Overnight themes point to decoupling in global markets – potentially positive.
European and US markets did in fact decouple from the China trade – at least for a day. It was a breath of much needed fresh air. As you remember, Chinese markets in the overnight on Monday dropped sharply to register one of their largest one-day declines of the past year as measured by the CSI 300 – and that is saying something. However, European markets did not follow that lead. In large part, European equities managed to hold off further declines yesterday as a result of anticipated ECB accommodation, significantly cheaper equity valuations and a wait and see attitude in regards the FOMC Announcement today. All major European equity indices held up relatively well, closing mixed. That stall in the global downdraft, coupled with US corporate earnings, US economic data, anticipation of the FOMC Announcement today and a resumption of the rally in crude (+3.19%) all worked in concert to provide a meaningful lift to US equity market indices that looks to be closing the door on one of their worst monthly performances in history on Friday.
The S&P 500 (+1.41%), Dow industrials (+1.78%) and NASDAQ (+1.09%) all moved higher regaining ground lost in Monday’s unceremonious rout. Volume on the NYSE rose by 2.11% and fell on the NASDAQ by 3.46%. Internals on the NYSE and NASDAQ were positive however by a margin of 3-1 and 2-1 respectively. Every major market sector gained ground. Technically, yesterday was a follow through day and as a result the near term trend of the market shifted to a confirmed uptrend. Practically speaking, though we may have decoupled from China for an undetermined period, crude remains topical, to put it mildly. As we have discussed, today’s FOMC Announcement in conjunction with Q4 earnings should continue to provided a counter weight to the crowded trade that is best defined by correction.
In a note I wrote last week, given the continued economic expansion underway domestically as measured by most metrics, I suspect the Fed will speak to volatile markets without being committal as to the time line for the next move in rates. Odds of a move in rates in March have fallen precipitously in recent weeks.
On the earnings front yesterday, Dow components JNJ and MMM reported better than expected Q4 results before the opening bell. After the close AAPL reported earnings that left investors less than enthusiastic. The takeaways being that guidance, lack of product diversity and slowing demand in China all confirmed Apple’s retrenchment and cautious outlook. Technology behemoth FB is scheduled to report today. AMZN is set for Thursday.
Yesterday’s Economic Calendar provided a boost to equities as well. The S&P Case-Shiller HPI rose by 0.9 versus consensus expectation so 0.7. Consumer Confidence for the month, as measured by the Conference Board, was a very solid 98.1 versus expectations of 96 and a revised prior reading of 96.3. The PMI Services Flash met consensus at 53.7, and the FOMC Meeting got underway.
Today’s Economic Calendar will be dominated by the FOMC Meeting Announcement which is scheduled for 2:00 PM EST. Otherwise we receive New home Sales at 10:00 AM EST the the EIA Petroleum Status Report at 10:30 AM EST.