View from the Hill, 30 November 2014
by J. Clinton Hill
This week OPEC decided to leave production quotas unchanged at 30 million bbl//day and gave American consumers plenty to be thankful for on Thanksgiving. Either OPEC has ceded its ability to stabilize energy prices or it has thrown down the gauntlet to U.S. shale and other major international producers.
(As a sidenote, I highly recommend reading Business Insider‘s infographic article which summarizes breakeven oil prices for drilling prices throughout the world.) Yet, I still believe that lower oil prices threaten the long-term outlook for equities and merely represent a temporary windfall to consumers. The consequences of lower oil prices could potentially lead to geopolitical or social instability in some countries and also future oil price shocks as some energy producers abandon projects and unsustainable margins.
Several bullish events countered the above concerns. Europe’s Business Sentiment improved slightly as Germany’s IFO Survey unexpectedly increased to 104.7 and reversed a trend of 6 consecutive monthly declines while France’s Business Climate Indicator rose to 99, its highest level since May-2014. . In the USA, economic growth continues to expand, albeit at a decelerating pace, as the PMI Services Flash report came in @ 56.3 vs. prior @ 57.3 while the Fed Survey for Dallas Manufacturing surpassed expectations @ 10.5 vs. consensus @ 9.0 and prior @ 10.5. U.S. GDP for Q3-2014 was revised upward to 3.9% qtr/qtr vs. initial readings @ 3.5%.
From a bearish perspective, the Core U.S. Durable Goods, i.e. ex-transportation, slipped -0.9% mth/mth vs. consensus @ -0.5% and prior @ 0.2%.The S&P Case-Shiller indicator for residential real estate weakened annually to 4.9% vs. prior @ 5.6% while monthly prices increased slightly by 0.3%. On the labor front, weekly Unemployment Claims increased to 313k vs. prior @ 291k and consensus @ 286k.
Although the U.S. is still the prettiest girl on the dance floor, monetary and stimulus makeovers from Europe are garnering investors’ attention as early signs emerge that money may be flowing into the region. One may want to take note of Europe (VGK), Germany (EWG), France (EWQ) and Italy (EWI). The American lady looks a bit haughty and prone to being naughty relative to other equity market alternatives. Pardonnez-moi madame, voulez-vous danser avec moi un peu de temps, s’il vous plaît?. (See Charts below)
Market Summary: November 24th – 28th, 2014
A holiday-shortened trading week accompanied by lower volume should surprise no one. The only observation worth noting is that trend remains bullish for equities and let that be the end of it. My only negative comment concerns the deceleration in positive market momentum. However, as it remains positive, we must respect this along with price trends.
Some bullish weekly volume radar alerts worth mentioning are Kinder Morgan (KMI) up +3.58% on 273% surging volume; Tiffany & Co (TIF) up +3.49% on 76% higher volume; Ross Stores (ROST) up +9.94% on 58% higher volume; and Macerich Company (MAC) up +3.39% on 51% higher volume.
Bearish weekly volume alerts highlighted in this report are Gamestop Corp (GME) down -13.81% on 146% surging volume; Hormel Foods Corp (HRL) down -3.19% on 122% higher volume; and Haliburton Company(HAL) down -14.25% on 46% higher volume.
ETF Weekly Summary of Capital Markets
ETF Weekly Summary of Capital Markets (continued…)
*For your reference, “TWS” is a proprietary indicator that measures relative strength in a weighted manner over various time frames. “Vol %” compares weekly volume to average weekly volume and changes are expressed in percentages. At times, our investment bias indicator may temporarily display conflicting views between ETFs and the underlying indexes or securities they are designed to mimic or represent, but such divergences are temporarily short-term and may be due to variances in price, volume and investment allocation to their component assets.
The Road Ahead
Manufacturing (U.S. ISM Mfg Index; France PMI Mfg; Germany PMI Mfg; EU PMI Mfg; UK PMI Mfg)
Economic Growth (Italy GDP)
Central Banks (Australia RBA Announcement)
Consumer (U.S. Motor Vehicle Sales)
Central Banks (India RBI Monetary Policy)
Real Estate (U.S. Construction Spending)
Economic Growth (Australia GDP; Japan PMI Composite; China PMI Composite; India PMI Services Index)
Economic Growth (France PMI Composite; Germany PMI Composite; EU PMI Composite; UK PMI Services Index; EU GDP; U.S. PMI Services Index)
Central Banks (Canada BOC Announcement)
Consumer (EU Retail Sales; U.S. Beige Book; Australia Retail Sales)
Employment (U.S. ADP Employment Report; France Unemployment Rate)
Energy (U.S. Petroleum Status Report)
Inflation (Germany PPI)
Central Banks (Great Britain BOE Announcement; EU ECB Annoucement)
Employment (U.S. Jobless Claims)
Employment (U.S. Employment Situation; Canada Labor Force Survey)
Trade Reports (U.S. Int’l Trade; Canada Merchandise Trade)
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