Equities Uncouple From Oil As Gold Retraces Thirty Eight Percent from the Recent High

At least for today, equities and the continually gyrating price of crude oil decoupled, leading to similarly unexpected results in other markets. Even the two benchmark oils couldn’t get on the same page.

At 3PM in New York, West Texas Intermediate has fallen about 1.40% while Brent North Sea is down 3.50%. The price of natural gas has fallen 3.00%.

Earlier in the trading day, energy was up on news that Saudi Arabia, Qatar, Russia and Venezuela were going to implement a production freeze (at January, 2016, production levels). At first, energy traders bid up the price of oil until cooler heads prevailed and began to shrug off such talk as nonsense. It will take some time before January levels are inadequate for demand and serve to push up price versus supply.

U.S. equities, however, ignored oil pricing, an unusual event, and investors nudged the Dow and S&P 500 up 1.15% and 1.40% respectively. The NASDAQ was up almost 2.00%.

Driving the rise generally was consumer consumption in the United States and a little backing off of the sentiment that says, “China is dead, long live India.”

Consumer discretionary spending gained more than 2% to lead the S&P 500 higher.

That development was added to U.S. Commerce Department data released this past Friday that said that core retail sales, (excludes automobiles, gasoline, building materials and food services), increased a more-than-expected 0.6% in January after an unrevised 0.3% decline in December.

The tech components in the major indexes were buoyed by Apple, bio companies and semi-conductors. Of course that helped NASDAQ issues rise the most.

China seems to be moving into a better equities position since its central bank indicated yuan depreciation was enough (or so they say for now). Regardless, we are still looking at the world banking and financial institutions as the weakest link in a more robust equities recovery.

As you would expect on a risk-on day in equities and in the U.S. dollar, gold and silver fell. Gold is down 2.85% and silver is off 3.25%. About one-third of gold and silver’s fall came from dollar strength.

The other major safe-haven play – U.S. Treasury bonds – also softened today with the yield rising and therefore face price falling. The higher yield/lower price combination is designed to lure buyers.

Finally, there are an unusual number of regional Federal Reserve presidents speaking this weak. We found the following to be very intriguing.

Although he is not a voting member on the Federal Open Market Committee this year, it should be noted that Philadelphia Fed President Patrick Harker said in a Reuters report that he expected the central bank to be able to hike rates more "meaningfully" in the second half of 2016 once financial and energy markets stabilize.

Wishing you as always, good trading,