Wednesday, September 20, 2017

Markets crawl higher after Fed announces plans to sell Treasuries

Dow went up 41, advancers modestly ahead of decliners & NAZ lost 5.  The MLP index was off fractionally in the 281s & the REIT index fell 1 to the 352s.  Junk bond funds did not move much & Treasuries were sold after the Fed announcement.  Oil jumped up over 50 & gold gave back 7, going down to 1303.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Federal Reserve officials set an Oct start for shrinking their $4.5T stockpile of assets, moving to unwind a pillar of their crisis-era support for the economy.  They continued to forecast one more interest-rate hike later this year, saying storm damage will have only a temporary impact on the economy.  “Hurricanes Harvey, Irma and Maria have devastated many communities, inflicting severe hardship,” the FOMC said.  “Storm-related disruptions and rebuilding will affect economic activity in the near term, but past experience suggests that the storms are unlikely to materially alter the course of the national economy over the medium term.”  They left the benchmark interest rate unchanged in a range of 1-1.25%.  Central bankers are counting on steady growth & low unemployment to raise inflation closer to their goal, which would support their policy of gradual tightening through interest-rate increases & a reversal of quantitative easing.  The announcement is a 3rd big policy step for Janet Yellen, now in the final year of her term as Fed chair:  She has overseen the end of large-scale asset purchases; the liftoff of rates from zero; & now the pullback from an unprecedented balance- sheet buildup without disruption to financial markets or the economy so far.  While the storms will temporarily boost inflation thanks to higher prices for gasoline & other items, “apart from that effect, inflation on a 12-month basis is expected to remain somewhat below 2 percent in the near term but to stabilize around the committee’s 2 percent objective over the medium term,” the Fed said.  The economy expanded at a 2.1% annual rate in H1 -- in line with the pace during this expansion -- & gov 10-year notes yield about 2.24%, down from 2.45%  at the start of the year.  The Fed's preferred price gauge rose 1.4% in Jul from a year earlier.  “The labor market has continued to strengthen” & economic activity “has been rising moderately so far this year,” the Fed said.  The FOMC repeated language saying “near- term risks to the economic outlook appear roughly balanced.”  The decision to leave the target range for the federal funds rate unchanged & begin the balance-sheet runoff in Oct was unanimous.  The Fed reiterated that interest rates are likely to rise at a “gradual” pace, though updated forecasts indicated that officials see the path as less steep than before.  In their new set of projections, Fed officials estimated 3 qtr-point rate hikes would be appropriate next year, the same number they said in Jun.

Fed to Shrink Assets Next Month, Boost Rates by Year-End

FedEx (FDX) said its fiscal Q1 profit fell 17%, hurt by a Jun cyberattack at its TNT Express business that caused shipping delays in Europe.  The company also cut its profit outlook for the year.  Most of the operations are up & running but profit, revenue & package volume are still down from previous levels.  FDX bought TNT last year to expand its business in Europe.  Looking ahead to the busy holiday season, FDX plans to hire 50K to help deliver packages, the same number it hired last year.  The company announced last month that it would not be charging customers an extra holiday shipping fee like it did last year.  Overall, EPS was $2.19, down from $2.65 in the same period a year ago.  EPS, adjusted for non-recurring costs, came to $2.51, falling short of the $3.17 expected.  Revenue rose 4% to $15.3B, which was below the $15.37B expected.  FDX expects full-year EPS of $12-12.80, down from its previous forecast of $13.20-14.  The stock gained 4.50.  If you would like to learn more about FDX, click on this link:

FedEx profit falls 17 percent, hurt by TNT cyberattack

United Parcel Service (UPS) expects to hire about 95K seasonal employees for the upcoming, crucial peak holiday season.  These employees would support the expected increase in package volume that will begin in Nov & continue thru Jan.  Peak season begins on Black Friday, the day after the Thanksgiving holiday in Nov, & runs thr early Jan when there is a large wave of returns.  The number of seasonal workers UPS hires for the holiday season has not changed since 2014.  The company has about 355K permanent employees in the US.  Up to 35% of seasonally hired employees over the last 3 years have become full-time employees.  UPS has been working closely with retailers to manage the holiday season surge in demand, since struggling with deliveries in 2013 & 2014.  The company had grappled with bad weather & a late surge in e-commerce orders during the 2013 holiday season.  On some days during last year's holiday season, UPS's average daily volume surpassed 30M packages, far exceeding its normal daily average of more than 19M.  UPS said in Jun it would levy surcharges on US residential packages during the holiday season.  The stock rose 83¢.  If you would like to learn more about UPS, click on this link:

UPS expects to hire about 95,000 workers for holiday season

The Dow dropped 60 after the Fed's announcement was made, but that loss was recovered by the close.  Janet's words still count for a lot because the stock market has to adjust to rates returning where they traditionally have been (around 4% for the 10 year Treasury) & trimming the massive portfolio.  With that drama closed for the time being, eyes will return to watching the goings on in DC.  Proposals for a new tax plan are coming in a few days & that will move the market!!

