Monday, December 2, 2013

Markets pull back, awaiting retail reports

Dow dropped 77 (closing near the lows), decliners over advancers 5-2 & NAZ fell 14.  The MLP index sank 5 to the 451s (remaining in a sideways pattern since late Mar) & the REIT index lost 1+ to the 263s.  Junk bond funds were a little lower & Treasuries fell after the ISM manufacturing index rose to its highest level since Apr 2011.  Oil, sloshing around 7 month lows, found buyers after OPEC talked about sticking with current production levels.  Gold fell to the lowest since Jul after signs of a strengthening US economy fueled speculation that the Federal Reserve is ready to slow the pace of its monetary stimulus.

AMJ (Alerian MLP Index tracking fund)

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Treasury yields:

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CLF14.NYM....Crude Oil Jan 14....93.79 Up ...1.07 (1.2%)

Live 24 hours gold chart [Kitco Inc.]

OPEC will probably stick with its current production target as demand for its crude next year will be at a similar level, said 3 of its delegates.  The 12-member Organization of Petroleum Exporting Countries will make that decision in 2 days when ministers meet in Vienna.  Rising supply from outside OPEC, including surging US shale oil production, has coincided this year with disruptions in some members, such as Libya & Iraq, while Iranian exports remain curtailed because of sanctions.  Saudi Arabia, the biggest producer, & some of its allies may nevertheless need to cut supply next year to keep prices stable amid prospects for increased pumping from other members.  Rising non-OPEC output means that the amount of crude required from the organization will decline in 2014.  OPEC will need to pump an average of 29.6M barrels a day next year, down from 29.9M this year, according to the group’s latest monthly report.

OPEC Will Probably Maintain Current Output Target, Delegates Say

A Salesman Speaks to a Customer at a Dealership in Lexington

Photo:   Bloomberg

Carmakers entered their year-end sales push last month with the most cars & trucks on dealer lots in 8 years, a buildup poised to test the industry’s new found pricing discipline.  Inventory climbed to almost 3.4M cars & light trucks entering Nov, according to WardsAuto.  The 76 days’ supply is the highest for the month since 2005.  Automakers have boosted production to meet demand that has left the industry on pace for the best sales year since 2007.  Swelling supply raises the stakes for sales in Nov after deliveries missed estimates in Oct & slipped in Sep for the first time in 27 months.  If buyers don’t absorb enough inventory, more automakers may trim production to avoid margin-slicing discounts.  US car & light truck sales in Nov probably climbed 5.2% to 1.2M.  The annualized sales rate may climb to 15.8M in Nov from 15.3M a year earlier & deliveries could rise to 16.1M next year.  While that would be the smallest annual increase since its rebound from a 27 year low for sales in 2009, it would extend the industry’s streak of gains to 5 years for just the 2nd time since World War II.

Most U.S. Autos on Lots Since 2005 Has Ford Lead Cut in Production: Cars

The private, painstaking talks between Dem Senator Patty Murray & House Rep Paul Ryan are coming to a head, as the 2 sides press to craft a new budget plan to meet a Dec 13 deadline.  If they fail, the federal gov will face a 2nd round of automatic spending cuts & yet another possibility of a shutdown early next year.  The 2 sides long ago abandoned any hopes for a "Grand Bargain" of sweeping entitlement & tax reforms while authorizing more immediate measures to spur a lagging economic recovery.  Exhausted by a year of relentless partisan sniping over the budget & debt ceiling, Senate Dems & House Reps are searching for a minimalist plan that protects their most cherished priorities while still being able to pass muster with both parties.  If they can’t cut a deal, the House, Senate & the pres will find themselves back in crisis mode in early Jan, with only a week or so to hammer out an emergency measure to prevent another shutdown.  The biggest question hanging over the negotiations is whether Congress will block a 2nd round of automatic spending cuts or allow the sequester to continue.  The sequester was designed to achieve $1.2T of savings over the coming decade absent congressional intervention.  But with so many complaints from the Pentagon & federal agencies about the hardships being caused by the across the board cuts, Congress has been under pressure to do something about it.  The Senate is pressing to replace the sequester with a package of alternative spending cuts, tax loophole closings to raise almost $1T in new revenue over 10 years, & some reforms of Medicare & other entitlement programs.  The House, meanwhile, insists on authorizing $91B less in domestic spending in the coming year than the Senate favors & it unalterably opposes raising tax revenues for more spending.  The budget battle drags on.

Murray and Ryan Race the Clock for New Budget Deal

There is a lot of nail biting over the lack of retail sales data for Black Friday.  A delay in reporting the numbers is not a good sign.  The shortened holiday season is also causing concern in the markets.  Tomorrow car sales will give a glimpse into consumer spending.  Meanwhile, the DC politicos have to plug more budget holes & those negotiations are going nowhere.  Dow sold off in the last 3 hours of trading, but remains inches from setting new records.  After vaulting an amazing 3K this year, some may be wondering what it will do in 2014 for an encore. 

Dow Jones Industrials

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