- US stocks close higher on Friday, but lower for the week
- US factory output beats estimates
- US retail sales unexpectedly fall for third straight month
- GDP consensus lowered
- Lack of confirmation to NASDAQ’s new record high, coupled with SPX bearish pattern supports weakening fundamentals.
- Four central bank interest rate meetings on tap this week
The Week That Was
US equities ended last week on an up note, closing higher for the first time during the course of the week, driven by positive factory output and consumer sentiment data, ahead of the Federal Reserve meeting this coming week.
The S&P 500 rebounded Friday from its longest setback of the year, thanks to Energy shares which were in turn boosted by WTI crude crossing $62 a barrel.
Still, on a weekly basis, the most watched US benchmark was down 1.24 percent, led by the usual suspects, all currently taking a hit as the possibility of a trade war looms ever larger: Materials (-3.54 percent), Industrials (-2.38 percent) and Financials (-2.79 percent). The first two are obvious; they are affected the most by a tit-for-tat tariff increase.
Financials could suffer for two reasons: (1) the outlook for growth would sink under a trade attack, which means the Fed will have no reason to raise rates, the main income stream for banks and (2) mixed reports on factories, consumer spending and growth left bank shares out of the running on Friday. They eked out a 0.09 percent gain.
After the SPX rallied at the open, much of the gains were reversed late in the session thanks to “quadruple witching.” This past Friday was the expiration date for stock index futures, stock index options, stock options and single stock futures.
The final, major economic data releases before this coming week's Fed meeting were mixed. U.S. factory production bounced back in February, increasing 1.2 percent, exceeding 0.5 percent estimates, according to Federal Reserve data, and consumer sentiment jumped to its highest since 2004. But unexpectedly weak February retail sales—falling for a third straight month, down 0.1 percent, when + 0.3 percent was forecast—pushed down estimates for the annualized pace of expansion in the first quarter, to 1.8-2.00 percent, down from 2.5 percent.
This doesn’t paint a clear picture of unrestricted growth. Fundamentally, even if stocks should continue higher, there's no sign of the Animal Spirits that preceded the $1.5 trillion in tax cuts signed into law by President Donald Trump in December. In market logic, when positive developments fail to boost stocks, that's a negative signal, in line with the old Wall Street adage: “Buy on the rumor, sell on the news!” Does this mean the tax cuts have already been priced-in?
As analyst and trader Yonatan Shaked posted on LinkedIn last week, from a technical perspective, the failure of another major index to confirm the NASDAQ’s breakout into a new record high suggests it’s nothing more than a fake-out and won’t have the stamina to keep on going.
The S&P 500 is also developing a bearish Rising Wedge, suggesting a downside breakout and signaling another sharp move lower, following the 11 percent plunge since it’s all time high in late January.
The Week Ahead
All times listed are EST
Monday
20:30: Australia – RBA Meeting Minutes: On Friday, the Reserve Bank of Australia's Deputy Governor, Guy Debelle, warned that investors have grown complacent on rising interest rate risks, amid reduced monetary stimulus by global central banks. Is that a hint about the Deputy Governor’s own central bank’s upcoming rate policy? The minutes could provide additional insight.
The Aussie's hard, two-day fall was stopped dead by the March 1 trough, a Hammer. Might this turn into a double bottom?
Tuesday
5:30: UK – CPI (February): expected to be 2.9% YoY from 3%, and -0.6% MoM from -0.5%. Core CPI to rise 2.6% YoY from 2.7%.
6:00: Germany – ZEW (March): economic sentiment index to rise to 19.5 from 17.8.
11:00: Eurozone – Consumer Confidence (March, flash): forecast to fall to -0.4 from 0.1.
Wednesday
5:30: UK – Employment Data: January Unemployment Rate expected to fall to 4.3% from 4.4%, while Claimant Count forecast by 5800; Average Earnings rise 2.5% for January, in line with last month.
10:00: US - Existing Home Sales (February): expected to rise 0.9% MoM from a 3.2% fall.
10:30: US – EIA Crude Oil Inventories (w/e 16 March): stockpiles expected to rise by 1.4 million barrels, from a 5 million increase in the previous week.
14:00: US – FOMC Statement: the Fed is forecast to raise rates by 25 basis points, to 1.75%. Further details on the reduction of the QE program may be provided in the statement, along with an economic outlook.
16:00: New Zealand – RBNZ Interest Rate Decision: Economists see no prospect of acting Reserve Bank governor Grant Spencer lifting the official cash rate in his final review next week and do not expect him to deviate from the line that rates are on hold for the foreseeable future given the lack of inflation.
Despite no expectation for a hike, the kiwi has rallied strongly in the last two days. A penetration of the 1.39 level may bottom out the pair.
Thursday
4:00-4:30: Eurozone – French, German, eurozone PMIs (March, flash): these will prove key for euro direction, with the European indices coming off their highs even though they remain firmly in expansion territory.
5:30: UK – Retail Sales (February): forecast to rise 0.5% MoM and 1.6% YoY, from 0.1% and 1.6% respectively.
8:00: UK – BoE Rate Decision: no change expected, but watch for any change in the voting patterns, after a unanimous decision last time left rates unchanged.
The GBP/USD may have completed a bullish Falling Wedge, suggesting a continuation of the prevailing uptrend.
9:45: US – Manufacturing and Services PMIs (March, flash): services forecast to fall to 55 from 55.9, while manufacturing falls to 54.5 from 55.3.
19:30: Japan – CPI (February): forecast to fall to 1.2% YoY and 0.1% MoM, from 1.4% and 0.4% respectively. Core CPI to fall to 0.8% YoY from 0.9%.
Friday
8:30: US – Durable Goods Orders (February): forecast to rise 0.4% MoM excluding transportation (from a 0.3% drop), while overall they are expected to fall 2% from a drop of 3.7% MoM.
8:30: Canada – CPI (February): expected to be 1.4% YoY from 1.7% and 0.4% MoM from 0.7%. Core CPI to be 1.3% from 1.2% YoY.
10:00: US – New Home Sales (February): forecast to rise 3.8% MoM from a 7.8% drop.