Five-Day Rally Over? Weak Chinese Data, Selling Pressure, Weight

Stocks tipped lower Tuesday as the market reacted to disappointing data from China and took a pause from its recent dramatic rally.

The S&P 500 Index (SPX) closed above 2000 on Monday for the first time in two months, but was trading below that on Tuesday morning after posting a five-day win streak. The index has climbed nearly 200 points from its mid-February low, and now is drawing selling pressure as the market takes a breath from its gallop upward. Although the SPX closed slightly higher Monday, the CBOE’s VIX futures, which track volatility, moved up a bit, climbing above 17 after falling below that level on Friday.

Some of the weakness early Tuesday stemmed from disappointing trade data out of China overnight that pointed to more weakness in the world’s second-largest economy. China’s customs administration reported Tuesday that exports fell 25.4% in dollar terms year-over-year last month, compared with a drop of 11.2% in January. That compared with consensus for a slip of about 15%. Imports also declined. Exports were the weakest in more than five years. Markets around Europe and Asia were mostly lower overnight, contributing to the weak tone on Wall Street. Stocks of mining companies in Europe were especially weak, hurt by a drop in commodity prices related to the Chinese economic data.

The Street also digested speeches from two U.S. Fed officials, both of whom touched on inflation in prepared remarks Monday. Fed Vice Chairman Stanley Fischer said, “We may well at present be seeing the first stirrings of an increase in the inflation rate—something that we would like to happen.” Lael Brainard, a member of the Fed’s Board of Governors, said she expects inflation to move toward 2%, but also said the Fed “should put a high premium on clear evidence that inflation is moving toward our 2% target.” She added, “Given weak and decelerating foreign demand, it is critical to carefully protect and preserve the progress we have made here at home through prudent adjustments to the policy path.”

The comments followed Friday's U.S. jobs report, which reported the economy saw a better-than-expected increase of 242,000 jobs in February. However, the report didn't show evidence of inflation.

ECB Takes the Stage Thursday: European Central Bank (ECB) meets this week and is scheduled to hold a press conference Thursday morning (U.S. time) featuring remarks from ECB President Mario Draghi. According to The Wall Street Journal, investors expect the ECB to cut interest rates further into negative territory and further expand stimulus at the conclusion of its meeting in an attempt to fuel stronger economic growth. Economists typically watch Draghi’s statements for clues as to future rate and stimulus policy, as well as for his observations on the European economy.

Euro/Dollar: The U.S. dollar initially moved higher against the euro early this week ahead of the ECB meeting, but then lost some ground. The euro has rebounded slightly versus the dollar since last fall, when it sank to multi-year lows.

Oil Motors Higher: Despite the weak Chinese data overnight, oil prices moved a little higher early Tuesday, rising to new two-month peaks above $38 for U.S. futures and above $41 for European futures. The rise in oil prices came despite comments early Tuesday from Kuwait’s oil minister, who said his country would only freeze production if all other major oil producers, including Iran, agree to do so. The current oil market rally has been helped along by anticipation of a freeze in output from major producers.