Flagging Street Gets Help From Surging U.S. Oil Prices

What can the markets do for an encore after falling out of bed on Thursday? Follow the oil, it seems.

The correlation between oil and the stock market remains alive and well, helping stocks claw their way back early Friday from Thursday’s losses. Oil is up almost 4% in the early going in part due to a surprising fall in U.S. crude stocks this week, as well as a key pipeline shutdown. Later Friday, weekly rig count is due, and it’s been falling for a while.

Looking ahead, several Fed speakers are on tap today, and earnings loom next week.

Things got a little ugly Thursday as all the fear seemed to come back into the market. The S&P 500 (SPX) fell below key psychological support at 2050, and is on pace to close lower for the second week in a row. However, the SPX rose above 2050 in early trade Friday. Support below 2050 is down at 2022, and resistance is at 2072.

The CBOE Volatility Index, considered the best gauge of fear in the market, jumped more than 18 percent Thursday to near 16.7. The VIX had recently fallen to levels not seen since last fall. Gold futures for June delivery settled up $13.70 at $1,237.50 an ounce. And 10-year U.S. Treasury bond yields fell to levels not seen since the depths of February’s stock market sag.

With falling treasury yields in focus, financial stocks took it hardest on Thursday. The 10-year yield climbed back above 1.7% early Friday.

One worry continues to be the strength of the Japanese yen, which is now up 10% against the dollar this year, and is at year-and-a-half highs. This comes despite the Bank of Japan’s negative interest rate policies, raising questions as to whether central bank policy is working. The Bank of Japan’s next policy announcement is April 28.

Back in the U.S., Fed Chair Yellen said late Thursday that “the U.S. economy has continued to progress in a satisfactory way” and reiterated that a gradual path in rate increases “is appropriate.” More Fed speakers are scheduled today. New York Fed President William Dudley, speaking early in the day, reiterated Yellen’s remarks about a gradual approach to rate hikes, media reports said. Dallas Fed President Rob Kaplan is also due to speak at 9:30 a.m.

Technical Support Breached: One victim of Thursday’s equities sell-off was the psychological support level of 2050 for the S&P 500 Index (SPX). The index has been closing above and below that level so far this week, and from a bullish technical perspective, it would have been constructive for the index to stay above that level. Obviously, that didn’t happen, though the SPX did climb back above 2050 early Friday. The next support is at 2022.

10-Year Yield Hits Nearly Two-Month Low: As investors ran to safety during Thursday’s stock market decline, yields on 10-year U.S. Treasury notes re-visited levels last seen when the stock market was far lower earlier this year. On Thursday, yields fell below 1.7% for the first time since a rather ominous day in the markets: Feb. 11. That was the day the SPX made what to date is its low for the year, down around 1810. The SPX is more than 200 points above that level now, even after Thursday’s declines.

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