Monday, March 18, 2019, 12:31 PM, EST
- NASDAQ Composite +0.04% Dow -0.10% S&P 500 +0.12% Russell 2000 +0.09%
- NASDAQ Advancers: 1272 / Decliners: 1070
- Today's Volume (vs. Friday)-30.38%
- Crude+0.75%, Gold+0.08%
- March US NAHB Housing Market Index 62 vs. consensus 63. February unrevised from 62
- The Federal Reserve begins its two day policy meeting tomorrow
- Worldpay is being bought by financial services technology company Fidelity National Information Services (FIS) in a cash and stock deal worth $35 billion, excluding assumed debt.
- Caesars Entertainment and Eldorado Resorts are in early stages of merger talks
- Deutsche Bank AG and Commerzbank AG confirmed they are in merger negotiations
- Japan reported its third consecutive year over year decline in exports for February (-1.2%)
The markets finished last week in solid territory despite some mixed economic news as Boeing shares turned around and there was renewed optimism surrounding a U.S.-China trade deal. The Dow rose 1.7 percent for the week while the S&P rose 2.9 percent (largest 1 week gain since November) and Nasdaq climbed 3.8 percent. Last week’s gains were led by technology shares which as a category surged 4.9 percent making the sector the leading performer for the year thanks to renewed M & A activity and solid earnings. With the exception of two weeks ago, 2019 is off to a pretty good start. The Dow is up +10.8 percent with the S&P +12.5 percent and Nasdaq +15.8 percent. There is historical perspective that tells us this should continue. The stock market has risen in the year after all 18 midterm elections since World War II, with the S&P 500 delivering an average return of 14.5 percent, according to LPL Financial Research. In addition the year prior to a presidential election has almost always been a good one. In the last 19 years, the market is up on average 15 percent and 18 out of 19 times it’s been positive.
Turning to today’s market, much of the same themes that dominated last week are evident today. On the trade front, there was a report in the South China Morning Post that a potential trade accord between the U.S. and China may not be formalized until June. This report is in direct contrast with reports on Friday that stated the two countries are expected to strike a trade deal sometime between late March and April. Over in Europe, stocks are trading in positive territory as Deutsche Bank AG and Commerzbank received the green light to proceed with merger negotiations. However there remains no resolution to the Brexit plan as Prime Minister Theresa May continues to face opposition and some government officials have suggested she should step aside. Domestically, Boeing remains top of mind with investors after the Department of Transportation initiated an investigation of the company’s control of the 737 Max’s design certification process. All this has made for a very measured trading session during the first trading day of the week. There is only one economic report today and it comes from the housing sector.
The National Association of Home Builders Housing Market Index for March was unchanged at 62 though just below the median estimate of 63. This reading followed a December report that was the weakest since 2015 indicating that builders are more upbeat amid the most favorable mortgage rates for buyers in more than a year and a historically strong job market. The one negative side to the report was the gauge of buyer traffic decreased to 44 from 48. This seemed to indicate that buyers are still facing barriers to affordability. Tomorrow the Federal Reserve begins a two day policy meeting on fiscal policy and rate hike discussion. The Fed is expected to hold rates steady and actually lower projections for the number of interest rate hikes this year.
In addition it is expected that they will announce the end of asset roll off from its balance sheet In the commodity pits, oil touched new highs this morning after reports from the recent OPEC and Non-OPEC ministers meeting in Azerbaijan indicated that they planned to exceed their production cut commitments and that they may need to extend the curbs until the end of the year. In addition OPEC canceled its April meeting leaving current production cuts in place waiting to see what effect the sanctions on Iran and Venezuela will have on inventory levels. Gold prices are firming up this morning on expectations the Fed will remain accommodative for the balance of the year, keeping the dollar in check and making bullion more attractive. From a sector perspective we have a true mixed bag this morning with Energy leading (+1.20%), followed by Consumer Discretionary (+1.03%) and Financials (+1.00%). The worst performers are Communications (-0.56%), Utilities (-0.43%) and Healthcare (-0.11%). The VIX has risen a bit today to 13.26 while the Dollar Index has fallen to 96.50.
Economic Calendar w/o 3/18
- 10:00 am March Home builders' index
- 8:30 am February Housings starts
- 10:00 am January Factory orders
- 2:00 pm Federal Reserve announcement
- 2:30 pm Jerome Powell press conference
- 8:30 am 3/16 Weekly jobless claims
- 8:30 am March Philly Fed index
- 8:30 am Q4 Current account deficit
- 10:00 am Q4 Quarterly services survey
- 10:00 am February Leading economic indicators
- 9:45 am March Markit manufacturing PMI (flash)
- 9:45 am March Markit services PMI (flash)
- 10:00 am February Existing home sales
- 10:00 am January Wholesale inventories
- 2:00 pm February Federal budget
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Brian’s Technical Take
Global equities are off to a good start this week led once again by China’s Shanghai Composite (SHCOMP) with a 2.5% gain in today’s session. Many Asian economies including China fall into the emerging market bucket and are helping to drive performance in the emerging market ETF (EEM). Last week the EEM registered its best weekly performance in 2019 (+3.5%), and today is up another 1%. After a 17% decline in 2018, the EEM is up 11% YTD.
On Friday, we highlighted the constructive technical setup of the emerging markets ETF (EEM) and noted 58% of its geographical footprint is in Asia. The ETF’s top three countries are China (28%), South Korea (13%), and Taiwan 11%. With the EEM now on the cusp of making fresh YTD highs, it’s nice to see the constructive setup in many Asian currencies.
The JP Morgan Asia Dollar Index (ADXY) bottomed back in October and ended 2018 with an annual decline of 4%. The rebound off the December lows stalled in late January and the ADXY has since been consolidating to form the “handle” of a good sized “cup and handle” bottoming pattern. A move above 106.80 would confirm the upside reversal and carries with it a minimum measured move to 110.37.
This scenario would indicate global flows are heading back into Asia and emerging market economies after a difficult 2018. Given the strong positive correlation to the EEM ETF, an upside breakout in the ADXY should help drive performance in Asian and emerging market equities.
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Nasdaq's Market Intelligence Desk (MID) Team includes:
Charles Brown is Associate Vice President on The Market Intelligence Desk with over 20 years of equity capital markets experience. Charlie has extensive knowledge of equity trading on both floor and screen based marketplaces. Charlie assists with the management of The Market Intelligence Desk and works with Nasdaq listed companies providing them with insightful objective trading analysis.
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.
Brian Joyce, CMT is a Managing 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).
Michael Sokoll, CFA is Associate Vice President 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.