New Month New Direction?

The beginning of a new month, we always look back first at trends that set the tone and whether those trends will be persistent.

Strong Dollar

The United States sparked the race to the bottom with extraordinary action from the Federal Reserve. However, the rest of the world is pumping up the volume now. Perhaps the Fed is ready to move towards normalization since there is natural pressure on those currencies. Coupled with economic issues haunting many economies, the U.S. dollar has been king. Nevertheless, a string of subpar economic data, including the weak Gross Domestic Product (GDP) report on Thursday, could slowly put a pause in the dollar.

Technically, the dollar is forming a double top that could signal a pullback; fundamentally, it may remain buoyant to the chagrin of multinational corporations that are taking massive hits to earnings.

The strong dollar and the organization of the petroleum exporting countries (OPEC) war on U.S. oil producers have placed huge pressure in the oil patch. Job cuts continue to mount and by some measures, the number is north of 130,000. Major projects have been put on hold as well. On the other side of the ledger, the benefits of cheaper oil/gas have yet to manifest themselves in the economy. People are putting cash, not yet spent at the pumps into empty coffee cans and under their pillows.

Oil will move higher as OPEC cuts production. The massive shut down of rigs will result in supply issues that will send crude higher, but the question is when all of this will play out.

China

There’s China, which seems to have captured the attention of more than its own rally of 160%, or even the American stock market rally that has caught so many experts and doomsayers by surprise. I am not sure what’s going on there. I read that the stock overseer admitted he was caught off guard by the collapse, which I find interesting and worrisome. Any student of stock market history could tell you that massive margin lending and the onslaught of a novice is a prelude to a problem…maybe even a disaster.

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I don’t see China’s market having a fundamental impact on our market, but it’s clear, there’s a psychological concern.

Moreover, it’s a new month, but all of the old issues persist. This week, we’ll learn more about jobs and other segments of the economy.