Thursday, May 26, 2016

Markets waver, assessing prospects for an interest rate hike in June

Dow gave up 23, advancers slightly ahead of decliners & NAZ went up 6.  The MLP index lost 3 to the 301s & the REIT index  was up a fraction in the 339s.  Junk bond funds did little & Treasuries found buyers after recent weakness.  Oil slid back slightly in the 49s after going over 50 (see below) & gold declined.

AMJ (Alerian MLP Index tracking fund)

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CLN16.NYM....Light Sweet Crude Oil Futures,J....49.60 Up ...0.04 (0.1%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve Governor Jerome Powell laid out a clear argument for raising interest rates while stressing that global risks, including the Brexit vote in the week following the next meeting of the US central bank, meant there was no reason “to be in a hurry.”  “Depending on the incoming data and the evolving risks, another rate increase may be appropriate fairly soon,” Powell said, adding that the pace of hikes “should be gradual.”  Explaining that he'd not yet made up his mind over whether to vote for a hike next month because he wants to assess incoming data, Powell said that “the risks of waiting are frankly not so great. This doesn’t feel like an economy that’s bubbling over.”  “You don’t want to wait too long, but neither do you want to be in a hurry,” he told the audience during a question and answer session following his speech.

Fed’s Powell Backs Rate Hike Soon But Sees No Need to Rush

Federal Reserve Bank of St. Louis pres James Bullard said risks associated with disappointing Chinese economic growth aren't going away & that such worries shouldn’t keep the central bank from pursuing the best monetary policy for the country.  The world's #2 economy has “many things going on and there are many challenges that they face,” Bullard, who votes this year on the policy-setting FOMC, said.  His prepared comments were a repeat of those he delivered yesterday.  “There’s some risk there that the economy might not perform up to expectations,” Bullard said of China.  “That’s a risk that we live with every day and we’re going to live with that every day for many, many years to come, so I think you can’t be on pins and needles and say I’m not going to pursue the right policy for the U.S. because something bad might happen in that situation.”

Bullard Says China Shouldn’t Keep Fed ‘on Pins and Needles’

Oil pared earlier gains after touching $50 a barrel for the first time in more than 6 months as US crude upplies & production declined.  Futures were little changed after earlier climbing over $50, the highest price since Oct 9.  US stockpiles shrank more than expected last week, gov data showed, while supplies have also been curtailed in Nigeria, Venezuela & Canada.

US crude production dropped for an 11th week to 8.77M barrels a day, the Energy Information Administration reported yesterday.  Crude inventories slid 4.2M barrels last week, exceeding an expected drop of 2M & stockpiles at Cushing, Oklahoma, the nation’s biggest oil-storage hub, fell 649K barrels.

A few weeks remain before the FOMC has its next meeting when those guys will decide what to do with interest rates.  Comments today are suggesting an interest rate hike is still very much on the table.  Oil has returned to its bullish ways, but higher prices are based on lower supplies from unstable countries & fires in Canada (which are being dealt with).  Oil inventories continue to be at extraordinarily high levels.  Meanwhile, the US economy is not doing as well as the bulls would like to see.

Dow Jones Industrials


Markets fluctuate on mixed economic data

Dow slid back 13, advancers  ahead of decliners 5-4 & NAZ gained 4.  The MLP index was off fractionally in the 303s & the REIT index added a fraction to the 339s   Junk bond funds were mixed & Treasuries rose a tad.  Oil is up again, flirting with 50, & gold  inched higher.

AMJ (Alerian M LP Index tracking fund)

CLN16.NYM....Light Sweet Crude Oil Futures,J...50.06 Up ...0.50 (1.0%)

GCK16.CMX...Gold Futures,May-2016...........1,230.60 Up ...7.10 (0.6%)

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Orders for business equipment unexpectedly declined in Apr for a 3rd straight month, indicating American manufacturers continue to pull back, according to the Commerce Dept.  Orders for non-defense capital goods excluding aircraft fell 0.8% (forecast was for 0.3% gain) to 5-year low of $62.4B.  Shipments of such business equipment rose 0.3%, erasing the decline in Mar.  Total durable goods orders climbed 3.4% (forecast was 0.5%) after 1.9% advance.  Some companies are paring investment plans as they assess the demand outlook in wake of weaker Q1 growth & earnings, raising doubts about how quickly manufacturing can pull out of its slump.  Global economies are struggling to improve, the oil industry has retrenched & factory customers are also bringing inventories more in line with sales.

Orders for U.S. Capital Goods Unexpectedly Fall for Third Month

Contracts to purchase previously owned US homes climbed in Apr by the most since Oct 2010, adding to signs that the industry’s busy selling season was off to a good start, according to data from the National Association of Realtors.  Index of pending home resales increased 5.1% (forecast was 0.7%) after a revised 1.6% gain in Mar.  Measure increased 2.9% from Apr 2015 on an unadjusted basis (forecast was 0.2%).  3 of 4 regions increased, including a 11.4% surge in the West that was the biggest in records back to 2001.  Sales gauge rose to a decade-high of 116.3 on a seasonally adjusted basis, with 100 indicating “historically healthy” buying activity, according to NAR.  The boost in contract signings is a good sign that robust home-buying activity will continue during the spring-selling season, following reports that existing-home purchases jumped to a 3-month high in Apr & new-home sales surged to the strongest in 8 years.  While would-be buyers are deterred by limited inventories especially among lower-priced homes, a steady jobs market & cheap borrowing costs are helping to fuel demand.

Pending Sales of U.S. Existing Homes Rise by Most Since 2010

Jobless claims fell for a 2nd week, indicating the surge at the start of May reflected temporary dismissals.  Initial applications for unemployment benefits dropped 10K to 268K, according to the Labor Dept.  The forecast projected 275K claims.

Sustained declines in claims from the more than one-year high at the start of the month signals those increase were due to transitory events such as the spring break holiday at schools in NY & auto plant shutdowns in Mich.  That shows employers remain intent on retaining experienced workers amid prospects demand will start to firm after the economy stumbled in Q1.  The 4-week moving average of claims, a less volatile measure than the weekly figures, increased to 278K from 275K.  The number of claims is receding after jumping to 294K in the first week of May, a more than one-year high.  The number continuing to receive jobless benefits rose 10K to 2.16 & the unemployment rate among people eligible for benefits held at 1.6%, where it’s been since mid-Feb.

Initial Jobless Claims Fall as U.S. Layoffs Prove Temporary

Markets are quiet following a big advance earlier in the week.  There is a lot to digest as they weigh the Fed's move next month on interest rates.  Oil topped $50 briefly which is seen as a bullish sign, even though the huge energy industry has to to cope with serious problems.

Dow Jones Industrials