The U.S. Week Ahead (Feb 18-22), Back To The Wall

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Includes: CGC, FLAT, INFO, KO, MO, PEP, PG, STPP, STZ, TSN, WMT
by: Interactive Brokers
Summary

Although economic releases on the U.S. calendar in the week ahead will be rather light, there will still be several salient data points and corporate events on tap.

Although the cost of crude had been on a steep downward trajectory in Q4'18, it has reversed course somewhat, amid U.S. sanctions on Iran, Venezuelan volatility and supply cuts.

Also, consumer businesses and analysts will descend on Boca Raton, Florida for the Consumer Analyst Group of New York’s (CAGNY) annual conference.

Plus Walmart is on the radar to announce its Q4'18 earnings results.

Meanwhile, most government offices, courts and banks will be closed Monday in honor of Presidents' Day.

Although economic releases on the U.S. calendar in the week ahead will be rather light amid the observance Monday of Presidents' Day, there will still be several salient data points and corporate events on tap.

Monday, February 18

  • Federal Holiday

Most government offices, courts and banks will be closed Monday in honor of Presidents' Day.

Market participants may take this time to reflect on the progress of the current U.S. administration, amid on-going trade negotiations with China, President Donald Trump’s declaration of a national emergency to secure funding for border security, as well as the wind-down of earnings season as retailers get set to announce their results following December’s worst retail sales report in nearly a decade.

Briefing.com’s chief market analyst Patrick O’Hare noted that the “worst retail sales report in nearly ten years triggered a decline in the S&P 500 of exactly 7.3 points, or 0.27%. In other words, that report did almost nothing to upset a market that has surged nearly 400 points, or 16.8%, since its low on December 24.”

O’Hare said that the market is “enjoying an out-of-body experience right now, where it floats above weak data and downward earnings revisions, supported by reports that the U.S. and China are making progress toward a trade agreement -- or at least progress toward an agreement not to make things worse -- and that the Federal Reserve is progressing toward a more dovish-minded policy stance.”

He described the behavior as “a meditative practice that has been a calming influence following the volatility of the fourth quarter, yet the duration of the meditative period makes one wonder just how long it can last.”

Tuesday, February 19

  • NAHB Housing Market Index (Feb)

The week kicks off in earnest Tuesday with an update on the NAHB/Wells Fargo National and Regional HMI, after January’s data ticked up to 58 from 56 in the prior month – and came in stronger-than-expected.

The latest gauge generally suggested some strengthening in the housing sector following a bout of downbeat sales and construction data, which had signaled a slowdown throughout the fourth quarter of 2018.

Wednesday, February 20

  • MBA Mortgage Applications

  • Redbook

  • API Crude Oil Stocks

Meanwhile, investors will receive mid-week weekly reports on mortgage applications from the Mortgage Bankers Association (MBA), retail sales trends from the Johnson Redbook Index, and regional crude inventories from the American Petroleum Institute (API).

Although the cost of crude had been on a steep downward trajectory in the fourth quarter of 2018, it has reversed course somewhat, amid U.S. sanctions on Iran, Venezuelan volatility, as well as supply cuts.

Russian Energy Minister Alexander Novak said in late December that oil prices could stabilize in the first half of 2019, following joint efforts by the Organization of the Petroleum Exporting Countries (OPEC) and Russia-led non-OPEC producers to curtail supply. The international oil producing consortiums agreed earlier in December to cut their combined crude output by 1.2 million barrels per day from January.

The cost of crude had bottomed around the time of Novak’s remarks at around US$42.97, according to the IBKR Trader Workstation (TWS). The commodity has since risen about 28.7% from that level but remains around 27.5% off its 52-week high of US$76.25 set in early October.

Blue Line Futures president Bill Baruch noted that crude oil “does not seem that it wants to move lower and now we are embarking on a more seasonally bullish time of year. Furthermore, strong technical support has defended what we had believed to be equally strong waves of selling.”

