Market Intelligence

IMF Expresses Concerns Over High Government Debt

Thursday, April 19, 2017, 10:49 AM, EST

  • NASDAQ Composite-0.54% Dow -0.08% S&P 500 -0.45% Russell 2000 -0.27%
  • NASDAQ Advancers: 1031 Decliners: 1111
  • Today’s Volume (100 day avg) +5.4%

Following three days of gains the market opened lower this morning with most sectors in the red, but we are off the lows. Consumer Staples are down a whopping 3.2% on earnings and downgrades while the Financials lead with a 1.3% advance as rate inch higher. After softening over the past few weeks rate are on the move once again with yield on the 10-yr at 2.91%, the highest since Feb 22nd. Meanwhile the dollar index is off 0.1% and gold down 0.2%, and crude oil is up 1.1%.

  • The International Monetary Fund (IMF)reported from their spring meetings this week that worldwide debt totaled $164 trillion, higher than financial crisis levels with Japan, China and the United States account for half. The IMF note said “Public debt plays an important role in rising global debt. Debt-to-GDP ratios in advanced economies are at levels not seen since World War II. Public debt ratios have been increasing persistently over the past fifty years.” High government debt is a concern because it limits a country’s ability to react when you have a downturn in the economy. The IMF singled out the U.S. saying that among advanced economies, the U.S. is the only country that expects an increase in the debt-to-GDP ratio over the next 5 years. With a rising interest rate environment, the $1.5 trillion tax cut & $300 billion spending bill recently enacted out of Washington D.C., this issue may only be exacerbated. The US Nation Debt Clock is across the way from the Marketsite in Times Square and shows $20,659,417,191 in debt as of this morning. But don’t worry, that’s just a paltry $642,413 per family.

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  • The Bloomberg Commodity Index has outperformed the major equity indexes so far this month with a 3.87% advance compared to 2.57% on the SPX. Crude oil and base metals get the credit with WTI oil up 6.1% month to date, 3.1% for Copper, 26.4% on Aluminum, 14.7% on Nickel, and +6.3% for steel rebar. Much of the action is attributed to Russian sanctions and looming tariffs. Bloomberg comments that the correlation between base metals and inflation has been consistent over the past decade, and when adding in higher oil prices, above-target inflation could be on the horizon.

  • Unemployment claims remain near historic lows, coming in this week at 232k, down slightly from last week and generally in line while continuing claims eased to 1.863 million. The Leading Indicators Index gained 0.3% as expected and February was revised higher by 0.1%.

Technical Take:

Semiconductor stocks are leading to the downside today after another large chipmaker released disappointing guidance this week. As a result the Philadelphia Semiconductor Index (SOX) is leading to the downside today with a decline of (3.3%). Semiconductors have been an absolute monster during four of the last five years, including annual gains of 37% and 38% in 2016 and 2017. Of concern is the long term, two-year weekly period chart which is beginning to look “toppy” with a potential large head and shoulders pattern in the making. The weekly RSI which made a 17-year high in November, formed a very noticeable bearish divergence of lower highs s price was making all-time highs in March.

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The relative strength chart flipped bearish in March when the ratio of the SOX to the S&P 500 (SOX/SPX) broke down below its 40-week moving average, which just last week then started acting as resistance (white arrow), and is now making a lower low. Also note the bearish divergence as the ratio made a higher high in March but RSI made a lower high. Despite the warning signs, price still does remain above the 200-day and 40-week moving averages, which line up with the rising neckline of the potential topping pattern. However a break below those moving averages would certainly mark a change of character for this bull market leader, and could potentially signal broader concerns for the stock market.

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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 is a Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.