The question Thursday is, will the stock market track crude oil, as it’s done over the last week; or trade independently from crude, the longer-term pattern? Early on, both crude oil and S&P 500 futures were lower.
Over the last five days, crude and E-mini S&P 500 futures have displayed a sky-high 96% correlation. That’s in contrast to the last 60 days, in which the two had a negative-16 correlation. It could be interesting to watch in coming days if the strong recent correlation continues, or if crude and the S&P 500 index go back to trading as they did earlier this fall. We’ll see if the stock market continues to take its direction from crude, as it did so often last winter.
Overseas central banks are back in the news, as the European Central Bank (ECB) met Thursday and kept interest rates unchanged. That was in line with analysts’ expectations going into the meeting. Investors might want to watch to see what ECB President Mario Draghi, who speaks today, has to say about the future of the ECB’s bond-buying program. Inflation in Europe has recently gained a little steam, perhaps a sign that stimulus is having an effect. The ECB said Thursday that it expects rates “to remain at present or lower levels for an extended period of time.” It confirmed that its large-scale asset purchase program is planned to “run until the end of March 2017, or beyond, if necessary,” media reports said.
The earnings parade continued Wednesday night and early Thursday, with reports from companies including Verizon Communications Inc.
There was another hawkish Fed speech last night, as New York Fed President William Dudley predicted a rate hike if the economy continues to perform as it has recently. "If the economy stays on its current trajectory I think ... we'll see an interest rate hike later this year," Dudley told a dinner gathering, Reuters reported.
Amid the earnings deluge, data from the government Wednesday suggested the housing market remains strong. Single-family housing starts, which account for the largest share of the residential housing market, jumped 8.1 percent to a 783,000-unit pace in September. That was the highest level since February
October is often a volatile month, historical data show, and presidential elections also typically create some choppiness. The CBOE’s VIX futures remain up from September, but don’t reflect a market that’s too nervous, at least by historic standards. The VIX stood at 14.21 early Thursday, down from highs above 17 earlier this week and below the long-term average.
M-Words Again Dominate Beige Book: A couple of months ago, we noted the prevalence of “M” words in the Fed’s Beige Book release. Nothing has changed with the most recent Beige Book, released Wednesday, which reported some economic expansion around the country. The key words, once again, were “moderate,” “mixed,” and “modest.” Most Districts indicated a “modest or moderate pace of expansion,” the Fed said. Manufacturing activity was “mixed.” Outlook for retail spending in coming months is “modest” in most regions. Employment expanded at a “modest” pace. There were some spots where the Fed veered slightly away from the vanilla language, noting some tightness in the labor market, for instance. Nevertheless, wage growth remained “modest,” and price growth is “mild.”
Crude Oil Keeps On Flowing…Away: Though U.S. crude oil stockpiles remain near the upper limit of the average range for this time of year, inventories dropped by 5.2 million barrels during the week ended Oct. 14, the U.S. Energy Information Administration (EIA) said Wednesday. The news initially boosted crude oil futures to new one-year highs above $51 a barrel. The steady dribble of oil out of storage seems to defy historic precedent during what typically is a supply-building season, and may be boosting the energy sector, which roared to better than 1% gains Wednesday after the report. Halliburton Company
Want Fries with that Light Bulb? McDonald’s and GE Earnings Ahead: Friday morning could be interesting for investors who follow two U.S. stalwarts: McDonald’s Corporation
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