Both Stocks and oil capped a four week winning streak with gains as markets in both China and Europe led the way higher. At the close the Dow was up 216 at 17,211. The only issue with today’s rally was the low trading volume. For the week the Dow was up 1.3%. IBD data indicate that US markets are in a rally mode.
Gurus at German financial giant Allianz (or in this case “Ubers”) are expressing concern over the latest round of monetary easing by the European Central Bank. The cause of the angst is that European banks in Greece, Italy, Spain and Portugal are under pressure from the risk of bad loans and that in a negative interest rate environment these banks will issue bonds at -.04% while only paying -0.1% thus making money on a spread of +0.3% instead of lending money to eurozone companies so they can hire and expand. I know this sounds crazy but that is what the guy on the CNBC video said. He also noted that unlike the US, European banks provide 70% of the capital in the EU making the financial health of these banks more vital to the system than US banks are to the US economy. Members of the Federal Reserve recently commented that negative interest rates in the US are not a policy option because studies show they do not work. Time will tell how this all works out for both Europe and Japan.
Oil prices moved higher again reversing yesterday’s downtick after the IEA forecast that non OPEC production will fall by 750,000 barrels per day sometime later this year. Meanwhile the Baker Hughes rig count continued to decline and now sits at 386 off another 6 rigs this week. At the close WTI crude rose 1.9% to $38.58 per barrel.
Gold traded down $20 an ounce to $1,250 as the US dollar rebounded against global currencies in the wake of the ECB announcement that it was “going negative”.
I will be with the Boy Scouts on a hiking and mountain biking trip in the Wenatchee area. To see where we are going check out the YouTube video “Wenatchee Chasing Trail”.