Wednesday, March 29, 2017

Markets fluctuate after UK begins Brexit talks

Dow gave back 40, advancers barely ahead of decliners & NAZ was up 10.  The MLP index was about even in the 315s & the REIT index fell 1 to 341.  Junk bond funds rose & Treasuries were higher, taking the yield on the 10 year Treasury under 2.4%.  Oil crawled higher in the 48s (more below) & gold drifted lower, but still above 1250.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,M

Gold Apr 17

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Federal Reserve Chair Janet Yellen said challenges remain in the labor market, including concentrations of elevated joblessness in poor and minority communities, as she pushed for better education & training so the economy works for all Americans.  “While the economy overall is recovering and the job market has improved substantially since the recession, pockets of persistently high unemployment, as well as other challenges, remain,” she said in a speech.  Central bankers are gradually removing monetary stimulus as inflation moves back up to their 2% target.  At 4.7% in Feb, the unemployment rate is at their estimate of maximum use of labor resources.  Yellen didn't discuss monetary policy in her remarks to the National Community Reinvestment Coalition.  She mentioned several educational & workforce development programs that could help narrow disparities in minority communities, such as campus-based childcare programs, apprenticeships & technical education.  The unemployment rate for African-Americans stood at 8.1% in Feb, about ½ of its peak rate of 16.8% in  2010 following the financial crisis & recession.  The unemployment rate for Hispanics is 5.6%, compared with a post-recession peak of 13% in 2009.  “Significant job market changes in recent years, brought about by global competition and technological advances -- and the new and shifting skills that these changes demand -- make workforce development more important than ever before,” Yellen said.  “Fortunately, programs such as the ones I have highlighted today can help address these challenges in more targeted ways than the Federal Reserve is equipped to do through monetary policy.”

Crude rose after a pipeline halt reduced output in OPEC member Libya, countering concerns that surplus US stockpiles show little sign of diminishing.  Futures are headed for 2 straight days of gains for the first time in more than a month.  Libya's output was said to fall about 200K barrels a day after a pipeline carrying crude from the Sharara field, its biggest, stopped operating.  US inventories rose 1.9M barrels last week, the American Petroleum Institute was said to report later today & gov data tomorrow is forecast to show supplies rose to a record.  The production drop in Libya, which was pumping 700K barrels a day before the pipeline halt, is at least temporarily easing concern that rising US supply is offsetting the effect of curbs by OPEC & allies.  West Texas Intermediate for May delivery rose 14¢ to $48.51 a barrel after advancing 1.3% to $48.37 yesterday.  Libya’s state-run National Oil was said to declare force majeure on loadings of Sharara crude from the Zawiya oil terminal & on loadings of Wafa field condensate from the Mellitah terminal.  Force majeure is a legal status protecting a party from liability if it can’t fulfill a contract for reasons beyond its control.

What a difference a quarter makes.  The MSCI China Index's 14% jump this year is its strongest start since 2006 & one of its best performances versus world equities since the global financial crisis.  Traders are now willing to pay the most in 6 years for the gauge as the yuan stabilizes & concerns ease over global trade, risks that helped the measure sink 7.1% in the previous 3 months.  With calm returning to the market, even as some Hong Kong-listed stocks endure wild trading, & a steady flow from mainland buyers supporting valuations.  Overseas funds have so far been reluctant, yanking some $2B from exchange-traded funds tracking the shares.  Better-than-expected data & signs that declines in foreign-currency reserves are easing have improved sentiment toward China's economy this year.  Sec of State Rex Tillerson's Beijing visit this month reassured investors that America won’t immediately punish China over its trade practices, a sign that the new administration may soften its tone on foreign policy.  The gains have captivated investors from the mainland, who've sent $14.4B into the Hong Kong stock market thru cross-border trading links as capital controls make H shares one of the few offshore investments permitted by the gov.  With a weak currency driving mainland investors away from yuan-denominated assets, the daily average of net purchases of shares traded in the city via the Shanghai stock link is up 11% from 2016.

China Stocks Have Best Start to Year Since 2006

Stocks are meandering again, looking for direction.  Dow has only a modest loss in Mar, not bad considering the unsettled conditions in DC which is a major driving force for the stock market.  The oil market looks dreary as OPEC is not having the strong influence it has in the past.  Gold is a little lower recently, but remains near multi month highs.  Its buyers are worried about the risk of any overbought stock market & question what the chaos in DC will do for stocks.

