a closer look at the commodity index shows the group has recently been in consolidation mode following a 24% rally from its January 2016 lows to June highs. An impressive move yet it remains unclear if this was simply a bear market rally given the commodity index declined 10%, 17%, and 25% over each of the prior three years from 2013 – 2015. Of concern today is the potential topping pattern the commodity making is making along its horizontal support in the $85.50 - $86 range. In addition its relative strength vs. the S&P 500 recently broke its uptrend line, while the momentum indicator RSI is in a declining channel of lower highs and lower lows.
Thus if today’s strength in the USD is the beginning of a sustained uptrend, the setup is there for commodities to break down below support which in turn could have implications for the broader equity markets.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Annie O'Callaghan is Director on the Market Intelligence Desk (MID) at Nasdaq. Annie has worked for NASDAQ in a variety of roles including support of Nasdaq C-level management in client retention and customer service. Annie also served as a Sales Director in Nasdaq’s Transactions Services business. Prior to joining Nasdaq, Annie worked at AX Trading, managing accounts for its Alternative Trading System and served on Credit Suisse's trading desk as an Electronic & Algorithmic Sales Trading Analyst.
Brian Joyce, CMT has 16 years of trading desk experience. Prior to joining Nasdaq Brian executed equity orders and provided trading ideas to institutional clients. He also contributed technical analysis to a fundamental research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Airline companies among others understand the trading in their stock. Brian is a Chartered Market Technician.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
