Everyone was screaming all-time highs at the beginning of the week into pretty much the end. Then came Friday. The Federal Reserve helped the upside with the super-dovish stance. All of the early week upside on weak economic data. Out of the US, CPI data fell and other global economic data continued to miss helping the slow down of suggested global economic growth. Check out the section below.

The dove, I mean the Fed announced their decision for Q1, no hike and continued to jawbone a dovish stance. Ultimately helping the US markets rally, slightly on Wednesday but drastically on Thursday. It was panic buying. The FOMC had a planned two rate hikes for 2019, that dot plot dwindled down to no hikes in 2019, and one potential hike in 2020. They also addressed the balance sheet, in which the tightening would end in September. Powell addressed domestic and global concerns and at current conditions, a no hike decision would be best, along with patience. There is no need to change monetary policy just yet. Off the news, the yield curve flattened and rates fell throughout the world. The 10-year German bund hit negative territory for the first time in 3 years and the US short term inverted. Should we be talking about a potential recession now?

Brexit was in the news again as PM Theresa May is struggling to keep the calmness throughout the UK. May managed to get a month-long extension to the original deadline, all this before the Parliament votes next week.

In other market news, crude oil hit the much anticipated $60.00 level peaking its head just above that level. Not able to sustain the bulls, however, the drop came out on Friday nearly erasing the whole week’s gains. Gold moved up throughout the week as well hitting the $1320 level for the first time in a month, helped by the weak dollar off the Fed announcement.

Boeing makes headlines, or continues to do so should I say. The stock dropped as further questions were raised and the investigation continues. Was there negligence? We think so. Indonesia canceled a bulk order worth billions which certainly did not help the airline. In other corporate news, Nike experienced FX headwinds which were expected to eat at future growth. Even after beating earnings, the stock slumped a lot on Friday’s bear close.

Here is a look of last week’s stock market on a daily basis (red vertical lines split days).

Stock Market and Sector Overview

Here is a break down of the weekly performance in various stock market sectors (top chart):

  • Energy stocks down 0.04%
  • Technology up 0.44%
  • Financials down 4.86%
  • Retail down 2.18%
  • Utilities up 0.49%

Overview of key markets last week (bottom chart):

  • Crude oil up 0.60%
  • S&P500 down 0.09%
  • Silver was up 1.61%
  • Gold up 1.31%
  • US dollar down 0.11%

Recession Indicator flashing! Warning, Warning!

This week’s Fed announcement left a salty taste in traders mouths. From the 2019 highs on Thursday to slumping 60 odd points on the S&P500 on Friday, not to mention other markets like the Dow and Nasdaq. Dow weakness was helped by Boeing disarray of course but there was more to it. Yields slide, and equities below massive support levels. What happened with the dovish outlook from Wednesday? Apparently, there are no more rate hikes scheduled for 2019 and just one in 2020 as per economic data. Or does the Fed want to see a 3000 S&P 500, that didn’t go too well into this weeks close? So what does this mean? Let’s lay it out, if markets continue to all-time highs and data keeps coming out weak, as it has been, the fall will be a lot larger than initially expected.

The doves fizzled out into the close of Wednesday’s session and overnight, but were revived desperately by panic buyers. The economic data had other plans, global economic data that is. The Euro fell, and 10-year German bunds dropped negative for the first time in three years. German manufacturing sector data slumped heavily which weighed on markets. The auto sector out of Europe was the first to fall, down 1%, banks also took a hit along with industrial goods. This weak data could be considered a catalyst for more weak economic data to come, which means weaker global equities. Not to mention the much-anticipated trade deal between China and the US which seems like it has been going on for years. Trade reps out of the US (Lighthizer and Mnuchin) are on their way to China at the end of the month.

The US 3-month to 10-year yield curve flattened after the Fed announcement which moved the German 10-year yield into negative territory. The 3 months and 10-year spread are now at 2 basis points, narrowing to levels that have not been seen since August 2007.  You know what that means, right? Recession talks are starting up again. With further economic data turmoil out of China and the US markets reaction to the Fed announcement days after the matter could hint to QE. Meaning the next course of action might be a rate cut as discussed last week. There is desperation for the trade deal to go through and economic data to strengthen.

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Weekly Economic Calendar

After such a news heavy and volatile week, the economic data release slows down. This week we have a limited amount of high impact events set to hit the wire. Starting on Tuesday of the week, we have two large events out of the US, the rest from the rest of the world.

Monday, no news.

Tuesday, Consumer data out of the US and rate data out of New Zealand at night. Watch the Kiwi.

Wednesday, trade balance out of Canada and Business Confidence out of New Zealand. We’ve got oil inventories midday as well.

Thursday, Final GDP out of the US, this will be a market mover premarket.

Friday, Current account out of the UK, which will move the GBP among Brexit talks. Along with the Parliament Brexit Vote, keep an eye out on the GBP. GDP data out of Canada as well.

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