Monday, December 11, 2017

Higher markets led by energy & technology

Dow added 56, advancers slightly ahead of decliners & NAZ went up 35.  The MLP index jumped up 5+ to the 269s & the REIT index rose in the 356s.  Junk bond funds edged higher & Treasuries were flattish.  Oil advanced in the 57s (more below) & gold fell 5 to 1139 as investors continue to embrace risk.

AMJ (Alerian MLP Index tracking fund)

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A strengthening US economy may spur the Fed to raise interest rates twice in the next 3½ months as a tight labor market pushes risks to the upside, a Bloomberg survey showed.  Median results of the survey of 41 economists, conducted Dec 5-7, showed economists still expect 3 rate hikes in 2018 but moved forward one of those projected moves to Mar from Jun.  There was near unanimity the central bank will raise the target range for the federal funds rate a qtr percentage point to 1.25% to 1.5% after its 2-day meeting starts tomorrow.  Fed Governor Jerome Powell, Pres Trump's nominee to succeed Janet Yellen in Feb, is likely to be confirmed by the Senate & the leadership change is not expected to result in any major shift in Fed policy in 2018.  90% of those surveyed said they believe the path of the fed funds rate will be “about the same” next year compared with their expectations had Yellen been reappointed.  Economists do, however, see the economy beginning to pick up in ways that weren't evident in mid-2017.  The survey showed the perceived balance of risks to the outlook for inflation & growth shifting noticeably higher, with 63% surveyed now seeing risks tilted to the upside.  That means they think it’s more likely that growth & inflation will exceed the Fed's expectations than fall short.  In the Sep poll, just 25%  saw risks tilted to the upside.  That balance was tilted to the upside in the Mar survey, but shifted to “roughly balanced,” and slightly to the downside, after inflation readings fell below expectations for several months beginning in Mar.  Economists predicted a few changes in new quarterly projections that Fed officials will submit next week.  Most notably they expected the Fed forecast for economic growth in 2018 to reach 2.3%, up from 2.1% in Sep.  They didn't expect policy makers, however, to adjust their forecast for inflation at the end of 2018 from 1.9%.  When it comes to the biggest threats to the US economy in 2018, 45% chose “an external economic or financial shock.”  Another 25% said a steep decline in stocks was the biggest potential threat while 23% chose “a disruption in external trade relations.”

U.S. Growth Pickup to Spur Earlier Fed Hike in ‘18, Survey Shows

Oil prices rose, reversing earlier declines, after a North Sea pipeline shut for repairs & investors focused on commodities following an explosion in NY.  Brent crude futures, the intl benchmark for oil prices, rose $1.01 to $64.41 a barrel & West Texas Intermediate (WTI) crude futures were at $57.70 a barrel, 35¢ above their last settlement.  The difference between the 2 grades was the largest since late Oct, as Brent rallied after the shutdown of the pipeline that carries the largest grade of North Sea crude oil.  The 450K barrels per day pipeline, which carries Forties crude from the North Sea to the Kinneil processing terminal in Scotland, has been operating at reduced capacity for about 4 days before the shutdown.  The market had expected the pipeline to return to service quickly & was surprised by the extended shutdown.  Earlier in the session, both benchmarks popped higher after an explosion rocked NY's Port Authority Bus Terminal, one of the city's busiest commuter hubs.  Additionally, prices faced downward pressure from rising US drilling activity that pointed to a further increase in American production, countering OPEC-led output cuts.  Brent & WTI have gained well over a 1/3 from 2017 lows, drawing support from a cut in production by OPEC & a group of non-OPEC producers, including Russia, which has been in place since the start of the year.  During the weekend, Kuwait's oil minister suggested that an exit from the supply-cut agreement would be studied before Jun.  The United Arab Emirates' energy minister said that OPEC plans to announce in Jun an exit strategy from the cuts, though he added it did not mean the pact would end by then.  Gains from the cuts could also be undermined by rising output from the US, which is not participating in the deal to withhold production.  The number of rigs drilling for new oil output in the US rose by 2 in latest week, the highest since Sep.

