Market In-Review – U.S. Markets Flat in Spite of Macro Support

■ U.S. equity markets reach news peaks, but disappoint on weekly perspective

■ USD weakens 0.7% vs. EUR 0.5% vs. JPY

■ Markets respond negatively to weak Retail Sales and Producer Price Index data

■ OPEC output freeze speculation sends oil to three-week high

A rather volatile weekly session concluded on a soft note for U.S. equity, Friday, as major indices failed to display exceptional performance. The S&P 500 added a negligible 0.05% for the week, hovering between positive and negative territory in nearly all daily session. U.S. Industry also provided lackluster performance, with a 0.2% weekly increase, similar to the technology intensive NASDAQ Composite.

Indeed, all three indices have reached record high levels on Thursday, a fact widely celebrated by financial media. This achievement is countered not only by the aforementioned weekly performance, but also by the fact that the Dollar itself if notably weaker vs. major currencies, losing 0.7% weekly vs. the EUR and 0.5% vs. the JPY. Additional macro dynamics should have led stocks higher. These includes the fixed income market becoming more accommodative with bonds pricing in a mere 42% chance for a Fed hike by December, down from 47% a week ago. Longer tenors also saw an increase of Treasury bond prices, leading the U.S. 10 year yield to decline from 1.59% at the start of the week to a tad over 1.51% by the end of it.

A solid example for equity’s indifference to macro settings was provided on Friday, when July’s Advance Retail Sales saw no Month over Month gain, while analysts expected a 0.4% gain. Signaling of a weak demand side, July’s Producer Price Index was published at the same time, seeing a 0.4% contraction, vs. analyst expectations for a 0.1% gain. While the data has led for about a 0.06% decline at the U.S. 10 year, when U.S. equity markets started trading about an hour later, they’ve adopted the bad news is bad news paradigm, opening about -0.2% in the red.

Europe, meanwhile, sees a marked recovery from June’s Brexit vote. The DAX index added no less than 3.3% during the week, and at 10,713.4 points it is more than 16% higher than the lows it reached following June’s Brexit vote. The FTSE 100, somewhat similarly, is up 1.8% for the week.

The Saudis draw a line in the sand

Oil investors have had quite a roller coaster experience this week. Experiences included Wednesday’s Department of Energy report of crude inventories adding 1,055K barrel, vs analyst expectations for a 1,340K barrel decline. The event was followed by selling pressure pushing the black gold to a tad over USD 41 per barrel.

Tides have turned since, as Saudi energy minister Khalid al-Falih commented that the kingdom may cooperate with OPEC and other major oil exporters to “help the market re-balance.” Commentary did follow Saudi reports of record output production, but it could be that because of this, market response has been quite avid with oil adding 4.2% for the day. On Friday, Baker Hughes reported that the U.S. rig count increased from 464 to 481 – the largest rise since December of last year. While this nudged prices somewhat, they were soon to recover and conclude the week with a 6.9% increase, to USD 44.69 per barrel, its highest in three weeks.