January 29, 2016
Mish's Daily
By Mish Schneider
Why the GDP matters
**Tonight’s Commentary was written by Jonathan Griffin Assistant Director of Trading Education and research.
The US GDP expanded at the lower rate in Q4 than in any other quarter of 2015. The GDP expanded at a meager .7% annual rate during Q4, a big drop from the 2% growth during Q3.
The cause of the drop has largely been attributed to falling exports, less consumer spending and a decline in the buildup of business inventories.
This clashes with the idea that our economy was improving, As the FOMC has told us, hence the first rate hike in nearly 10 years.
This also comes as Japan adopts a negative interest rate of -.1%, an attempt to get their banks’ to lend more out of their reserves. The idea here is to encourage spending among its average citizens. As well as to increase the inflation rate in Japan to the target of 2%.
How will The low GDP and Negative rates in Japan affect the market?
Interestingly enough, even with the draw downs in manufacturing over the last month, we saw a large spike higher in the S&P industrial ETF XLI during Fridays action. This has been largely linked to the move to adopt negative rates in Japan.
The Emerging markets ETF (EEM) also saw a large spike higher following the decision to slash rates as the individual ETF’s for China and Japan saw moves as much as 3% higher in FXI and a move of 2% form EWJ the Japanese ETF.
GDP and the FED.
The lower GDP numbers could potentially delay the timeline at which the FED will raise interest rates in the US, unless we see stronger numbers in GDP by March’s FED meeting.
This was seen in Wednesday’s report form the FED stating that with the decrease in economic growth, they wanted to see an increase in employment rate as well as seeing the inflation rate closer to the long-term goal of 2% before increasing federal funds rate beyond the current rate of .25-0.5%.
S&P 500 (SPY) Now into resistance around the 195 level. Needs to hold Fridays low. Subscribers: Positive pivots in all.
Russell 2000 (IWM) 103 is the next big hurdle to clear here if can hold 100.10 the 10 DMA.
Dow (DIA) Needs to see a move over 164.69 and to hold 161.33.
Nasdaq (QQQ) sitting right above the resistance from the weeks consolidation. Like this for a continued rally from here.
Volatility Index (VIX) Broke the consolidation to the downside.
XLF (Financials) Now over the JCRL but into resistance at 21.73.
KRE (Regional Banks) Confirmed a second close over the JCRL and looks poised for higher.
SMH (Semiconductors) Needs to clear the 50.00 level to continue.
IYT (Transportation) Stopped shy of the resistance at 124.23.
IBB (Biotechnology) Inside day near the lows. Needs to hold 259.06 and clear 276.17.
XRT (Retail) Had a weekly close back over the 65 weekly moving average at 40.59.
IYR (Real Estate) Still consolidating between 70 and 72.
ITB (US Home Construction) Want to see this back over 25 before I’ll get excited.
GLD (Gold Trust) Held again at 106.24 the JCRH. But feeling rather stalled.
SLV (Silver) Digesting Thursdays down move.
GDX (Gold Miners) Closed just over the 100 DMA but I want to see a second day with a bit more conviction.
USO (US Oil Fund) Is the rally faltering?
XOP (Oil and Gas Exploration) Now over 28, with the next resistance up around 30.73 to 30.84.
UNG (US NatGas Fund) Cleared the 50 DMA for an unconfirmed recovery phase.
TAN (Guggenheim Solar Energy) Still seems to be stalled here. Needs to clear 25.25 on a closing basis.
TLT (iShares 20+ Year Treasuries) Nice test of the recent highs at 127.92.
UUP (Dollar Bull) Nice bounce form support.
EEM (Emerging Markets) Up big on the news that Japan was adopting negative interest rates.
RSX (Russia) Resistance coming up at the 50 DMA at 14.90
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