Oil gains on Forties Pipeline shutdown, New York blast

Prime Minister Theresa May said there is a new sense of optimism about negotiations over Britain's departure from the EU, insisting that a preliminary deal has given fresh impetus to the talks.  She told the House of Commons that Britain will be able to leave the EU "in a smooth & orderly way."  May updated lawmakers on the agreement reached Fri with the EU that covers the main divorce issues.  Those include the rights of citizens affected by Brexit, Britain's financial obligations to the EU & how to keep open the border between Northern Ireland, which is part of the UK, & the Republic of Ireland (an EU member).  Leaders of the other 27 EU members are expected to ratify the agreement later this week, allowing Brexit talks to move on to trade & security cooperation.  May told Parliament the next phase would not be easy but that the atmospherics have improved.  "Of course, nothing is agreed until everything is agreed," May said.  "But there is, I believe, a new sense of optimism now in the talks and I fully hope and expect that we will confirm the arrangements I have set out today in the European Council later this week."  She added that the implementation period she seeks will be discussed in the next phase of the talks & called for discussions to begin immediately.  But weekend comments by the official in charge of the talks have threatened to spoil May's triumphant moment.  Brexit chief David Davis suggested that last week's agreement was a "statement of intent" that wasn't legally binding.  The comments caused unease in Ireland, where leaders demanded provisions in the agreement to ensure Brexit won't restrict travel & trade between the Republic of Ireland the UK's Northern Ireland.  Officials in both parts of the island say the border must remain open to protect the Irish peace process.  The Irish gov branded Davis' comments "bizarre" & insisted that Britain must live up to the commitments it made last week.  Davis tried to mitigate the fallout, insisting his words had been "completely twisted."  "What I actually said yesterday ... was we want to protect the peace process, want to protect Ireland from the impact of Brexit for them, and I said this was a statement of intent which was much more than just legally enforceable," Davis said.

UK leader says there's new optimism in Brexit talks

Stocks fluctuated, not knowing where to go next.  The last meeting for Janet will be held Tues & Wed where the interest rate is expected to be raised again.  As pointed out so many times, the goings on in DC are getting most of traders' attention.  The outcome of tax reform legislation is unknown as is the case for other important legislation.  It's time to say a few extra prayers.  While the economy is doing well, the guys in DC have a lot of work to complete so the market rally will be extended.

Dow Jones Industrials

Markets mark time after explosion near Times Square

Dow lost 1, advancers over declinhers 4-3 & NAZ added 8.  The MLP index rebounded 2+ to the 266s & the REIT index did little in the 356s.  Junk bond funds inched higher & Treasuries rose slightly.  Oil climbed higher in the 57s & gold was flat.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil57.46

GC=FGold    1,245.10

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Stocks were slightly higher in early trading after an explosion rocked midtown Manhattan.  The $ fell & Treasuries rose.  The S&P 500 & NAZ gained, while the Dow was little changed, as markets digested news of the blast at the Port Authority bus terminal on 42nd St.  Gold slid & oil gained.  In Europe, shares struggled for direction ahead of week that will be heavily influenced by central bank decisions.  Most European bonds rose & the € climbed.  Sterling slipped as some of the promises made to clinch a breakthrough Brexit deal last week started to fray.  In Asia, the Nikkei 225 reclaimed a 26-year high.  Central banks take center stage this week, with the Fed expected to raise rates at its meeting on Wed & the ECB set to reveal details of plans to taper asset purchases on Thurs.  The Bank of England  & Swiss National Bank also meet.  With the world economy heading into its strongest period since 2011, economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade.  Oil declined to around $57 a barrel as US drillers expanded the crude rig count to a 3-month high.

