Charles Schwab: On the MarketPosted: 3/7/2016 4:15 PM ET
Markets' Oil-Fueled Start Loses Momentum
Early gains for U.S. stocks that came courtesy of strength in energy issues on the continued rally in crude oil prices lessened late in the day with stocks finishing mixed, as a lowered growth target out of China and a lack of news on the economic and equity fronts to provide any catalyst may have tempered the early enthusiasm. Meanwhile, Treasuries and the U.S. dollar were lower, exhibiting little reaction to a smaller-than-expected consumer credit report, while gold was higher.
The Dow Jones Industrial Average (DJIA) advanced 67 points (0.4%) to 17,074 and the S&P 500 Index was 2 points (0.1%) higher at 2,002, while the Nasdaq Composite lost 9 points (0.2%) to 4,708. In heavy volume, 1.1 billion shares were traded on the NYSE and 2.1 billion shares changed hands on the Nasdaq. WTI crude oil jumped $1.98 to $37.90 per barrel and wholesale gasoline was $0.06 higher at $1.39 per gallon, while the Bloomberg gold spot price rose $9.06 to $1,268.01 per ounce. Elsewhere, the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.3% lower at 97.10.
Bloomberg reported that BASF SE (BASFY $70) is working with advisers and financing banks on the merits of making a counter bid for Dow member DuPont and Co. (DD $65), which agreed to a merger with Dow Chemical Co. (DOW $50) in December, per people familiar with the matter. The report noted that BASF hasn't made a decision yet about proceeding with an offer and no formal approach has been made. BASF and DuPont both declined to comment on the story. DD was higher.
Consumer credit less than expected, U.S. economic week relatively subdued this week
Consumer credit, released in the final hour of trading, showed consumer borrowing expanded by $10.5 billion during January, well short of the $16.5 billion forecast of economists polled by Bloomberg, while December's figure was adjusted upward to an increase of $21.4 billion from the originally reported $21.3 billion. Non-revolving debt, which includes student loans and loans for vehicles and mobile homes, rose $11.6 billion, while revolving debt, which includes credit cards, fell by $1.1 billion.
Treasuries were lower, as the yield on the 2-year note rose 5 basis points (bps) to 0.91%, the yield on the 10-year note added 3 bps to 1.91%, while the 30-year bond rate was flat at 2.70%.
This week, the U.S. economic docket will take a bit of a breather, with the key releases being wholesale inventories and weekly jobless claims, as well as tomorrow's NFIB Small Business Optimism Index, which is expected to tick higher to a reading of 94.0 for February from the 93.9 registered in January, However, the global markets will likely focus across the pond, with Thursday's highly-anticipated monetary policy meeting from the European Central Bank (ECB), which will be preceded by the eurozone's preliminary 4Q GDP report. As noted in the Schwab Market Perspective: Neutral Does Not Mean Boring, the ECB needs to avoid actions that may undermine the financial sector to help sustain the stock market rally. Investors may want to watch for several key developments that could help determine the direction for Europe’s stock market. A cut to the key rate on banks’ deposits at the ECB is priced into futures markets, but a bigger cut may be viewed negatively by investors since it may raise banks’ costs. An introduction of a tiered system to shield some of banks’ deposits from the cost of negative interest rates would likely be viewed as a positive by the stock market. Any expansion of the ECB’s quantitative easing (QE) asset purchase program from the current monthly pace of 60 billion euros may be welcomed by market participants. Read more at www.schwab.com/marketinsight, and follow us on Twitter: @schwabresearch.
European stocks see pressure ahead of ECB decision, Asia mixed
European equities traded mostly lower, retreating from their recent rally amid some caution ahead of Thursday's key monetary policy meeting from the ECB. Schwab's Chief Global Investment Strategist, Jeffrey Kleintop, CFA, offers a look at the global monetary policy front in his article, Central Banks to the Rescue?, at www.schwab.com/marketinsight, and follow Jeff on Twitter: @jeffreykleintop. Financials fell amid festering concerns about the Italian banking sector, while oil & gas issues showed some resiliency to help the markets pare losses as crude oil prices gained steam throughout the day, despite a lowered economic growth target out of China. Economic data in the region was mixed, with eurozone investor confidence surprisingly declining, while German factory orders dipped 0.1% in January, versus the expected 0.3% decrease. The euro traded lower versus the U.S. dollar before battling back after Europe's closing bell, while bond yields in the region were mixed.
Asian stocks finished mixed following Friday's U.S. labor report, which showed job growth was stronger than expected, though wages unexpectedly dipped in February. Also, traders digested China's National People's Congress meeting, where it lowered its 2016 growth target to 6.5-7.0%, from last year's around 7.0% target, while it said it will raise its money supply growth and will allow a record high deficit, per Bloomberg. For more on China, see Schwab's Director of International Research, Michelle Gibley's, CFA, article, 5 Reasons China Won't Crash the Global Economy in 2016, at www.schwab.com/oninternational, and follow Schwab on Twitter: @schwabresearch. Mainland Chinese stocks, as did those traded in Australia and South Korea, but securities listed in Hong Kong Hang and Japan declined, while markets in India were closed for a holiday.
Tomorrow's international economic docket will hold Japan's GDP, consumer confidence and trade balance, retail sales from the U.K., and industrial production from Germany.
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