Dashboard update: oil rally

Dashboard PDF file:

Macro and Markets Dashboard: United States (April 23, 2016 — PDF)

Dashboard update summary:

Oil prices continue to play a dominant role in other markets’ movements. As mentioned in previous updates, corporate earnings expectations are depressed, so even dismal performance (GS Q1 earnings fell 60% for example) can lead individual stocks higher. However, recovery in energy and commodity markets pushes investors from uncertainty-safe investments into riskier pools. This past week was relatively quiet on the macroeconomic data side, and market volatility was low, however, next week offers both Q1 GDP first estimates and an FOMC meeting, and volatility may tick back up.

While Doha talks set expectations for a fall in oil prices, markets actually pushed prices up by 8.4% during the past week (as measured by front-month contracts of WTI crude). Analysts expected further downward pressure from labor strikes in Kuwait, however, prices continued to climb, suggesting we may be on the other side of the bottom. WTI closed at $43.73 on Friday (see below).

oil_apr232016

Yields on U.S. treasuries of various durations climbed during the week. Two-year treasury bond yields were up to 0.84 percent, more than 13 percent above their previous week level. Ten-year treasury yields climbed more than seven period during the week. Corporate bond yields fell during the week, from the AAA level to the junk-bond level.

Equities were mixed on the week, with the Nasdaq down six-tenths of a percent following disappointing earnings at Google, and the Dow and S&P 500 up a hair more than half a percentage point, each.

twoten_apr232016

Exchange rates also continue to fluctuate from week-to-week. The pound sterling appreciated by more than a percent against the dollar, the Canadian dollar by more than two percent, and the Rand by more than 2.5 percent. Meanwhile, the Yen depreciated by more than 1.3 percent against the dollar during the one-week period. The Euro-dollar spot rate was unchanged on the week.

fx_apr232016

 

Oil Price Data with Python

This example shows how Python can be used to take a look at oil prices. The script gathers daily oil price data from Quandl and plots how the price has changed over the past few months.

Gathering data

First, we import pandas, numpy, and matplotlib and give them conventional short names.

In [1]:
# Import libraries
import pandas as pd
import numpy as np
import matplotlib as mpl
import matplotlib.pyplot as plt
%matplotlib inline

Next, we identify the url for our data. In this case, the data is provided by Quandl and the url can be obtained by clicking ‘csv’ under the API for any series on the right-hand side of the page. We read the CHRIS CME_CL1 csv file provided by Quandl into a pandas dataframe.

In [2]:
# Import from Quandl WTI crude oil price data
url = "https://www.quandl.com/api/v3/datasets/CHRIS/CME_CL1.csv"
wticl1 = pd.read_csv(url, index_col=0, parse_dates=True)
wticl1.sort_index(inplace=True)
wticl1_last = wticl1['Last']
wticl1['PctCh'] = wticl1.Last.pct_change()

Line plot of oil price

Lastly, we can use matplotlib to generate a line plot showing the most recent 68 days worth of closing prices for WTI crude front month contracts. The past week has seen this measure of oil prices reach nearly $40 per barrel.

In [3]:
fig = plt.figure(figsize=[7,5])
ax1 = plt.subplot(111)
line = wticl1_last.tail(68).plot(color='red',linewidth=3)
ax1.set_ylabel('USD per barrel')
ax1.set_xlabel('')
ax1.set_title('WTI Crude Oil Price', fontsize=18)
ax1.spines["top"].set_visible(False)  
ax1.spines["right"].set_visible(False)  
ax1.get_xaxis().tick_bottom()
ax1.get_yaxis().tick_left()
ax1.tick_params(axis='x', which='major', labelsize=8)
fig.text(0.15, 0.85,'Last: $' + str(wticl1.Last[-1])\
         + ' (as of: ' \
         + str(wticl1.index[-1].strftime('%Y-%m-%d'))\
         + ')');
fig.text(0.15, 0.80,'Change: $' + str(wticl1.Change[-1])\
         + '; ' \
         + str((np.round((wticl1.PctCh[-1] * 100), \
         decimals=2))) + '%')
fig.text(0.1, 0.06, 'Source: ' + url)
fig.text(0.1, 0.02, 'briandew.wordpress.com')
plt.savefig('oil.png', dpi=1000)
oil

Dashboard update: recent economic data

Macro and Markets Dashboard: United States (March 19, 2016 — PDF)

As expected, the Fed left key interest rates unchanged. New economic data covering prices, industrial production, jobless claims, and inventories did not offer any dramatic surprises. Equity markets were up on the week, while treasury bond yields fell. The dollar weakened against nearly all major currencies.

Markets reacted positively to the Fed’s key interest rate decision and reduction of their forecast for 2016 rate hikes to two from four. The Nasdaq composite index increased one percent on the week, while the S&P 500 climbed 1.35 percent. Ten-year treasury bond yields fell to 1.88 percent on Friday.