U.S. Stocks Rise Despite NYC Explosion; Gold Falls: Markets Wrap

US job openings unexpectedly cooled in Oct from an all-time high a month earlier, still consistent with a solid job market, Labor Dept data showed.  The number of positions waiting to be filled fell by 181K to 6M (est 6.14M) from upwardly revised 6.18M in Sep:  Job Openings & Labor Turnover Survey (JOLTS) reported.  Hiring rose to 5.55M from 5.32M; hiring rate improved to 3.8% from 3.6%.  3.18M Americans quit their jobs, unch. from Sep & the quits rate held at 2.2%.  The figures are in sync with a Labor Dept report last week that showed payrolls increased in Nov following a solid gain in Oct as the job market moved past hurricane-related distortions to make further progress.  Industries including manufacturing, retail trade & business services showed fewer openings than in Sep, while job availability in construction, real estate & leisure & hospitality increased, the JOLTS report showed.  Employers say they're facing a shortage of qualified Americans as the US approaches full employment.  A stable quits rate, which is considered a measure of workers' willingness to voluntarily leave because they're confident of finding better employment, shows faster gains in worker pay will take time.  Layoffs dropped to 1.63M in Oct, from 1.75M the prior month. There were 1.1 unemployed people vying for every opening in Oct, compared with 1.9 people when the recession began at the end of 2007.  In the 12 months thru Oct, the economy created a net 2.1M jobs, representing 64.3M hires & 62.2M separations.

U.S. Job Openings Cooled in October After Climbing to a Record

US companies expect their investment & hiring to grow at a slower pace in 2018, & only a small share say proposed tax legislation is driving their capital-spending decisions, according to a private survey.  The Institute for Supply Management semi-annual forecast showed factory purchasing managers see capital spending rising 2.7% in 2018, slower than the 8.7% gain reported for this year.  Their counterparts at service providers project investment growth of 3.8% , also weaker than this year's 7% advance.  Less than ½ of respondents in both manufacturing & services said they'd raised wages to attract workers.  The survey, conducted in Nov, suggests that the economy will get less of a boost from business investment next year after strong capital spending helped push the pace of growth above 3% in the past 2 qtrs.  The findings also raise questions about any impact from the proposed reduction in corp taxes moving thru Congress, even as the Trump administration & Reps say it will result in a sustained increase in the rate of expansion.  Respondents to a special question in the semiannual poll showed companies were giving less importance to prospects for tax reform or an overhaul of regulations when it came to capital spending.  When asked what was behind their investment plans for the next 12 months, about 2/3 in each group of manufacturers & service providers cited the general business outlook, while less than 6% attributed it to business tax reform.  Economic growth is expected to continue, according to the semi-annual survey.  Purchasing managers in manufacturing anticipate sales will rise 5.1% next year, & service providers see revenue gains of 6%, in line with other recent reports indicating business sentiment remains elevated.  Companies will continue to boost headcounts next year, though at a slower pace.  Manufacturing will see employment growth of 1.2% in 2018, following a 2.3% gain reported for this year since Dec 2016.  Service businesses project a 1.5% increase in hiring after a 2.4% gain in 2017.  Both groups predict labor & benefits costs will increase next year, with a 2.1% advance for manufacturing & 2.6 % for services.

Companies in U.S. Plan to Slow Their Investment, Hiring in 2018

An explosion near Times Square is unsettling for the stock market, but the bulls are taking it in stride.  Economic data keeps coming in fairly good with encouraging plans by execs for next year.  But those guys in DC are the prime mover for stocks (other than Janet this week) & that world is not uncertain.  The tax plan is far from a done deal & wrangling continues in the Senate.  At least the stock averages are holding at essentially record levels.

Dow Jones Industrials

stock chart

Friday, December 8, 2017

Markets climb on economic data and Brexit talks

Dow rose 117, advancers over decliners about 3-2 & NAZ went up 27.  The MLP index gained fractionally higher to the 264s & the REIT index added 1 to the 356s.  Junk bond funds inched higher & Treasuries were off slightly.  Oil is back in the 57s & gold fell 2 to 1250.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Rarely in the last half century have the stars been so aligned for US stocks.  The collapse in volatility & mid-year slump in bond yields has helped investors earn the 3rd biggest risk-adjusted return from US equities in 50 years.  The measure tracks stock returns relative to Treasuries & volatility.  US stocks have hit new highs this year as a bull market that started in Mar 2009 is poised to become the longest on record.  Treasury yields are ending the year little changed & stock volatility is close to historic lows. Investor enthusiasm for technology shares & optimism over the potential benefits of US tax reform have helped drive returns.

