Week Ahead: After Stellar January, Can Equities Move Yet Higher In February?

Baker Hughes reported a sharp drop in the number of active oil and gas rigs in the United States this past week. The total number fell by 14 rigs, according to the weekly report, with the number of active oil rigs falling by 15 to reach 847 and the number of gas rigs increasing by 1 to reach 198. The full rig count is now up by 99 from this time last year; 82 of these are oil rigs.

Technically, Friday's 2.73% jump for WTI crossed above the neckline of an H&S bottom since late November.

This past month was the best January performance for the S&P 500 since 1987. Everything finally seemed to fall into place for investors: stronger-than-expected earnings, signs of progress in U.S.-Sino trade talks, a robust labor market with no discernible impact on job growth after a 35-day partial government shutdown, which did, however, push the unemployment rate to a seven-month high of 4%.

Still, there was a slight increase in wages, which could support consumer spending without driving a spike in inflation, and finally, an apparently dovish Fed. While we have been saying all along that the single most significant impact on markets is the pace of interest rates—and we think last week's market activity proved us right—with equities gearing up to return to medium-term uptrends, we would nonetheless advise caution.

Not only are we not out of the woods yet regarding trade, we believe the market jumped the gun on the Fed, seeing its flexibility and newfound patience as a shift in policy, which isn't the case. Fed Chair Jerome Powell said time and again in his press conference that the Fed is entirely data dependent. Since there's still much data missing due to the shutdown, the Fed can't make any meaningful assessment at this point.

In other words, no evaluation was made. Rather, Powell played the economic cheerleader by reiterating what he'd already said in the previous press conference; the U.S. economy is doing well and the outlook is that it will continue to grow. If Powell says repeatedly that the Fed cannot fully assess the situation at this time, how is it that the markets interpret it as a policy shift?

All times listed are EST

4:30: U.K. – Construction PMI (January): expected to fall to 52.6 from 52.8.

22:30: Australia – RBA Rate Decision: no change in policy expected.

4:30: U.K. – Services PMI (January): predicted to fall to 51.1 from 51.2.

10:00: U.S. – ISM Non-Manufacturing PMI (January): forecast to fall to 57.0 from 57.6.

8:30: U.S. – Trade Balance (November), GDP (Q4 preliminary): trade deficit to narrow to $54 billion from $55.5 billion, and GDP expected to grow by 2.6% QoQ, from 3.4%.

8:30: U.S. – Retail Sales, Housing Starts and Building Permits, Durable Goods Orders (December): retail sales to rise 0.1% month-on-month (MoM), and durable goods orders to remain flat at 0.8% MoM.

10:00: Canada – Ivey PMI (January): expected to rise to 60.2 from previous reading of 59.7.

10:30: U.S. – EIA Crude Inventories (w/e 1 February): stockpiles rose by 919,000 last week.

7:00: U.K. – BoE Rate Decision: no change in policy expected, though with no progress on Brexit it will be interesting to watch the MPC’s views on the U.K. economy.

8:30: U.S. – Initial Jobless Claims (w/e 2 February): probably fell to 220K from 253K.

2:00: Germany – Trade Balance (December): surplus to narrow to €18.1billion from €19.0 billion.

8:30: Canada – Employment Data (January): jobs forecast to have fallen to 6,000 from 9,300 jobs created last month. Unemployment rate expected to rise to 5.7% from 5.6%.