Markets Tugged One Way by Oil and Another by Clarifying Super Tuesday Results

March 2, 2016

West Texas Intermediate crude oil dropped back 2.1% to $33.67 per barrel, depressing U.S. stock futures.  Weekly U.S. oil inventories get reported today.

Comex gold, the ultimate haven beneficiary, edged 0.2% lower to $1,230.25 per ounce.

Trump won Alabama, Massachusetts, Virginia, Tennessee, Georgia, Vermont and Arkansas and now leads Cruz in the Republican delegate count by 285 to 161.

Cruz won three Republican primaries — his home state of Texas plus neighboring Oklahoma and Alaska — while Rubio with 87 delegates finally won a state, Minnesota.

On the Democratic side, Clinton also captured 7 primaries — Alabama, Texas, Georgia, Massachusetts, Tennessee, Virginia and Arkansas — while Sanders won in Minnesota, Colorado, Vermont and Oklahoma.  She leads Sanders in the delegate count by a formidable 1001 to 371.  Unlike the Republicans, the Democrats have no state primaries with delegates awarded on a winner-take-all basis.

Although no candidate dropped out of the race immediately, the super Tuesday results clarify the likelihood of a Trump versus Clinton autumn election, and investors generally rally on reduced uncertainty even if the outcome is not to their liking.

Stocks had rallied Tuesday on rising oil and better-than-expected U.S. data.  This momentum carried into Asia where share prices closed up 4.3% in China, 4.1% in Japan, 3.5% in Hong Kong, 2.0% in India, 1.7% in Singapore and 1.2% in Indonesia.  Australia’s market rose 2.0%.

In European bourses, however, the downturn in oil has blunted momentum.  The Paris Cac is unchanged, and the British Ftse is off 0.4%.  Stocks in Italy and Spain are up 0.7%, while those in Switzerland and Germany have edged up only 0.3% and 0.1%.

The dollar has fallen 0.6% against the Australian dollar and 0.4% versus sterling.  The greenback is up 0.3% against the yen, kiwi and loonie and by 0.2% relative to the euro and Swiss franc.  The Chinese yuan is steady against the dollar.

Ten-year sovereign debt yields climbed overnight by six basis points in the U.K., 3 bps in Japan and 2 bps in Germany.

News of better-than-expected Australian GDP growth last quarter lent support to the Aussie dollar.  Real GDP rose 0.6% on quarter and accelerated to an on-year advance of 3.0% from 2.5% despite no support from net exports. 

On-year growth in Japan’s monetary base of 29.0% in February was very near to the 28.9% outcome in January but below 31.5% last quarter and 34.0% in 2015 as a whole.  The Bank of Japan’s balance sheet totaled 403.8 trillion yen at end-February, JPY 20.7 billion greater than at end-2015.

Bank of Japan Governor Kuroda in spoken remarks continued to insist that central bank easing is working and that the underlying price trend remains upward.

ECB Governing Council member Coeure warned of the negative effects on the banking system from negative interest rates and said staff is working on ways to offset such.

South Korean industrial production fell more than forecast in January, dropping 1.8% below December’s level and falling 1.9% on year.  December figures were revised downward.  South Korean retail sales dropped 1.4% in January.  Real GDP growth last quarter of 0.6% from 3Q was only half as much in the prior period, causing officials to revise projected 2016 GDP lower.  The South Korean current account surplus narrowed slightly to $7.06 billion.

South Korea’s manufacturing purchasing managers index declined 0.8 to a 6-month, sub-50 reading of 48.7, implying a contraction of activity.

The British construction PMI fell 0.8 points as well to a 10-month low of 54.2 due to a 32-month low in residential activity.

Swiss GDP, in contrast to South Korean GDP, surprised on the upside.  A quarterly advance of 0.4% was the strongest of 2015, but GDP was only 0.4% above the final 2014 quarter level, and calendar year growth of 0.9% in 2015 was just half as much as 1.9% in both 2014 and 2013.

Eurozone producer prices dropped 1.0% in January.  While the monthly slide was more than in any of the final five months of 2015, on-year deflation of 2.9% in the PPI was the smallest since last August.  Energy dropped 8.6% in the year to January, versus 3.2% in the previous 12 months to January 2015.  All other producer prices posted a 0.6% on-year drop versus a dip of 0.2% between January 2014 and January 2015.

British shop prices posted a 2.0% on-year decline in February, similar to declines of 2.1% in November, 2.0% in December and 1.8% in January.

U.S. motor vehicle sales totaled 17.43 million last month, similar to January’s total.

Scheduled U.S. releases today are the New York ISM (known as NAPM), ADP’s estimate of February private jobs growth, weekly oil inventories, and the Fed’s Beige Book.  San Francisco President Williams speaks publicly.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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