Protrader – January 2019 Market Wrap

XJO
When fear subsides. UP 218

The new year brought with it renewed confidence, finally producing the first positive monthly gain for a while. The first trading day of the year turned out to be the worst day for the month of January, however once hitting a low of 5552, the market basically never looked back for the remainder of January, on Jan 25th, closing at the highest level since early November, and finally closing at 5864, with a monthly gain of 218 points.

The five key themes that continued to plague the market.

1. A slowdown in Chinese growth
2. Brexit
3. US Govt Shutdown
4. US/ China trade war
5. Banking Royal Commission

These factors are still relevant, however, we have perhaps now reached a point of exhaustion, where the market is tired of waiting for a “crash” that simply isn’t being supported by world economic data, particularly the US.

In addition, the announcement of a Chinese stimulus package, coupled with renewed optimism regarding a resolution to the US/China trade War, propelled the market with renewed confidence from the middle of the month, however, the imminent release of the banking royal commission, kept a cap on the banking sector.

KEY ECONOMIC DATA

• Strong retail figures beating market expectations.
• Disappointing Chinese trade data, lowest since 2013.
• China GDP 6.6%, the Lowest level in 28yrs.
• China Retail Data beat expectations
• Japanese trade data fell to the lowest level in 2yrs.

DOW JONES IND AVG 25,058 – 24,999 : UP 1941 Points

DJI 12 MONTH CHART
What a month for the DOW, especially considering it followed the worst December since 1931. With the alleged disastrous fundamental earnings data failing to materialize, everyone from Goldman Sachs to the Federal Reserve Chairman was asking the same question. Did we get this wrong?

Supported by continued positive profit reports with 73% of the S&P 500 companies beating expectations, coupled with what can only be described as blistering employment data,  the Dow enjoyed the longest daily winning streak for 4 months, resulting with the US markets having the best January in several decades.

• S&P 500 UP 7.87%
• DOW UP 7.17%

These specific issues combining with a generally positive overall market perspective regarding the Federal Reserve Bank’s pullback from previously anticipated interest rate increases, in conjunction with the positive communications emanating from both China and the US regarding a positive outcome for trade negotiations aided the market to find renewed strength, gaining over 2400 points from it’s bottom on Jan 3rd to the 31st of January, and in turn breaking back above the 100 day moving average.

Key Developments in the Month of December

• Boeing delivered record 806 airplanes
• US Govt shutdown reached the longest period in history
• Manufacturing data increased most in 10 months.
• US consumer sentiment dropped
• Facebook, Amazon, Apple: All beat market earnings expectations
• Fed Reserve shifted to accommodating interest rate stance.

US Employment data: Why is it so important?

OIL STOCK UPDATES: The worm has turned

Using the above chart we can see that US initial jobless claims are at a historic all-time low. In fact, they are now at the lowest level during Peacetime in HISTORY.

Although in January the US unemployment rate, in part due to people re-entering the work force edged up to 3.9% from 3.7%, first-time unemployment claims dropped to the lowest level since Nov 1968. In conjunction with the drop of claims, payroll (wages) grew by 3.2%.

However, none of the above was the astounding employment figure for the month of January. What really blew the analysts away, and had them check their screens for a typo, was the job creation figure of 312,000, NEARLY DOUBLING THE EXPECTED 176,000.

What does this all mean?

Basically, it means that more people are employed, and those that are employed, are now earning more money per hr than before. In addition, it’s important to understand that the increase in the unemployment rate, is because you now have more people actually looking for work, people who are physically registering their intent to find a job.The significance of this is multi-faceted.

• Anyone who wants a job can find one.
• Some people haven’t worked for decades are now looking.
• More people working, more people spending
• Those who are working are earning more
• Therefore more disposable income, more spending

In closing, the unemployment/employment situation in the US has confounded the experts, all signs suggest that America has managed to reinvent itself and has dealt with the structural changes of shifting from a manufacturing economy over the last two decades amazingly well.

This all leads to the question that academics and market analysts are now grappling with, where will this so-called recession/ downturn come from if everyone has a job?

WTI Crude – Gained $ 8.38: $45.41 – $53.79

As stated in the December report, the international oil supply takes a while to turn around, often with a time lag, regarding any supply changes before the impact is seen in the price.  In this regard, we finally saw the previously outlined cuts by OPEC finally impacting the market, as seen by the almost 20% price rise in January, and the highest prices since early November.

What is also important to understand, is that the two biggest supply risk factors of Venezuela and Iranian sanctions are still relevant, and may cause a price hike at any time.

Although moving forward we may see the oil price drift, continued cold weather in the Northern hemisphere and geopolitical issues, are expected to provide support.

Venezuela
Beyond the humanitarian tragedy that is presently befalling Venezuela, the impact of US sanctions will have an immediate impact on Venezuelan oil production.

Venezuelan oil is particularly heavy, and in its own state is virtually unexportable. They require a product called Naphtha in order to process their oil and unfortunately for Venezuela, it can only be supplied by the US, who have now imposed partial sanctions. Once Venezuela’s existing stockpile of Naphtha is depleted, one may see a complete removal of Venezuelan oil from the market.

Key Oil Price Influences

• Russia hit a new record production of 11.16 mbpd.
• US Rig count dropped by 21 to 852, lowest in 8 months.
• OPEC Oil production fell sharply in December.
• Iranian military assets in Syria came under missile attack from Israel.
• China Oil refinery rate climbed to an all-time record 12.1mbpd.UP 6.8%

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