U.S. Stocks Are Having One of the Best Years in Half a Century

US manufacturers have been producing quite a few jobs since the summer.  Factory payrolls over the last 4 months have increased 27K on average, the most since Apr 2012, the Labor Dept reported.  Employees at producers of non-durable goods, such as chemicals, fuels & foods, worked longer hours in Nov & saw their weekly pay advance 3.2% from a year ago.

Consumer sentiment in the US cooled for a 2nd month while remaining around levels consistent with a steady economy & solid job market, according to the Univ of Mich.  The Sentiment index fell to 96.8, lowest since Sep (est. 99), after 98.5 in Nov.  Current conditions gauge, which measures Americans' perceptions of their finances, rose to 115.9 from 113.5.  Expectations measure decreased to 84.6 from 88.9.  Year-ahead inflation expectations rose to 2.8%, highest since Apr 2016, from 2.5%.  Even with the decline in the main index & a higher inflation outlook, Americans remain relatively optimistic about employment prospects & the economic outlook, with the report showing improved household finances.  Upbeat moods help to underpin consumer spending, the biggest part of the economy.  Buying conditions for vehicles & househ old durables benefited from favorable prices & discounts, while the outlook for home buying remained favorable on low mortgage rates & greater income security.  Half of consumers expected economic growth to slow over the next 5 years, though partisanship heavily influenced the outcome.  75% of Dems forecast a downturn over the longer term, while almost 3/4 of Reps expected continuous growth.  6 in 10 consumers said economic growth had recently improved in early Dec & unemployment was expected to continue falling slightly.  Employers added 228K jobs in Nov, above the estimate of 195K, & the jobless rate remained at almost a 17-year low of 4.1%.  “Perhaps the most important changes in early December were higher income expectations as well as a higher expected inflation rate in the year-ahead,” Richard Curtin, director of the consumer survey said.  “The rise in inflation expectations in early December was a surprise.”  “Inflation needs close monitoring in the months ahead, but right now I think the most likely result will be this rise to 2.8 percent will be an anomaly and it will soon disappear,” Curtin added.

German exports dropped in Oct for the 2nd straight month while imports grew, narrowing the trade surplus of Europe's largest economy.  The Federal Statistical Agency said Oct exports dropped 0.4% over Sep, following a 0.4% decline in Sep over Aug, according to figures adjusted for calendar & seasonal variations.  Meantime, exports rose 1.8% in Oct, narrowing the adjusted trade surplus to €19.8B from Sep's €21.9B.  In unadjusted figures, exports rose 6.8% over Oct 2016 to €108B, while imports rose 8.3% to €89.1B.  Exports were up 8.7% to EU member states & 4.1% to non-EU countries compared to Oct 2016.  Imports from the EU were up 10.1% & up 11.9% from non-EU nations.

German exports decline for 2nd month, trade surplus narrows

China reported strong growth in both exports & imports in Nov in a reassuring sign for the world's 2nd-biggest economy.  Figures from on the customs dept show exports expanded 12.3% to $217.4B in Nov over a year earlier, nearly double the 6.9% pace recorded in Oct.  Imports jumped 17.7% year-on-year to $177.2B, leaving a monthly trade surplus of $40.2B.  The latest figures beat most forecasts & add to evidence that strengthening global & domestic demand is helping shore up China's economic growth.  The optimism might not last as more trade frictions loom between China & the US.  Last week the US joined the European in a dispute at the World Trade Organization over China's status at the body.  They're opposed to giving China market economy status, which would make it harder for them to win anti-dumping cases against Beijing for exporting goods at improperly low prices.

China logs strong exports, imports, as economy gains steam

Stocks recovered, helped with favorable economic data.  But the looming deadline in 2 weeks for shutting the gov is one of many dark clouds around.  Dec still has the makings of  highly volatile month.

Dow Jones Industrials