All three major indexes including the S&P 500 lost ground last week for the first time since January. Stocks were buffeted by tumbling oil prices and the impact – for better or for worse – of the GOP’s new healthcare plan.
But on Friday, a strong jobs report helped stocks finish the week on a high note and all but guaranteed a rate hike by the Federal Reserve when it meets this week. The yield on bonds advanced off the prospect of a Fed rate hike, with the yield on the 10-year Treasury closing the week at 2.575%.
Early last week, the Republicans unveiled their plan to replace the Affordable Care Act, called the American Health Care Act. The new plan, which relies on tax credits rather than mandates, was the subject of intense debate on Capitol Hill among those Democrats who thought it went too far and those Republicans who didn’t think it went far enough. (The Congressional Budget Office is scheduled to release a report today about its costs and coverage). The American Medical Association and the American Hospital Association came out against the bill in its current form, and governors from both sides of the aisle were concerned about the plan’s rollback of Medicaid assistance. Nonetheless, the plan worked its way through some congressional committees and will come before the House Budget Committee on Wednesday, after which it will head to the House for what promises to be a long debate.
Oil falls back below $50 a barrel
The price of oil began to rebound last November after the Organization of the Petroleum Exporting Countries (OPEC) announced its intention to cut production at the beginning of 2017 – and it has made good on its pledge.
However, last week the price of a barrel of United States crude fell back below $50 for the first time since November. This came after the U.S. Energy Information Administration announced that current stockpiles were much larger than forecast, rising 8.2 million barrels and bringing down the stocks of energy companies with it. The New York Times quoted Harold Hamm, CEO of Continental Resources, a major oil producer. Hamm said domestic oil production was increasing so fast that it could “kill the market.” U.S. crude finished the week at $48.49 a barrel, while Brent closed at $51.37.
Jobs and the Fed
Friday’s unemployment report was the last major economic release before the Fed’s two-day meeting this week (followed by Chairwoman Janet Yellen’s press conference). The assumption was that the Fed would raise its rate barring any bad news. The report was anything but, with 235,000 jobs created in February – President Donald Trump’s first full month in office – while the jobless rate fell to 4.7% from 4.8%. Better still, wages were up 2.8% from a year earlier, and the participation rate ticked up to 63% from 62.9%. Given Yellen’s remarks of the week before last, which set the stage for a hike, one is now all but certain (the CME Group puts the odds at 89%).
Around the Eurozone
Driven by domestic spending, eurozone gross domestic product (GDP) rose 0.4% in the fourth quarter from a year earlier. Meanwhile, in a positive sign for the region’s economy, investor confidence climbed from 17.4 in February to 20.7 in March, its highest point since August 2007, before the financial crisis began.
With populist candidates running in France, Germany and the Netherlands, Mario Draghi, the president of the European Central Bank, addressed the trend after the bank’s meeting on Thursday (at which there were no policy changes). He said, “Open trade has been the pillar of world prosperity for many, many years.” The Organization for Economic Cooperation and Development also weighed in on protectionism last week, saying that global GDP will be 3.3% this year compared to 3% in 2016, but cited the risk of new trade barriers as a major variable
China’s PPI surges
China’s Producer Price Index (PPI) surged 7.8% in February from a year earlier, according to China’s National Bureau of Statistics, the fastest pace since September 2008, which lifted the outlook for global reflation. It was the sixth straight monthly increase for the index.
U.S. Net Worth rises
Given the stock market’s recent run, it’s hardly surprising that the Fed reported that household net worth increased to $92.8 trillion in the fourth quarter, with the value of equities up $728 million and real estate improving $557 billion. In other economic news, factory orders rose 1.2% in January from the month before; factory orders less transportation increased 0.3%. Orders for durable goods climbed 2% in January; orders excluding transportation were flat. And orders for capital goods excluding aircraft dipped 0.1%. The U.S. trade gap for January was -$48.5 billion, up from -$44.3 in December as imports rose $5.3 billion from the month before, while exports increased $1.1 billion. CoreLogic reported that home prices, including distresses sales, were up 6.9% in January from a year earlier and gained 0.7% from December. In yet another sign of rising consumer sentiment, Bloomberg’s Consumer Comfort Index hit 50.6 in early March, its highest level since March 2007. And first-time jobless claims for the week ending March 4 rose 20,000 to 243,000; the four-week moving average climbed 2,250 to 236,500.
A look ahead
This week’s releases will include the latest on small business optimism, the Consumer Price Index, retail sales, business inventories, housing starts, industrial production and consumer sentiment. All of those reports, however, will be overshadowed by the Fed’s meeting on Tuesday and Wednesday and what is expected to be its first rate hike of 2017.
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