Dow Jones Industrials

Mixed markets, waiting to hear from Yellen

Dow inched up 1 (to another record), advancers over decliners 3-2 & NAZ was off 5.  The MLP index rose fractionally to the 282s & the REIT index was even in the 355s.  Junk bond funds were flattish & Treasuries crawled higher.  Oil hit 50 again & gold went up 5.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil50.24

GC=FGold   1,315.60

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US retail sales are expected to accelerate during this year's holiday season, a sign consumers will be more comfortable opening their wallets than in the aftermath of a tumultuous presidential election.  The sales may climb as much as 4.5% to $1.05T in the Nov-Jan shopping season, according to Deloitte LLP.  That would outpace the 3.6% growth in the same period of last year.  The seasonally adjusted numbers exclude purchases of motor vehicles & gas.  “The consumer is pretty comfortable,” Rod Sides, vice chairman of Deloitte, said.  “They’re looking to spend a little more than they have in the past.”  Bigger paychecks, higher consumer confidence & a strong labor market are all helping drive the growth.  Disposable income increased just 2% heading into last year's holiday season, but it’s expected to rise as much as 4.2% this time around, according to Deloitte.  The rosier outlook strikes a different tone than last year, when many retailers blamed the polarizing presidential election for keeping shoppers at home.  This time around, some retailers are ramping up hiring, a sign they expect a bigger rush of shoppers.  But heavy competition, especially from online sellers, will make it harder for conventional chains to attract customers,  Sides said. E-commerce sales are expected to swell 18 -21% from Nov-Jan, compared with last year's growth rate of 14&.

U.S. Holiday Sales Projected to Jump as Consumer Jitters Subside

Sales of previously owned US homes declined to a one-year low in Aug as affordability continued to hamper demand & Hurricane Harvey caused a slump in Houston-area purchases, a National Association of Realtors report showed.  Contract closings fell 1.7% M/M to a 5.35M annual rate (est. 5.45M).  Purchases in Houston decreased 25% Y/Y; excluding Harvey's effect, sales would have been “flat,” according to the NAR.  The median sales price rose 5.6% Y/Y to $253K.  The inventory of available properties decreased 6.5% Y/Y to 1.88M, marking the 27th consecutive year-on-year decline.  While decreased purchase activity in Houston helped push down the sales count nationwide, & may continue to do so in coming months, residential real estate is struggling to improve because of declining affordability, the NAR said.  Housing data may be volatile for several months in the wake of Harvey & Irma.  As a result, US sales in 2017 will probably be weaker than they were last year.  A pause in both sales & construction in Texas & Florida as clean-up efforts continue will probably give way to improving demand later this year & into next.  Even before the storms, home price growth was exceeding wage gains because of lean inventory, crimping affordability for some & leaving buyers with fewer properties to choose from.  At the same time, a steady job market & still-low borrowing costs remain sources of support for the housing recovery.

U.S. Existing-Home Sales Fall to a One-Year Low After Harvey

Oil headed for its largest Q3 gain in 13 years as prices rose after the Iraqi oil minister said OPEC & its partners are considering extending or deepening output cuts aimed at reducing a global supply glut.  West Texas Intermediate (WTI) crude futures gained 52¢ to $50.00.  The oil price is on course for a rise of nearly 16% this qtr, which would make this year's performance the strongest for Q3 since 2004.  OPEC & other producers are considering a range of options, including an extension of cuts, but it is premature to deci de on what to do beyond the agreement's expiry in Mar, Iraqi oil minister Jabar al-Luaibi told an energy conference.  OPEC & non-OPEC producers including Russia have agreed to reduce output by about 1.8M barrels per day (bpd) until Mar to reduce global oil inventories & support prices.  Some producers think the pact should be extended for 3 or 4 months, others want it to run until the end of 2018, while some, including Ecuador & Iraq, think there should be another round of supply cuts, al-Luaibi said.  Analysts, however, doubt that such an extension would have much of an impact on the overall oil market.  US crude stocks rose last week while gasoline & distillate stocks decreased, according to the American Petroleum Institute.  Crude inventories rose by 1.4M barrels to 470M, compared with expectations of a 3.5M barrel increase.

Oil set for biggest 3Q rise since 2004, Iraq hints at OPEC extension

Traders are twiddling their thumbs waiting for Janet to speak.  She will discuss plans to sell part of the Treasury bond portfolio, &, perhaps, give vague hints about the next rate hike.  The biggest events at the UN are probably over.  That pushes the ball of excitement back to DC, where those guys have a bunch of items to work on.  It looks like they got the message that their ratings are below Putin's, giving them stimulus to pass legislation.  But this month is closing fast.

Dow Jones Industrials