On the first day of “Happy February”, markets opened lower then rallied and closed mixed as the NASDAQ went positive while the Dow posted a 17 point loss at 16,449 on light volume. Google (aka “Alphabet”) reports after the close.
The US markets appear to be tied to the price of oil and oil prices appear to be tied to the economic growth rate in China and today China released weak PMI or manufacturing numbers causing oil to fall after a 4 day rally. While US oil production has fallen from 9.7 to 9.2 million bpd the output from Iran and Iraq has risen while Saudi Arabia and Russia are holding steady at high levels. These factors will continue to keep oil in a trading range until either an OPEC production deal is reached or global demand rises. Investment houses are guessing that oil prices will average in the low $40’s this year with the recent low of $26 being tested from time to time. WTI crude today fell 6.5% to $31.40 while gold was up $12 an ounce to $1,128.
The US dollar has been strong against foreign currencies which is hurting the revenues of some US multinational companies. The dollar is up 26% against the euro, 50% against the ruble, 40% against the yen and peso. The two major headwinds for the US economy are a strong US dollar and a slowing Chinese economy. Both of these issues are helping to pressure oil prices sparking deflation fears and leading to a jump in the US savings rate to a 3 year high of 5.5%. Meanwhile US export manufacturing fell while domestic manufacturing was up. US consumer growth continues to hold steady. It seems that right now we consumers have the ability to spend but not the desire. The upcoming election drama could also be causing a wait and see approach by consumers and investors.