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US Stocks Build Off Yesterday's Momentum for Best Two Days in the Last Two Years


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

Global markets continued where they left off on Wednesday evening. The S&P 500 (SPX) closed up 2.4%, its largest single day gain since January 2013, and showed strength throughout the day. Ninety five percent of the issues in the index closed positive for a second straight day. The best performing sectors were tech and health care, although the gains were robust across all of the 10 basic sectors. A number of major US and Canadian energy companies cut their capex plans for 2015, with most expected to make similar cuts between now and January of next year.

Treasuries were weak all day for a second straight session. The 10-year yield rose by 7bps to 2.205%. Over the last two days the yield has risen by 15bps. The auction of $16 billion in 5-year Treasury Inflation Protected Securities (TIPS) had the highest demand from indirect (foreign) bidders on record.

In a unplanned move this morning, the Swiss National Bank (SNB) cut its key policy rate into the negative. The move was done to combat the strength in the Swiss Franc (CHF) due to safe haven flows from Russia and similar rate cuts from its neighbor the ECB. The SNB also said that it had intervened in the currency markets and was prepared to immediately move again to defend its EURCHF peg of 1.20. Market participants took this news to infer that the ECB could do QE on an even larger scale, as early as January.

Oil was up 4% overnight following comments from Saudi Arabia's energy minister Naimi that the drop in oil prices was "temporary" due to a global economic slowdown and that it would be very hard for OPEC to cut output. Additionally,  market participants were reassured by comments yesterday from Fed Chair Yellen that the drop in oil prices is only "transitory." However, the optimism from all of the above was short lived. West-Texas intermediate crude oil ended up finishing down 4.29%. Equities did not appear to be as sensitive to the weakness today as it has been recently.

Tomorrow's Financial Outlook

There is only one economic report scheduled tomorrow in the US - the Kansas City regional manufacturing survey. The manufacturing index is expected to continue to show growth with a reading of +8 from +7 in November.

The main event overnight will be the Bank of Japan (BoJ) monetary policy decision. Recently, news reports have indicated that there is increasing dissension on its monetary policymaking committee. At the meeting two months ago, when Governor Kuroda doubled the size of the BoJ's easing program, he was only able to pass the measure by a vote of 5-4. Continued deceleration in Japanese economic activity swayed some of the dissenters at the last meeting, but the decision has not been unanimous. Market participants expect the BoJ to increase its stimulus program even more in the next year.

Carnival (CCL) and Carmax (CMX) will report earnings tomorrow morning before the open.

Twitter: @Minyanville

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No positions in stocks mentioned.

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