by Pinchas Cohen
The Week That Was
It may have been a holiday shortened week this past week, with trading volume tailing out as Thursday's Thanksgiving holiday approached, but markets continued pushing higher. The Dow Jones Industrial Average advanced 0.87 percent for the week, posting both a weekly record high and a record close on Friday. The S&P 500 gained 0.91 percent on the week, posting both a record close and record high on Friday, to match its weekly record high, after two down weeks.
However, it was the information-technology heavy NASDAQ Composite that took the lead with a 1.61 percent weekly advance. The NASDAQ Composite's gain was its second weekly up-move and weekly record – high and close – in a row. As well, from a technical perspective, the NASDAQ's records are the most impressive by far.
On Friday, the entire price action took place in record territory. The index's lowest price for the day was higher than the previous record’s highest price. On a weekly basis, only the tops of the upper shadows of the previous two weeks were as high as the lowest level of the week prior, but the past week’s real body was above the previous real bodies, putting the entire real-body in record territory.
Nevertheless, the domestic small-cap stocks, represented on the Russell 2000, gained the most, buoyed by ongoing tax reform optimism. The Russell gained 1.70 percent, posting a record high and close during the course of the week. During Friday's trading however, it extended a second-day decline, after Wednesday's bearish shooting star.
While all the S&P 500 sectors participated in the index's rally, the Technology sector led the index with a 1.82 percent advance, mirroring the NASDAQ; Industrials followed, rising 1.29 percent; Consumer Discretionary stocks advanced 1.17 percent followed by Materials with a 0.91 percent push higher, followed by the Energy sector which climbed 0.67 percent. The smallest advance, at just 0.02 percent, belonged to Consumer Staples.
Macy’s (NYSE:M) and Amazon (NASDAQ:AMZN) were among the S&P 500’s top performers as were Hess (NYSE:HES) and Marathon Oil (NYSE:MRO), the latter two driven by crude oil , which rose to a two-year high on stockpile drawdowns, as well as OPEC and Russia reportedly agreeing on a framework to extend supply cuts, and the closure of parts of the Keystone pipeline.
The shutdown of imports from the TransCanada's (NYSE:TRP) Keystone pipeline following a leak in South Dakota is estimated to cut deliveries to the US by around 85 percent through the end of the month. Still, in a sign of how ferocious equity bulls are right now, Energy was only the fifth leading sector among the market's ten. Even though oil has reached its highest price in two years and energy shares gained, there were still four other sectors that did even better.
While stocks on the Shanghai Composite and SZSE Component plunged on China's governmental tough deleveraging talk, after data that its economy is slowing down initially sent commodities into a freefall, iron ore nonetheless climbed to a two-month high to end the week, while industrial metals notched their best weekly gain in six weeks. Remember that falling commodities initially sent global investors into safe havens, but now commodities are soaring alongside multi-year equity record highs.
Stocks in Europe pared earlier gains to end the week, as the euro headed for a two-month high, while bonds fell as Germany's biggest opposition party said it's now open to talks backing a government led by Chancellor Angela Merkel, offering a way to restore political stability to the eurozone's largest economy. Business confidence in the eurozone’s biggest economy improved too.
Global stocks head into the final weeks of 2017 at record highs as investors place their faith in economic expansion and earnings growth. The debate between equity and bond investors on the outlook for economic growth resumes.
While equities posted records, bonds remained flat for the week. It didn’t help that Janet Yellen cautioned against raising rates too quickly. Looks like we might be seeing a crack in the Fed’s resolve about inflation.
The Week Ahead
All times listed are in EST
Monday
10:00: US – New Home Sales (October): forecast to decline 0.9% MoM after rising 18.9% in September, to a seasonally adjusted annual rate of 667 thousand, beating forecasts of a 0.9 percent overall decline, reaching its largest percentage gain since January 1997, the highest level for this metric since October 2007.
Tuesday
7:00: Germany – Consumer Confidence (December): expected to rise to 10.8 from 10.7. Should expectations be met, it would be a first monthly advance after two monthly declines in a row, after the 10.9 September peak. If expectations are not met, this would be the third consecutive decline for this metric and may send jitters across the euro chart. It is interesting to note that while this gauge has been declining since September, Consumer Spending in Germany, reported quarterly, has been going in one direction – up – since January of 2015.
10:00: US – Consumer Confidence (November): forecast to fall to 124 from 125.9.
The dollar completed a third consecutive weekly decline, in what may demonstrate a lack of faith in continued economic growth. Considering that the US economy is dependent on consumerism, a decline in consumer confidence won’t be good for dollar bulls.
Wednesday
5:00: Eurozone – Business Confidence (November): expected to rise to 1.5 from 1.44.
8:30: US – GDP (Q3, 2nd estimate): growth forecast to be 3.2% QoQ, from 3.0%.
10:00: US – Pending Home Sales (October): expected to decline 2.7% from a 3.5% fall a month earlier.
10:30: US – EIA crude inventories (w/e 24 November): forecast to fall by 1.5 million barrels.
The price of oil is headed to a major key level, its last peak-resistance since it hit $107.
20:00: China – PMIs (November): manufacturing PMI forecast to rise to 51.7 from 51.6, while non-manufacturing PMI expected to hold steady at 54.3.
Thursday
3:55: Germany – Unemployment (November): expected to remain at 5.6%.
5:00: Eurozone – Inflation (November, flash), Unemployment (October): inflation forecast to rise to 1.6% from 1.4%, with core CPI rising to 1.1% from 0.9% (YoY figures). Unemployment forecast to remain at 8.9%.
In a mirror image of the greenback's performance, the euro enjoyed three weeks of consecutive gains. It's going to take a lot of bears to stop this bull-stampede.
8:30: US – Initial Jobless Claims (w/e 25 November): expected to come in at 236K from 239K a week earlier.
9:45: US – Chicago PMI (November): expected to fall to 63 from 66.2.
18:30: Japan – CPI, Unemployment (October): CPI expected to rise to 0.8% from 0.7%, while the jobless rate remains at 2.8%.
Considering the USD/JPY pair registered a lower trough within a range since February, it’s likely to retest the range bottom, at the 108 level.
20:45: China – Caixin Manufacturing PMI (November): expected to hold at 51.
Friday
4:30: UK – Manufacturing PMI (November): forecast to rise to 56.5 from 56.3.
The pound has been paying for the UK’s Brexit-negotiation stagnation. While it’s still above its uptrend line since October of last year, it closed below the range top ahead of the weekend close. This means it’s not free yet.
A close above the October 13, 1.3338 high would suggest a retesting of the September 20, 1.3658 high, while a failure to do so could see the currency return to retest its uptrend line again, after doing so twice this month. There are numerous potential catalysts for this to happen such as: Jeremy Corbyn’s warning that average wages will fall by 858 pounds by 2022; a threat by landlords in Theresa May’s constituency to ban her from every pub, over cuts to the police force; or another Brexit deadlock.
8:30: Canada – Employment Data, GDP (Q3): unemployment rate forecast to fall to 6.2% with 15,000 jobs created. GDP growth expected to slow to 0.4% from 1.1%.
10:00: US – ISM Manufacturing PMI (November): expected to fall to 58.5 from 58.7