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“You get your ass on the beach. I’ll be there waiting for you and I’ll tell you what to do. There ain’t anything in this plan that is going to go right.” – Col. Paul R. Goode, June 1944
Below is a snippet of commentary from today’s Morning Lineup. Start a two-week trial to Bespoke Premium to view the full report.
As expected by everyone, the ECB just cut rates by 25 bps in its latest policy decision. Still, within its statement, it made some hawkish comments noting that “domestic price pressures remain strong as wage growth is elevated, and inflation is likely to stay above target well into next year.” The statement added, “The Governing Council is determined to ensure that inflation returns to its 2% medium-term target in a timely manner. It will keep policy rates sufficiently restrictive for as long as necessary to achieve this aim.” In looking at their words versus actions, there’s the appearance of a wide disconnect, but actions always speak louder than words. We’ll be looking for more color in the 8:45 press conference.
Looking at the moves in financial markets over the last several minutes, you wouldn’t have even noticed there was a major policy decision from a major central bank. Equity futures have seen little reaction and remain modestly higher, while the dollar is little changed, and yields are modestly higher. In the US, Non-Farm Productivity came in higher than expected while Unit Labor Costs were a bit lower. That’s all good news, but jobless claims did come in slightly higher than expected on both an initial and continuing basis.
Even accounting for last Thursday’s 0.6% decline, the last week of trading has seen stocks put in healthy gains as the S&P 500 rallied 1.7% and hit a record high yesterday. The rally has also been broad-based. As shown in the snapshot below, every sector except for Energy has notched gains, and surprisingly, Technology has not been the leader. It’s basically the only other sector that isn’t up 1%. Leading the way higher, Real Estate, Health Care, and Communication Services have rallied more than 2.5%. Five out of eleven sectors finished yesterday at overbought levels while seven are above their 50-day moving average, and only Energy is oversold.
The Energy sector has been in a steady and well-defined downtrend since its high in early April, and if the sector is going to see at least a short-term bounce, now would be the time as the sector closed yesterday right near the bottom end of that channel after bouncing right near its 200-DMA.
Not surprisingly, the Energy sector has been tracking the performance of crude oil which has also been weak. The sector broke its uptrend in early May, and after failing multiple times to get back above that uptrend line in the middle of the month, crude saw extreme weakness to close out the month. While the price decline has been bad for energy stocks, it has been great news for drivers. According to AAA, the national average price of a gallon of gas has dropped below $3.50 for the first time since March 18th and is down over 5% from its April high.
To continue reading the rest of today’s morning note, where you’ll find much more analysis of global equities and economic readings released this morning, read today’s full Morning Lineup with a two-week Bespoke Premium trial.