Baruch continued that given Saudi Arabia will reduce production in March and further reduce exports to the U.S., “we imagine that the one-two combination from this and a higher demand season” that crude oil “has the gas to run to $60 over the next couple months.”

The active crude oil futures contract was last trading at a little above US$55.30 intraday Friday, a rise of roughly 1.6% on the day.

Thursday, February 21

  • Initial Jobless Claims

  • Durable Goods (Dec)

  • Markit Manufacturing PMI (Flash – Feb)

  • Markit Services PMI (Flash – Feb)

  • Existing Home Sales

  • EIA Crude Oil Stocks

Elsewhere, economic updates are set to shift into higher gear Thursday, including reports on weekly jobless claims, durable goods for December, flash readings of manufacturing and services PMIs from IHS Markit, existing home sales data, as well as petroleum inventories from the Energy Information Administration (EIA).

On the manufacturing front, IHS Markit said it observed overall improvements in operating conditions across the sector in January, buttressed by faster expansions in output and new orders. Domestic demand had driven new business growth, as new export orders rose only slightly and at the weakest rate since last October.

The seasonally adjusted IHS Markit final U.S. Manufacturing Purchasing Managers’ Index (PMI) posted 54.9 in January, up from 53.8 in December. The increase had signaled strong and faster improvement in the overall health of the sector and was above the long-run series average.

Chris Williamson, chief business economist at IHS Markit, said that the “upturn in business activity in January helped lift confidence in the outlook, though many companies clearly remain concerned about the impact of trade wars and rising protectionism.”

Williamson continued that domestic markets “provided the main source of new work for manufacturers, offsetting a near-stalling of export trade, the latter linked to subdued demand for US goods in foreign markets.

“Although higher than December, the overall rise in new orders was the second-lowest since last August, hinting at a slight cooling of demand growth in recent months which served to keep the headline PMI below the average recorded last year.”

Friday, February 22

  • Baker Hughes Oil Rig Count

Investors focusing on oil will be looking to the Baker Hughes Rig Count for further color on the drilling industry and its suppliers.

The prior count on February 8 saw a pick-up of 4 rigs for a total of 1,049 in the U.S. To date in 2019, rigs have expanded by nearly 75 year-on-year compared to a drop of 85 in Canada and an increase of 63 internationally.

Baker Hughes notes that when drilling rigs are active, they consume products and services produced by the oil service industry. The active rig count acts as a leading indicator of demand for products used in drilling, completing, producing and processing hydrocarbons.

Corporate Events

Consume, Consume, Consume

CAGNY Conference 2019

February 18–22 • Boca Raton, FL

Consumer businesses and analysts will descend on Boca Raton, Florida starting Monday, for the Consumer Analyst Group of New York’s (CAGNY) annual conference.

The five-day event should prove interesting to those investors paying attention to industry transformations, including U.S.-based alcoholic beverage maker Constellation Brands’ (NYSE:STZ) recent US$4bn investment in Canada’s cannabis producer Canopy Growth (TSX:WEED), (NYSE:CGC), as well as Altria’s (NYSE: MO) recent US$11.5bn corporate debt sale to help fuel its US$12.8bn purchase of e-cigarette maker JUUL.

Among the long list of attendees, the conference is slated to include Altria, Canopy Growth, Constellation Brands, Procter & Gamble (NYSE: PG), The Coca-Cola Company (NYSE: KO) and Tyson Foods (NYSE: TSN).

Earnings

Walmart (NYSE: WMT) is on the radar Tuesday to announce its fourth quarter earnings results before the market opens.

Walmart’s stock has been on the climb recently after plunging from its latest 52-week high in early November 2018. Shares have recovered roughly 15.7% of those losses and stand about 5.35% away from that high.

In intraday trading action Friday, Walmart’s stock was up around 0.85% to US$99.36.

Indeed, as Briefing.com’s O’Hare observed, it appears the dismal December retail sales figures have done little to dampen shareholder sentiment.

Note: This material was originally published on IBKR Traders' Insight on February 15, 2018.

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. Business relationship disclosure: I am receiving compensation from my employer to produce this material.