DIA +.99%, SPY +.85%, QQQQ +.95%
10-Year Treasury -1/2 yielding 3.97%
Oil -$2.54 to $58/bbl
Dollar +.85%/euro and +.6%/yen
The markets reacted positively to an increase in consumer confidence which increased from 103.2 to 105.8. Also within the index, the “jobs are hard to find number” decreased from 24.1 to 22.6. In addition, oils more than 4% drop today added fuel to the bulls run. It’s important to note the current inverse relationship between oil and the market’s closing number. The advance decline ratio was 3-1 on the NYSE and 4-1 on the NASDAQ, indicating today’s rally was very strong.
The 10-Year Treasury fell ½ to yield 3.97%. The bond market is divided regarding the status of Fed tightening, with some traders arguing the Fed is near done while others argue there is still some way to go. Economic information that confirms the former leads to buying whereas economic numbers that confirm to latter lead to selling. Today’s numbers confirmed the Fed still has some upward room on the hikes, therefore leading to the sell-off. In addition, the market is technically overbought at these levels. However, that has not led to a sell-off for the last month or so. Finally, the yield chart may be forming a double-bottom, a technical formation that can signal the end of a particular price movement.
Oil dropped $2.54 to $58/bbl. Part of the reason for today’s slide was simple profit-taking. Traders have had a strong run, pushing prices to record levels. The market is technically near overbought levels, indicating a turnaround in price was possible. In addition, traders speculate that tomorrow’s weekly oil inventory report will show an increase in the especially important distillate market. Traders have recently focused on this market, concerned that today’s peak refinery levels will hinder winter heating oil supplies.
The dollar rose .85% versus the euro and .6% versus the yen. The increase in consumer confidence led forex traders to think the Fed was not ending its rate increases anytime soon. Higher interest rates make a target currency more attractive because traders often park money in government debt of their target currency. Higher interest rates increase their yield on these holdings. In addition, oil’s recent spike may hurt US consumer spending. As Japan is a net exporter, this could slow the Japanese economy.