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Dollar Reversal Sparks Equity Gains


Today's financial recap and tomorrow's financial outlook.

Two major assets experienced a significant trend that indicate they will be longer than short-term retracements. That is in the US dollar and crude oil, which have been highly correlated over the past eight months. The US dollar snapped a strong line of uptrend support from the past three months and that prompted a very strong upward reaction in crude oil. Similarly, the Euro shot higher, as did some of the industrial metals such as copper and US Treasuries. The 10yr Treasury yield, for example, rose by 13bps to 1.79% by the end of trading. All of these assets have been in major trends for the past six months or longer.

Last night, the Reserve Bank of Australia (RBA) lowered interest rates by 25bps, something that had not been expected by forecasters, but was priced into the market. The Australian Dollar (AUD) fell by more than 1.5%, but that weakness was reversed throughout the US trading session as the dollar weakened substantially. By the end of trading the AUD was actually positive.

The S&P 500 (SPX) also benefited from these changes in trends because a persistently low price of oil is not positive for the US economy, on net, and earnings projections have been reduced because of it. The main beneficiaries today were some of the beaten down sectors this year - namely financials and energy stocks. The one negative standout was biotech, which had strong performance in January, closed down in excess of 4%, even though Gilead Sciences (GILD) announced a new $15 billion buyback after the close of trading. All 10 sectors of the SPX closed positive.

Factory orders for December contracted by 3.4%, which was worse than the -2.7% expected, and November's figure was also revised lower. This prompted some minor downgrades to fourth quarter GDP forecasts.

Tomorrow's Financial Outlook

The major event tomorrow will be the private payrolls reported by ADP, in the morning at 8:15am ET, for the month of January. Net job growth is expected to be 220K, down from 241K in the month prior. Jobless claims have increased in January, which tilts the potential for a miss of the expected figure to the downside. The national ISM services index will also be reported, which is expected to decline to 56.4 in January from 56.5 in the month prior. Recall yesterday that the similar manufacturing gauge declined by 1.6 points to 53.5.

Overnight, the private survey of services companies in China will be released for the month of January. Earlier this week the official government gauge showed a marginal downtick in activity. Also scheduled for release is services PMI's in the UK and eurozone in the morning, and European retail sales for December.

Companies scheduled to report earnings tomorrow include Merck (MRK), General Motors (GM), Marathon Petroleum (MRO), Humana (HUM), Ralph Lauren (RL), 21st Century Fox (FOX), Under Armour (UA), Keurig Green Mountain (GMCR), and Prudential Financial (PRU).

Twitter: @Minyanville

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No positions in stocks mentioned.

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