Dow Jones Industrials

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Tuesday, March 28, 2017

Markets soar as Trump signs executive order to help the coal industry

Dow shot up 150 closing near the highs, advancers over decliners 5-2 & NAZ gained 34.  The MLP index was up 1+ to the 315s & the REIT index added 1+ to the 341s.  Junk bond funds gained & Treasuries continued weak.  Oil went up on reduced shipments from Libya (more below) & gold lost 6.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Federal Reserve Vice Chair Stanley Fischer said the FOMC estimate for 2 more rate hikes this year “seems about right.”  “That’s my forecast as well,” Fischer said today.  Central bankers are gradually removing monetary stimulus as inflation moves back to their 2% target.  Fed officials forecast they would raise interest rates 2 more times this year after hiking earlier this month.  He added the central bank is watching fiscal policy negotiations between Congress & the White House without prejudging the outcome.  Watching & waiting “is the sensible thing to do,” he said, because proposals will be “different” as they work through the legislative process.  Fischer said the failure of the health-care bill on Fri may have changed his “internal calculus,” but not the overall outlook.  His term as vice chairman expires in Jun 2018.  Regarding the chance that the path of rates could be more aggressive or more gradual, Fischer said “the risks are more or less balanced.”  He said the reasons for the slump in productivity growth that are limiting the economy’s potential growth rate aren't fully understood.  “The rate of investment in the economy is very low at present,” he said.

Fischer: Two More 2017 Rate Hikes Seem About Right

Crude extended gains on reports Libya has curbed shipments from its biggest field, tempering concerns about the global supply glut.  Futures advanced over 1% after the North African country was said to declare force majeure in the loading of Sharara crude from the Zawiya terminal.  Force majeure is a legal clause that allows companies to halt shipments without breaching contracts.   Libya's output has dropped to 560K barrels a day following the shutdown of the pipe from the Sharara field.  If industry data due later today & a gov report tomorrow show US supplies are still rising, it would be further evidence that increased American output is blunting the effect of production curbs by OPEC & its allies. 5 OPEC countries joined with non-member Oman on the weekend to voice support for prolonging their deal to cut output past Jun.  Output in Libya, exempt from the cuts, had climbed back to 700K barrels a day before the pipeline halt.  WTI for May delivery advanced 64¢ to settle at $48.37 a barrel.  Libya's state-owned National Oil also declared force majeure on loadings of Wafa field condensate from the Mellitah terminal.  Clashes among rival armed groups in early Mar led to the closing of 2 of the nation's biggest oil export terminals, forcing a number of other fields to halt production.  The ports have since reopened.  Libya pumped as much as 1.6M barrels a day before a 2011 uprising led to the ouster of former leader Moammar Qaddafi & a breakdown in central authority that stunted oil output.  US crude supplies probably rose 2M barrels last week & stockpiles are at the highest level in weekly data compiled by the Energy Information Administration since 1982.

The Trump administration took steps toward dismantling former Obama's signature climate regulation, the Clean Power Plan, as Pres Trump signed an exec order the White House promises will both bring back jobs & help the climate.  "[We are] bringing back our jobs, bringing back our dreams and making America wealthy again,” the pres said during an address at the EPA.  EPA administrator Scott Pruitt said the new administration believes in “pro-growth and pro-environment” policies.  The executive order is a push toward American energy independence, an agenda the Trump administration believes will bring back jobs in manufacturing, coal & gas.  The “energy independence” directive is a stab at Obama's Clean Power Plan which aimed to limit greenhouse gas emissions from coal-burning power plants.  The law was halted by the Supreme Court last year after 27 states & a multitude of business groups challenged its legality.  Trump called the Obama-era regulations “job killing.”  While both critics & supporters agree with the administration’s sentiment that pro-jobs & pro-climate policies aren't mutually exclusive, they disagree on what type of jobs should be created.   Rolling back these regulations will “absolutely” lead to a boost in employment throughout the sector, Texas Attorney General Ken Paxton said.  “Regulation costs companies money. It makes them less competitive, [results in] less jobs and investors are less likely to invest in that particularly product,” Paxton said.  On a purely statistical basis, Paxton may have a point when it comes to the damaging effects of regulation.  Another piece of regulatory legislation imposed on the energy industry, the Clean Air Act, is blamed for eliminating 590K jobs in heavily affected sectors during its first 15 years as law, according to 2001 research by the former chief economist for Obama's Council of Economic Advisers.  The same report showed those “pollution intensive industries” lost $37B in capital stock & $75B worth of output during the same timeframe.

The Trump EPA: A Dramatic Shift From the Obama Era

The stock market was oversold (haven't used that word in a long time) short term as the Dow ended an 8 day losing streak.  Besides the oversold effects, Trump's new order may help coal miners find work (although this is not a growth industry).  The consumer confidence data & Ford's (F) investment of more than $1B in 3 Mich facilities were also factors.  After 3 good months, Mar has been dreary for the Dow.  However today's bounce brought it back to within 100 of its starting point.  The bulls have returned & liked what they heard today.

Dow Jones Industrials

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