Stocks remain near recent highs as Oil recovers after inventories

Summary:

• S&P500 closes in on 200 DMA; GM beats forecasts

• Stock of the week: Visa

• Deutsche Bank expected Germany economy to fall into recession

• Oil recovers after smaller than forecast inventory build

• Commodity currencies take a step back

The recent rally in stocks across the Atlantic has shown little sign of letting up and whilst there remains several reasons to doubt its ability to persist, the path of least resistance appears to remain higher until the price action tells us otherwise. The S&P500 (US500 on xStation) has now posted higher highs and higher lows for the past 5 sessions and is well set to extend this run if it can move above 2737 and not drop below 2717. One stock to watch is General Motors (GM), after the carmaker announced better than expected figures for both the top and bottom line. For the last quarter adjusted earnings per share came in at $1.43 vs $1.22 expected, generated by revenue of $38.4B vs $36.5B according to the consensus forecast.  “Results were driven by strong pricing, surging crossover sales, successful execution of the company’s full-size truck launch, growth of GM Financial earnings and disciplined cost control,” the company said in a statement.

While Visa is a 60-year old company that needs no introduction, one may find surprising that its shares debuted on the stock exchanges just a decade ago. Share price increased over elevenfold since company’s IPO in 2008. In this short analysis we will take a look at the latest earnings report submitted by Visa as well as compare the company with its biggest competitor, Mastercard. You can read more about our stock of the week here.

More and more voices heralding recession in Germany can be heard lately. The Deutsche Bank released a report on the outlook for the German economy yesterday. The Bank painted a grim picture and said that the Europe’s biggest economy is likely to contract in the first quarter of 2019. Economists reasoned their stance by saying that survey data deteriorated greatly and expectations of new orders worsened. Such view is shared by the Bundesbank President, Jens Weidmann. Central bankers said a few days ago that the economic weakness of 2018 extended into 2019 and the growth will be much lower than predicted at the end of the previous year.

The official government growth forecast was also cut in a half. Deutsche Bank, however, denied to revise its forecast and opt to wait with such move until the German statistics office releases growth data for the fourth quarter of 2018. Nevertheless, the German factory orders data for December was released today and it doesn’t bode well for the growth figures in Q4 2018. Namely, factory orders declined 7% throughout 2018 against expected drop of 6.7%.

After trading lower for most of the day, there’s been an attempted recovery in the oil price with both Oil and Oil.WTI rallying after the release of the weekly crude oil inventories. The headline figure showed a 3rd consecutive rise, but the gain was smaller than the build seen in last night’s API and this has supported a recovery in the markets. The weekly crude oil inventories rose by 1.3M, against a consensus forecast of +1.9M and last night’s API which came in at +2.5M. For context, the prior reading was +0.9M.

Commodity-related currencies have not performed well so far today even as the US dollar index is only slightly changed. Major weakness came after RBA’s governor Philip Lowe signalled that a rate cut is on the table if the labour market conditions deteriorate. As a result, the Aussie is falling against the US dollar as much as 1.4% at the time of writing. Other commodity-related currencies are also on the back foot: NZD is losing 0.6%, CAD is falling 0.5% while NOK is going down 0.3%.