Monthly CPI figures for February showed a year over year consumer price level increase of one percent, compared with a 1.3 percent increase in January. Energy and transportation costs fell more in February than January. Energy costs dropped 12.7 percent over their February 2015 level, while transportation costs fell 3.6 percent over the one-year period.  Healthcare, food, housing, and apparel prices all increased over the previous year’s level. Healthcare costs were up 3.5 percent.

cpi_mar192016

The industrial production index and total capacity utilization figures were both down slightly in February, following a modest increase in January.

iptcu_mar192016

New weekly jobless claims, at 265,000, showed no sudden increase, further supporting the so far solid labor market data. January data on manufacturing and trade inventories and sales, from the U.S. Census Bureau, showed that sales were down 1.1 percent over their January 2015 level, while inventories were up 1.8 percent over the same period, pushing the inventories to sales ratio to 1.4.

jobinv_mar192016

Over the past week, the U.S. dollar weakened against all major currencies except for the Egyptian pound, which was devalued by 14 percent against the dollar during the week. The dollar fell roughly two percent or a bit more against the Euro, Yen, and Canadian Dollar, and nearly a percent and a half against Pound Sterling and Swiss Francs. The dollar fell against the Yuan by nearly three quarters of a percent on Friday.

fx_mar192016

 

 

Dashboard update: expectations and central bank signaling

Macro and Markets Dashboard: United States (March 12, 2016 — PDF)

Friday’s bull market led equity and commodity prices to their third consecutive weekly increase. Market volatility has continued to return to more comfortable levels. Investors views on the current macroeconomic environment and expectations about the future are important determinants of market behavior. While the global macroeconomic picture still includes low growth, I worry that unorthodox monetary policy may have its effectiveness counteracted by the signals it sends.

Oil prices, as measured by front-month contracts of West Texas Intermediate crude oil, increased nearly six percent during the week (see below). The S&P 500 and Dow Jones Industrial Average increased by more than a percentage point during the week, while the Nasdaq Composite Index was up two-thirds of a percent.

wti_mar0122016

The CBOE Volatility Index (VIX) fell to its lowest level of the year on Friday, closing at 16.5. Possibly supporting the relative calm in markets, the week offered very little new domestic macroeconomic data. Next week should provide more food for investor thought.

vix_mar0122016

A quiet week for domestic data provides opportunity for reviewing the global picture. The IMF forecasts global growth to remain weak but gradually improve. Emerging markets, including China, continue to experience relatively slower growth and lower demand. Commodity exporters continue to be hurt by the collapse in prices. Global trade has slowed, and some economists have asked whether we have reached the end of globalization.

The European Central Bank (ECB) expanded quantitative easing and cut all interest rates during their meeting this week. Other central banks in the region will likely follow the ECB further into negative interest rate territory. I worry that negative interest rates and other unorthodox monetary policy are not as effective as anticipated. What Keynes termed “animal spirits” plays a role in explaining why the continued lowering of borrowing rates may not lead to more lending.

Negative interest rates send a mixed message. A bank is simultaneously being enticed to lend by the low cost of money while being told that the economy is in unprecedentedly bad shape. Near to zero, the actual effect of small changes to the interest rate can be overpowered by the message that is sent by the direction of movement. When central banks tighten from zero, as the Fed did in December, it signals that monetary policy is moving away from uncharted waters and that the economy is improving. A tightening central bank adds basis points to its arsenal for handling future crises. When central banks such as the ECB and Bank of Japan (BOJ) loosen monetary policy further, they move farther into a territory which scares investors and lenders and constrains their future movement.

In the U.S., labor market tightening, wage growth, core inflation, and signs of modest economic growth push the Fed towards another quarter point rate hike. Most economists, however, do not expect a rate increase from the Fed during its meeting next week. Despite other concerns, such as the weak global picture and the continued strength of the dollar, the animal within me would like to see a Fed funds rate increase in one of the next two meetings.

 

Dashboard update: adjusting the tools

Macro and Markets Dashboard: Japan (February 20, 2016 — PDF)

Macro and Markets Dashboard: United States (February 20, 2016 — PDF)

Given a relatively calm week for markets, I’m going to make a more procedural update this week and share two developments with my tools. First, I’m including a draft dashboard for Japan. Second, I’ll be sprinkling in some bar chart plots, which I hope dig a bit deeper into some interesting time series.

The draft dashboard for Japan still needs a lot of work, but provides a few interesting indicators of macro and market conditions in the land of the rising sun. For example, Japanese government bonds (JGBs) were in the news when the BOJ negative interest rate policy pushed yields on ten year bonds negative. While the shorter-duration bond yields are still negative, ten year yields are now virtually flat (see below). JGB_Feb202016

Additionally, I’ve developed some bar plots for looking deeper into changes to prices. Below, I include the decomposition of the Consumer Price Index and Producer Price Index into selected categories. I’ve used the 12-month percentage change to individual CPI and PPI series in this example. Hopefully, I can integrate these charts into the main dashboard, over the coming weeks. We can see from this example, that health care costs continue to rise more rapidly than other costs, and that the fall in energy prices slowed during January.

