The IMF last week made its second cut to global growth forecasts, predicting a rate of +3.2% this year and +3.5% in 2017, having previously forecast 3.4% and 3.6% respectively. They noted that downside risks to the global economic outlook have increased since October, “raising the possibility of a more generalized slowdown and a sudden pull-back of capital flows.” Looking at the graph below showing the countries expected to be the worst performers, it’s pretty easy to draw some conclusions as to what the main trouble are – plummeting oil and commodity prices are a consistent theme for nearly all of the worst performers, joined by fiscal mismanagement and political turmoil.
U.S. stocks have enjoyed their sixth straight week of moving higher, while oil prices have now erased all of their gains on the year. Ironically, oil rig counts here in the U.S. are at the lowest levels since Baker Hughes started counting oil rigs back in 1944. The trade clearly seems tripped up by the glut of global oil production. Recent comments from Saudi Arabia saying they would only freeze production if all major oil producers, including Iran, commit to doing the same. Iran has steadfastly maintained they will not entertain a freeze until their crude production reaches pre-sanction levels of 4-million barrels per day. Over the weekend, Iran’s oil minister announced the country’s oil and gas condensate exports have now surpassed 2-million barrels per day for the first time since sanctions were lifted. That works out to an increase of around +250,000 barrels per day since March 1. In other words the world is still swimming in a glut of supply while Iran is in the process of trying to add more barrels. Traders here at home have been digesting a wave of economic data as of late, which most argue has been fairly positive. I have to admit myself, while I remain a bit apprehensive in regard to being an outright raging stock market bull, there is evidence and recent talk that the “shallow manufacturing recession” is starting to subside. Remember we had manufacturing numbers expanding for the first time in seven months last week. More positive news is the fact the U.S. dollar continues to weaken in 2016 on talk from a apparently more dovish Fed. Pending U.S. home sales are also starting to increase, and mortgage purchasing applications most recently are up over +20% compared to last year. Keep in mind mortgage rates haven’t made new lows in over 3-years, but purchasing applications are picking up momentum, meaning perhaps the housing market is stronger than many are currently forecasting? Another positive is the fact even though gas prices at the pump have risen form an average low of $1.69 per gallon to now over $2.05 per gallon, our average four-week usage year-over-year is up +5%. There’s also evidence that Consumer Spending is starting to gain a bit more traction. Like I said, I’m not wildly bullish, in fact I still only have about 30% of my current portfolio invested in long equity positions, but I do believe some of the fear has been eliminated or at least temporarily subsided as the market evolves and adjust to the changing dynamics. To some degree the dollar strength feels like it has been digested, the commodity price slide has somewhat stabilized, and consumers are starting to spend a bit more of their energy savings in the economy. The week ahead will bring a much lighter economic calendar, but with heavier focus being placed on the U.S. Fed. We will hear multiple speeches form Fed Presidents and key members, as well as digesting on Wednesday the “minutes” from their recent March meeting. On Thursday there’s a historic event in New York featuring Fed chair Janet Yellen and all her living predecessors: Paul Volcker, Alan Greenspan and […]