Posted on March 13, 2017

Weekly Market Commentary: March 13, 2017

Market Commentary

Equity markets remained calm for most of the week, digesting the employment report without much fanfare. According to Automatic Data Processing (ADP), a human resources and payroll company, private payrolls increased 298,000 against an expected 190,000. This was the strongest monthly increase in nearly three years.

We note that most of the increases were in the construction and manufacturing sectors and are perhaps representative of companies’ economic growth expectations under the Trump administration. Given the strong jobs report, the market appears to be fully pricing in an interest rate hike by the Federal Reserve in March but investors will remain keenly focused on the central bank’s policy decision next week. While the stock market was relatively benign with all three major US stock indices down less than 0.5%, oil was much less so. Oil prices tumbled nearly 8% as US inventories climbed for yet another consecutive week and the continued build-up appears to be undermining the effectiveness of OPEC’s production controls, finally taking a toll on prices.

In Asia, China surprised the markets with a trade deficit of roughly $1.9 billion last month, the first in over three years. Imports outpaced exports in the month of February; however, we would note that the Chinese New Year tends to distort economic data at this time of the year. In Europe, the European Central Bank (ECB) stood pat on interest rates as well as its bond purchasing strategy which was largely expected by investors. Interestingly, ECB president Draghi noted that the need for its stimulative programs had reduced, hinting that the next move on rates could be higher.

What are we reading?

Below are some areas of the market we paid particularly close attention to this week. For further information, we encourage our readers to follow the links:

ADP Reports Sharply Stronger U.S. Jobs Growth In February

Companies, buoyed by President Trump’s proposed fiscal stimulus, added jobs at a blistering pace in February. Employment in the private sector surged by a record 298,000. An interesting point of note is that 106,000 jobs were added by construction and manufacturing firms which is a notable shift away from the service-sector positions that have been dominant over the past few years.

As E.C.B. Charts Economic Course, Politics Complicate the Picture

In its most recent policy meeting, the ECB, yet again, left interest rates and its bond purchasing program as is. However, the bank hinted at raising rates sooner with Eurozone growth and inflation figures suggesting that its economic recovery is starting to stick. The ECB raised its growth forecasts for 2017 and 2018 to 1.8% and 1.7% respectively. Both the Euro and bond yields ticked up after the meeting.

Oil Price Falls Below $50 as U.S. Supplies Hit Record

Last week, US crude inventory data showed an increase of 8.2 million barrels to a record 528.4 million. This is the eighth consecutive week of higher inventories which triggered a sell-off in oil markets and prices fell by more than 5% last Wednesday as traders weighed appear to be reconsidering the effectiveness of OPEC cuts and US shale output. We note, however, that the increase is not just due to US production but also imports which came in roughly 100,000 barrels per day higher than the year prior.

China Trade Deficit Masks Strength Risking U.S. Trade Spat

China’s 38% surge in imports is being attributed to higher commodity prices, especially oil and iron ore. Exports in February declined 1.3% after rising 7.9% on a year-over-year basis in January. While the news is positive, most market participants are of the opinion that February data tends to be an anomaly and can be distorted by the long new year holidays.

Fun Story of the Week

Uber and Lyft have revolutionized the ride sharing and taxi business. So much, in fact, that the pink mustaches and “U” stickers are ubiquitous in big cities around the world but something strange is happening as more and more are using the services. Random people are starting to get into cars thinking that it was the ride they were waiting for. Most end with a friendly chuckle or awkward apologies from the passengers, but in many cases, the uninvited riders have offered to pay the driver anyway to take them to their destination. While it may seem obvious, Uber and Lyft have reminded their users of “stranger danger” and to avoid asking these people for rides. Both companies perform background checks and due diligence on their drivers, doing their best to hire safe and courteous employees. What’s more, Uber and Lyft urge users to check the smartphone app and confirm that the car’s license plate matches but they’re taking things a step further. To make it easier on users and drivers alike, both companies are sending drivers a lighted placard that is attached to the windshield which changes color to match the passenger’s app.