31 Mar MONETARY POLICY ASSUMPTIONS ARE STRONGER THAN CRUDE
Equites initially advanced as oil inventories were not as great as expected, then traded lower as the dollar rallied which caused crude to erase a 4% advance, and then rallied at the close on monetary policy assumptions posting about a 0.50% advance.
The S & P has climbed about 12% since it 22 month low on February 11, erasing the worst annual start for equities on surging crude and central bank actions. There is virtually no chance of an interest rate hike in April and the probability of an increase in June has now fallen to 28% from 46% a week ago because of Yellen’s comments, comments suggesting the central bank would tolerate inflation above its target instead of tightening policy too soon.
Will the outlook change yet again if tomorrow’s employment report is stronger than expected? Probably.
The S & P has now gone 12 sessions with a swing of at least 1%, the longest since June according to Bloomberg. Is volatility subsiding or is this just the calm before the storm?
Earning season commences April 11. Analysts are forecasting S & P 500 profits to fall by 9.3% compared with predictions for a 4.5% drop two months ago. How will these results be interpreted? Will volatility again increase or will the focus remain on monetary policy and crude? I will argue the latter.
What will happen today?
Last night the foreign markets were down. London was down 0.40%, Paris down 0.89% and Frankfurt down 0.47%. China was up 0.29%, Japan down 0.71% and Hang Sang down 0.13%.
The Dow should open flat. March will be the first “up” month in four as a huge rally in oil propelled gains, a rally few had anticipated 30 days ago. The dollar also weakened a weakening that few also had expected. The 10-year is up 2/32 to yield 1.82%.