Prices_Feb202016

Dashboard update: noisy week

Macro and Markets Dashboard: United States (February 6, 2016 — PDF)

Modest U.S. macroeconomic data continues to pour in, yet equity markets tumbled, possibly pricing in a steeper trajectory for the fed funds rate. JP Morgan Funds’ chief strategist, David Kelly noted in his weekly podcast that the noisy week was “unlikely to resolve issues troubling markets”.

Yesterday’s jobs report showed an increase in non-farm payrolls of 151,000 workers, bringing the unemployment rate down to 4.9%. The number of long-term unemployed was basically unchanged. The civilian labor force participation rate improved by a tenth of a percent to 62.7. Wages also improved slightly; average hourly earnings are 2.5 percent higher than a year ago.

unemp_Jan_2016

A new note from Francisco Blanch of Bank of America Merrill Lynch reminded that the oil price collapse generates an enormous wealth transfer from oil producers to consumers. Over time, this type of transfer may show up in personal savings rate or personal consumption expenditure data, however, the December personal savings rate was unchanged at 5.5 percent.

January manufacturing PMI data was practically unchanged at 48.2, however the index of non-manufacturing business activity fell more than 9 percent to 53.9.

nmi_Jan_2016

Major U.S. equity market indicators were down on the week, and tech stocks were hit particularly hard on Friday. The S&P 500 was down more than three percent during the week, and the Nasdaq composite index dropped more than five percent. Oil, as measured by front month contracts of WTI, closed Friday at $30.89 a barrel.

The dollar depreciated against most major currencies during the week, providing some relief for U.S. exporters (and policymakers). The dollar weakened more than four percent against the Brazilian Real, more than three percent against the New Zealand Dollar, and more than two percent against the Euro, Yen, Canadian Dollar, and Swiss Franc. The dollar was down roughly 1.7 percent against sterling.

Dashboard update: volatility persists but investor sentiment improved

Macro and Markets Dashboard: United States (January 30, 2016 — PDF)

A busy week for economists, as the Fed met, advance estimate 2015 annual and 2015 Q4 GDP figures were released, and earnings results were announced for hundreds of U.S. companies. Of course, the Fed did not change interest rates, and actually softened their statement language some. The first estimate of 2015 Q4 GDP growth showed a slowdown. Earnings, especially from Facebook, did not disappoint.

Advance estimate GDP data from the BEA showed real GDP growth in 2015 Q4 was lower at 0.7 percent (annualized basis), down from two percent in Q3. Analysts have been expecting a lower rate of growth, so this was not a huge surprise, though it is not great news. The strong dollar has hurt exports, while inventories and savings rates have both increased. The economist offered a nice piece of analysis on the GDP slowdown. As usual, the data will be revised a few times.

gdp

saveinv

The FOMC meeting during January 26-27 was not stopped by winter storm Jonas, though it seems the policymakers are being slowed by forces much much further away. As noted in the Fed’s statement (PDF):

The Committee is closely monitoring global economic and financial developments and is assessing their implications for the labor market and inflation, and for the balance of risks to the outlook.

The FOMC’s additional consideration of volatility abroad is a real wrinkle for monetary policy makers who have an already limited toolkit. Given the potential consequences of highly divergent monetary policy, this additional consideration has become a reality.

Equity market indices were higher on the week. The S&P 500 was up 33 points or 1.7 percent, and the Dow Jones Industrial Average climbed 372 points on the week, 2.3 percent. Much of these gains came from a surge on Friday.

Corporate high yield bond yields fell during the week, but remain in dangerous territory. The yield spread of Merrill Lynch’s index of high-yield corporate bonds over 10 year treasuries remains above 7 percent.

hybonds

The U.S. dollar softened against most major currencies during the week, including by half a percent each against sterling and the Euro. The dollar weakened by 1.39% against the Australian dollar, 1.75% against the Canadian dollar, 2.5% against the South African rand, more than 3.5% against the Malaysian Ringgit, and more than 6% against the Russian Ruble.

The dollar strengthened by more than 1.6% against the yen during the week, as the Bank of Japan announced that it would take its battle against deflation to the next level by adopting a negative key interest rate.

Dashboard update: another volatile week

Macro and Markets Dashboard: United States (January 23, 2016 — PDF)

While the S&P 500 closed higher on the week, it doesn’t look like market jitters have dissipated. Volatility, as measured by the CBOE’s VIX, reached its highest level since August, spiking at 31.95 on Wednesday, and closing Friday at 22.34.

Excess reserves of depository corporations that are parked with the Fed bounced back towards their peak, despite the Fed’s effort to drain liquidity. Similarly, yields on 10-year treasuries traded near 2 percent (see below).

Oil prices, as measured by front month contracts of WTI, reached a low of $26.19 a barrel, but closed Friday at $32.19. Newly released CPI data showed prices growing at 0.7 percent in December (see below), an increase of 0.3 percent over November, but still well below the 2 percent target.

On the exchange rate front, the dollar strengthened over sterling, the ruble, and the real. A fried who just returned from Brazil noted how relatively inexpensive a vacation from the U.S. to Brazil has become. With more than a foot of snow in Washington right now, opportunity costs are down, as well.

try_Jan_21_2016

 

cpi_Jan_21_2016