Why the big run for oil is setting off alarm bells again

It’s been a huge week for markets. Soaring oil helped turn the Dow industrials DJIA, +0.69%  positive for the year on Thursday, and the S&P 500 SPX, +0.44%  has a shot at the green too, if markets behave Friday.

Oil settled at a new high for 2016 above $40 a barrel, and is hanging in there this morning. Here’s a chart from Charlie Bilello, director of research at Pension Partners, to put that in perspective:

“In all likelihood, oil will peak for a time as markets have yet to discount the realization of weak economic growth and the fact that no monetary policy will fix the structural problems we face,” says Leonard Brecken, blogging for Oilprice.com.

Brecken adds that, ultimately, the Fed may need to cut rates again.

“In my view, an unsustainable market rally will lead to an unsustainable rally in oil until we actually address the underlying causes of weak growth,” he said. That may or may not happen with the election of a new U.S. president in the autumn, he added. So, hope and fumes until November?

Our call of the day takes the pulse on oil prices. That hop to $40 a barrel has just made everyone uncomfortable again. As for our chart of the day, it’s all about the dollar and Japan.

It’s quadruple witching day, when various stock-index futures expire. Though you have to wonder how big of an impact that day could have, when WSJ calls it “3 witches and a little lady day”.

Check out some letters from frustrated investors. The-father-in-law indicator anyone?

Key market gauges

S&P ESM6, +0.42% and Dow YMH6, +0.29%  futures are up. In Asia’s session ADOW, +0.78% the Shanghai Composite SHCOMP, +1.73%  rose 1.7%. But the Nikkei NIK, -1.25%  fell 1.2%, hit again by dollar weakness against the yen USDJPY, +0.15% European stocks SXXP, +0.30%  are choppy.

Speaking of currencies, Chinese authorities guided the yuan USDCNY, -0.0525%  to 6.4628 per U.S. dollar, the strongest move since mid-December.

Crude CLJ6, -2.14%  is closing in on $41 a barrel after closing above $49 for the first time this year on Thursday. Gold GCJ6, -0.71%  is giving back more than 1% after a 3% surge yesterday.

Read: How gold can end confusion on stocks

The call

Getty Images

Among those ready to cash in on this fresh rally for crude is BNP Paribas, which cranked out a recommendation to sell nearly as fast as the commodity grabbed that $40 level.

“Current fundamentals suggest that a correction, rather than a further price rally, is likely to unfold,” say analysts Harry Tchilinguirian and Gareth Lewis.

BNP’s wariness of oil’s rally is for the usual reasons — little-changed global fundamentals and a commodity lifted by higher risk appetite. And its analysts are not hopeful about that upcoming meeting of oil producers.

“A dialogue among key producing countries to address oil output will at best yield a decision to freeze output, but not the much-needed reduction,” they say.

BNP isn’t the only one ringing alarm bells. Credit Suisse said in a note Friday that “we’ve seen most of the bounce in oil prices.”

The chart

J.P. Morgan says the dollar could fall to 103 yen by year’s end. That’s against a ¥105 per dollar target from Eisuke Sakakibara, otherwise known as Mr. Yen. The analysts at J.P. Morgan say recent actions by the Bank of Japan suggest it isn’t going to support dollar/yen as much as they thought.

Speaking of Japan, the 10-year yield for Japanese government bonds dropped to an all-time low of negative 0.135% on Friday. Yields move inversely to price. The BOJ is buying around 70% of new issuance under its quantitative easing, so supply is pretty thin:

The economy

The week ends on a quiet note for data, with consumer sentiment for March due at 10 a.m. Eastern. We could learn more about the Fed’s new dovish tone today, with three speakers on the docket: New York Fed President William Dudley, Boston Fed President Eric Rosengren and St. Louis Fed President James Bullard.

The quote

Reuters

“Plausible deniability only works when it’s plausible, and I’m not buying that you didn’t know about any of this until October 2015. You were not in a medically induced coma for a year, and I’ve had about enough of your false contrition and your phony apologies.” — Pennsylvania congressman Matt Cartwright, at a heated House Oversight and Government Reform hearing.

Rep. Cartwright, a Democrat, was calling for Michigan Gov. Rick Snyder to step down over Flint’s contaminated drinking water crisis. Lawmakers said Environmental Protection Agency Administrator Gina McCarthy should quit, too.

Earnings

Aéropostale ARO, -45.83%  is down 43% in late trading after posting a wider loss and a 16% slide in revenue. At the same time, the struggling teen retailer announced a strategic review to explore a sale or restructuring.

Adobe ADBE, +3.85%  profit nearly tripled, boosted by digital media revenue. Shares are up 7%.

The buzz

Starwood Hotels & Resorts’s HOT, +5.47%  stock up 5% in premarket after saying it’ll terminate its Marriot International MAR, +1.89%   buyout deal in light of a “superior” buyout bid from a consortium of companies such as China’s Anbang Insurance. Marriot is up about 1%.

McKesson MCK, +4.36%  will cut jobs and take a charge as part of a restructuring plan.

Bill Ackman’s hedge fund Pershing Square has been placed on a review for a possible downgrade by Standard & Poor’s, which cited a “very weak investment performance.” The hedge fund, rated “BBB”, has been hit hard by big losses for Valeant VRX, -9.13%

J.P. Morgan Chase JPM, +2.94%  increased the bank’s share buyback plan by $1.88 billion, in addition to the $6.4 billion share purchased plan already approved by the board.

TransCanada TRP, -1.13%   said Thursday it plans to buy Houston-based Columbia Pipeline CPGX, +5.66%  for $13 billion in an all-cash deal.

The stat

979 — That’s how many hedge funds shut down in 2015. It was the first time since 2009 that hedge fund closures outnumbered the number of new funds opening (968), according to Hedge Fund Research.

Random reads

Facebook’s Mark Zuckerberg is jogging in the smog in Beijing, and chatting about it.

A winning strategy? Donald Trump speaks like a 4th grader

A dream internship? $12,000 to spend the summer drinking beer.

Spring? Hah. A Nor’easter could hit the East Coast this weekend

Are those hidden rooms behind King Tut’s tomb? We could soon find out

Hillary Clinton responds to Donald Trumps “barking dog” attack ad.

Market Watch