March 23, 2016

Stocks opened lower this morning (Dow -45 pts; SPX -.44%). Energy and materials sectors are down the most in early trading. Only consumer staples and utilities are in the green. The VIX Index (spot) is trading at 14, suggesting pretty low expected volatility for the next 30 days. VIX April futures are trading up around 17 though. Markets seem fairly unmoved by the Brussels terror attack. WTI crude oil is trading down to $40/barrel and most commodities are lower. The dollar, not surprisingly, is a bit stronger on the day. Bonds are slightly higher as yields tick down. The 5-year and 10-year Treasury yields are trading at 1.39% and 1.92%, respectively. 

In a Bloomberg interview today, Federal Reserve Bank of St. Louis President James Bullard said the Fed should consider another short-term interest rate hike next month. “You get another strong jobs report, it looks like labor markets are improving, you could probably make a case for moving in April.” He is concerned that inflation is rising, and believes it will be over the Fed’s 2.0% target in 2017. The Fed’s preferred measure of inflation—Core PCE Deflator—recently came in at 1.7%. 

The CEO of Schlumberger (SLB) said the recovery in oil drilling activity will take longer than expected. In fact, he says despite rising oil prices it will be a long time before oil exploration companies begin to invest again. They are simply too cashflow constrained. Transocean’s (RIG) CEO said oil drilling rig lease rates probably won’t recover until late 2017 or early 2018. 

Nike (NKE) reported earnings of $.55/share, higher than the $.48/share forecast by Wall Street analysts. Revenue, on the other hand, came in slightly below expectations at $8.0bil (representing 7.7% y/y growth). Excluding currency effects, sales rose 14%. China wasn’t a problem; sales rose 27% y/y. And worldwide futures orders were up 17%. But North America is getting more competitive, and management said it is working to pare back excess inventory, which isn’t yet cleared out. Sales guidance was also a bit soft: expect high single digit sales growth in the coming 12 months. The stock is down about 4% this morning. 

US new home sales rebounded 2.0% in February to an annualized rate of 512,000 units. January’s sales pace was revised up a bit as well. Strength was driven by a surge in transactions in the West. Unfortunately, sales volume fell in the South, Midwest, and Northeast. At least the inventory of new homes for sale increased a bit (by 1.7%). As a reminder, new home sales represent about 9-10% of the overall housing market in terms of transaction volume.


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