The S&P 500 surged 1.49% for the week, to close at 2,161.74, after Japanese Prime Minister Shinzo Abe’s ruling-coalition won a landslide victory in the upper-house elections over the weekend. Abe announced a new round of fiscal stimulus spending but did not give details on the size of the package. Reuters said the details of the package are expected to be submitted to Japan’s parliament in the fall so it could still be another several months away.
According to Reuters, ex-Fed Chair Ben Bernanke visited the Bank of Japan
(BOJ) on Monday, where he may (or may not) have advised BOJ governor Haruhiko Kuroda to introduce “helicopter money” to revive the Japanese economy. “Helicopter money” is referred to as an alternative to quantitative easing (QE) when interest rates are close to zero and the economy remains weak or enters recession, where the central bank directly finances budget stimulus through programs such as perpetual bonds with no maturity date.
For the week, the U.S. dollar index inched up 0.24%, to close at 96.563 on Friday, at the 200-day moving average. The yield of 10-year U.S. Treasury Note bounced off the record low of 1.37% last week, to close at 1.56% on Friday. The yield spread between the 10-year and 2-year U.S. Treasury Notes skyrocketed 17.11% for the week, to close at 0.89 percentage points, despite that the probability of a 25 basis point rate hike at the September 21 FOMC meeting jumped to 12.9%, based on the 30-day prices of federal funds futures, while the probability of a no rate hike dropped to 87%, according to data from the CME Group as of July 15.
The global bond markets continued to be rattled, as the 10-year Japanese government bond
(JGB) yield dropped to negative 0.226% at the close on Friday, while the 10-year German bund yield printed at 0.003%. Germany’s 10-year bund turned positive for the first time since June 23 after speculation looms that the Fed could stay on the sidelines until September or later, and more stimulus could come from the BOJ and the Bank of England
(BOE). The BOE decided on Thursday to leave its benchmark interest rate unchanged at a record low of 0.5%, but signaled that there may be a rate cut at the August meeting.
U.S. economic data released this week were mixed. The Bureau of Labor Statistics released the Job Openings and Labor Turnover Summary (JOLTS) on Tuesday saying there were 5.5 million job openings in May, down from 5.79 million job openings in April. Analysts were forecasting 5.7 million job openings. The Commerce Department said on Friday that U.S. June core retail sales, excluding automobiles, gasoline, building materials and food service, rose 0.7%, beating analysts’ expectations of 0.4%.
The Federal Reserve said on Friday that U.S. industrial production rose a seasonally adjusted 0.6% in June, beating the 0.4% forecasted rise from economists surveyed by The Wall Street Journal. Separately, the Federal Reserve Bank of New York said on Friday that its Empire State manufacturing index tumbled to a reading of 0.55 in July, missing the forecast of 5.0. Any reading above zero points to expansion.
The best performing S&P 500 sectors for the week were Materials, Financials and Industrials, up 3.91%, 2.57% and 2.55%, respectively. The worst performing sectors for the week were Consumer staples and Utilities, up 0.08% and down 1.08%, respectively.
The WTI crude oil spot price jumped 2.57% for the week, closing at $46.28 per barrel on Friday, while the Brent crude price climbed 3.35% to close at $48.11 per barrel, despite bearish reports from the International Energy Agency (IEA) and the Energy Information Administration (EIA).
The IEA said on Wednesday that there are warning signs that global oil demand is ebbing while oil stocks remain at "elevated levels," threatening a rebalancing act in the oil markets. The Paris-based agency also said the volume of oil in storage on oil tankers worldwide reached 95 million barrels at the end of June, the highest since the 2008 to 2009 recession.
Nine tankers holding about 9 million barrels of the major North Sea crude grades are floating off the U.K.’s coast, up from 7 million in May, according to a survey of oil traders and ship-tracking data compiled by Bloomberg.
The EIA weekly U.S. oil inventory report on Wednesday showed a decline of 2.5 million barrels to 521.8 million barrels in the week ending July 8, compared to S&P Global Platts analysts’ expectations for a drawdown of 3.25 million barrels. The American Petroleum Institute (API) inventory data on Tuesday showed U.S. crude inventories increased 2.2 million barrels for the week.
The shocker was the EIA report of a massive build last week in U.S. gasoline and distillate stockpiles of 1.2 million barrels and 4.1 million barrels, respectively. Analysts were expecting a decline of 125,000 barrels for gasoline and a rise of 375,000 barrels for distillates.
Separately, the EIA said the weekly U.S. crude oil production decreased by 57,000 bpd for the week ending July 8, 2016, to 8.485 million barrels per day (bpd). Weekly U.S. crude oil output has fallen about 11.71% from the peak level of 9.61 million bpd during the week ending June 6, 2015. Houston-based oilfield services company Baker Hughes Inc. said on Friday that the U.S. oil rig count was up another 6 from the previous week, to 357, compared to 316, when the rig count hit the low on June 6.
S&P 500 Summary: +5.76% YTD as of 07/15/16
Barclay Hedge Fund Index: +0.77% YTD
Outperforming Sectors: Telecommunication services +22.07% YTD, Utilities +20.03% YTD, Energy +15.87% YTD, Materials +11.74% YTD, Consumer staples +10.26% YTD, and Industrials +10.15% YTD.
Underperforming Sectors: Consumer discretionary +3.59% YTD, Information technology +2.85% YTD, Healthcare +2.76% YTD, and Financials –1.48%