March 10, 2016

Stocks opened higher but quickly turned lower. Volatility is still very much with us. The Dow and SPX are currently down 142 pts & .85%, respectively. The only sector holding onto a modest gain is telecom. The worst performing sector is energy (-1.2%). WTI crude oil is down 1.4% to $37.75/barrel and Brent crude is trading at $40/barrel. At this point, the longer oil stays above $30, the more institutional money managers will be convinced that it has bottomed. That’s critical to keeping the stock market in recovery mode. Most commodities are modestly lower today. Bonds are lower as yields continue to rise. The 5- and 10-year Treasury yields are up to 1.45% and 1.95%, respectively. It really looks like the 10-year is making a run at 2.0% in the near term.

Blaming persistently slow global economic growth, European Central Bank (ECB) chief Mario Draghi announced new economic stimulus measures for Europe. The ECB cut short term interest rates again and increased the amount of bonds it buys on a monthly basis (called quantitative easing, or QE). The rate of interest paid on bank deposits at the ECB is now negative, and Mr. Draghi’s expectation is that this will encourage bank lending. In addition, he announced a new program providing cheap loans to banks within the Eurozone. Mr. Draghi has now gone all-in, eager to demonstrate that the ECB is “not short of ammunition” to combat sluggish economic growth and low inflation. He said the moves were necessary because global (not Eurozone, mind you) economic growth is softening and financial conditions are tightening. The ECB’s economists now believe Eurozone economic growth will be 1.4% this year and 1.7% next year. They don’t believe inflation will rise to 2% for the next several years. In the wake of the announcement, the Euro initially weakened but it has recovered. Germany’s 10-year sovereign bond yield (at .31%) is actually higher than it was yesterday. European stock markets fell about 1.5%. US stocks initially rose this morning but quickly gave way. Although equity traders got exactly what they wanted from the ECB, the market’s reaction is not positive.

US filings for initial unemployment insurance (“jobless claims”) unexpectedly fell again last week, to 259,000. That’s the lowest level in 5 months and confirms—again—the health of the labor market. The total number of continuing claims fell to 2.22 million. For about the last year, we’ve been lower on continuing claims than at any other time in at least the last 10 years.


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