After an initial rally fizzled on Thursday, following the European Central Bank’s increased stimulus announcement, stocks rose sharply on Friday for another weekly gain. The ECB increased bond purchases from 60BN euros to 80BN euros per month and expanded the purchases to include non-bank corporate bonds. In addition, the ECB reduced its deposit rate further into negative territory to -0.4% and its main interest rate to zero. The level of unconventional monetary policy, in particular negative interest rates, in Europe and Japan are unprecedented. History will be telling as to the effectiveness and possibly the unintended consequences of these actions. Commodity prices soared with crude oil reaching $40 a barrel. U.S. Treasury yields rose and the dollar declined. There was generally positive news for U.S. economic data this week, in particular:
- The Federal Reserve reported
- Consumer credit rose at a seasonally adjusted 3.6% annual rate in January, the slowest since last March and less than economists expectations. Revoving credit (e.g. credit card debt) actually fell at a 1.4% annual rate in January while non-revolving credit such as student loans and auto loans grew at a 5.4% annual pace in January. December’s consumer credit rise was revised up to 7.3% annual pace. It is believed that consumer borrowing was affected in January by stock market volatility.
- S. household net worth hit an all time high of $86.8 Trillion in the fourth quarter as stocks rebounded from the 3rd quarter selloff and home equity rose.
- The U.S. Energy Information Administration reported:
- Its forecast for Brent crude oil prices was lowered from an average of $40 this year and $50 next year to an average of $37 this year and $40 next year. Keep in mind that Brent crude prices are generally higher than U.S. crude prices.
- Its forecast for U.S. gasoline prices are for an average of $1.89 this year down from $1.95 previously.
- S. Crude-oil inventories rose 900,000 barrels in the past week.
- Demand for gasoline and deisel fuel has now risen to 20MM barrels per day while stockpiles for these refined fuels have fallen 4.5MM barrels in the past week, much more than expected. Some of the decrease in refined fuels and increase in crude was attibuted to seasonal refinery maintenance as refineries prepare to switch to summer blends.
- Baker Hughes reported that there were 480 active drilling rigs for oil and gas in the U.S. This is the lowest number on record going back to 1948 and far below the peak of over 2000.
- The Labor Department reported:
- Initial claims for jobless benefits decreased by 18,000 to a seasonally adjusted 259,000 in the prior week. The four week moving average of claims also fell 2,500 to 267,500.
- Import prices fell 0.3% in February after falling an adjusted 1.0% in January. The decline was mainly due to falling energy imports.
- The Commerce Department reported that service industries revenues increased 2.1% in the fourth quarter from the same period last year. Service sector revenue in Q3 was 3.1% higher than the previous year and Q2 was 4.1% higher than the previous year. So while the growth rate slowed the services sector is still growing. This contrasts to manufacturing which has been declining.
Please call us if you have any questions.
Loren C. Rex, CFP®, AIF® Erik Smith
Generations Financial Planning & Wealth Management 269-441-4143
77 E. Michigan Ave, Suite 140
Battle Creek, MI 49017
Carrie Fuce, Assistant 269-441-4091
Toll Free: 800-513-8180
Visit our Website: www.genfinplan.com
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These are the opinions of Loren Rex and Erik Smith and are not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.
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