The U.S. dollar is mixed against major pairs after a week where Fed speakers offered a mixed narrative. The majority of policy makers agree that the massive balance sheet accumulated during the quantitative easing program from the U.S. central bank should start shrinking sooner rather than later. The point of debate remains the number of rate hikes in the horizon, with St. Louis Fed President James Bullard calling it "unnecessarily aggressive."
A week ago, heavily weighted tech stocks were taken to the woodshed. By far the most important market observation we could have is to see how they’ve recovered. If they don’t recover, there is little hope for the market to get a sustained leg up through the summer.
Economic data released this week has the market questioning how serious the Fed is about its economic forecasts as inflation, retail sales and building permits all came in lower than expected this week. The Trump administration continues to be caught in the turmoil of the Russian connection investigation and it now appears the President will be under investigation doing the dollar no favors.
Imagine oversleeping on Friday morning and waking up to find the Nasdaq down 100 and the Dow up nearly 50. You probably would’ve thought you were dreaming. Perhaps you’d roll over and go back to sleep. In this new era of strange trading days, Friday had to rank right up there with the strangest of them.
The euro/U.S. dollar currency pair lost 0.749% in the last five days. The single currency is trading at 1.1193 after the ECB met expectations by keeping the interest rate and quantitative easing program unchanged. The central bank did remove the reference to rate cuts, and President Draghi praised the momentum of the economy, while at the same time warning of weak inflation.
Another week, more all-time highs. For the Dow, that meant the 21,169 high at 170 days after Brexit held for 65 days. Do you think 69 days from that March 1 high will be significant? It might and just as important this week is 144 days from the early November low just before the election. The freight train has more cycle excuses to take a pause or even a fall.
The U.S. dollar is lower across the board versus major currencies. The U.S. non-farm payrolls (NFP) grew by 138,000 jobs in May short of the 180,000 forecasted and there were downward revisions to the two previous months. The employment trend continues to be strong as evidenced by the fall in the unemployment rate to its lowest since 2001, 4.3%. The market is still pricing in a 91.2% of a rate hike in June with U.S. Federal Reserve raising interest rates by 25 basis points to the 100–125 basis points range.
It was a decent week for the stock market. Why? It could be because President Donald Trump was out of the country and the dialogue shifted away from scandal to geopolitics. The stock market didn’t have a chance to get upset as everyone took a breather from the growth agenda being interrupted. But he’s back and the domestic problems have not gone away. Who knows what they’ll come up with next.
Those of you who’ve been following my work carefully know I’ve been very concerned about the stock market eventually waking up to the events of the day and not liking it very much. The problem was nobody knew when that would happen given the market has overlooked so much for so long.
The big story of last week appeared to Macy’s. They had a bad earnings report and gapped down. Here’s my question. They topped last November, why worry about it now? Normally, this is the kind of bad news that would create a wash out low. But how could we have a wash out low on bad news when the VIX is so close to record euphoria?