Friday, August 29, 2014

Markets edge higher on speculation central banks will continue to spur growth

Dow crawled up 18, advancers over decliners 2-1 & NAZ gained 22.  The MLP index advanced 4 to the 539s & the REIT index added 1+ to the 311s.  Junk bond funds were mixed & Treasuries pulled back after recent strength.  The yield on the 10 year Treasury is a very low 2.34%.  Oil capped the first weekly gain in more than a 4th on speculation an improving US economy will boost fuel demand.  Gold hardly budged.

AMJ (Alerian MLP Index tracking fund)

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The IMF agreed to disburse $1.4B to Ukraine under a loan program whose success is threatened by the country’s intensifying conflict against separatists tied to Russia.  The fund said the total amount of the loan remains unchanged at $17B & the program is progressing despite the volatile political situation.  The money released today will bring total disbursements under the arrangement to about $4.5B.  “Downside risks to the program remain very high,” IMF Managing Director Lagarde said.  “The program success hinges on a timely resolution of the conflict in the East, as well as on the authorities’ strong policy performance and adherence to the planned reforms.”  4 months ago the fund approved the loan to aid an economy battered by deadly anti-gov street protests, Russia’s annexation of Crimea & a pro-Russian insurgency in the nation’s eastern industrial heartland.  The conflict has intensified since, & both the IMF & gov see the economy contracting more than the 5% forecast earlier this year, making it more difficult for Ukraine to meet some of the IMF program targets in the short term.“  To compensate for these deviations, the authorities have committed to a strong policy package,” Lagarde said.  Ukraine will take actions to accumulate intl reserves, tighten fiscal policy in 2015 & 2016 more than previously agreed & step up efforts to put state energy company NAK Naftogaz Ukrainy “on a sound financial footing by improving bill collections and adjusting energy prices as needed,” she said.  Fighting in Ukraine’s easternmost regions, which the United Nations says has claimed more than 2K lives in the past 5 months, is expanding both in numbers & area.  Ukrainian pres Poroshenko yesterday pledged to step up the country’s defenses against what he earlier called a “de facto” Russian incursion after separatists gained ground in intensified fighting.

OPEC crude oil production increased to a one-year high in Aug, led by surging output in Nigeria.  Production by the 12-member OPEC rose by 891K barrels a day to 31M.  Last month’s total was revised 80K barrels a day lower to 30.1M because of changes to the Nigerian & Iranian estimates.  Nigeria, Saudi Arabia & Angola led gains as new deposits came online, security improved & field maintenance programs ended.  Iran & Venezuela were the only members to record production declines.  Nigeria production climbed 380K barrels a day to 2.3M, the most since Jan 2006.  Output is often disrupted by unrest in the Niger River delta, the country’s main oil-producing region, leading companies to declare force majeure, a legal step that protects them from liability when they can’t fulfill a contract for reasons beyond their control.  Saudi Arabia, the group’s biggest producer, bolstered output by 160K barrels a day to 9.98M, the highest level since Sep, when it pumped 10M.  Saudi Arabian Oil delayed the start of natural gas production at the Wasit project, which was planned to be online this summer.  This forced the kingdom to burn more crude for power generation than expected.  Angolan output increased by 140K barrels a day to 1.75M, the 3rd-biggest gain this month.  Libyan output climbed by 100K barrels a day to 500K this month, the 4th straight increase.  The country pumped 1.6M in Jan 2011 before the uprising that led to former leader Muammar Qaddafi’s ouster.  Iraqi production increased 90K barrels a day to 3.09M this month, making it the 2nd-biggest producer in the group.  The advance of Islamic State has spared Iraq’s south, home to about 3/4 of its crude output.  OPEC ministers kept their output target unchanged at 30M barrels a day in Jun.

OPEC Oil Output Hits One-Year High in August on Nigeria

Google is taking its rivalry against (AMZN) to the skies.  The company’s X laboratory division is developing drones that can handle deliveries, a move that would be in direct competition with the e-commerce company that is testing its own shipment service using self-flying machines.  The initiative, called Project Wing, aims to use drones to drop off goods quickly & it will take a few years before the system is ready for commercial use.  The company said it’s been exploring the use of unmanned aircraft for about 2 years.  Its disclosure pits it in a race with AMZN, which announced late last year its own plans to test drones to deliver goods.  The 2 companies are increasingly competing with each other as they target companies as well as consumers to sustain growth.  “Self-flying vehicles could open up entirely new approaches to moving goods –- including options that are cheaper, faster, less wasteful and more environmentally sensitive than what’s possible today,” Google said.   “Before we develop our system, we want to go out and learn about more situations in which aerial delivery could help people in their daily lives and jobs.”  The venture is another investment in long-term projects thru secretive X lab using cutting-edge technology.  The unit has also produced Glass, the computerized eyewear, & is developing self-driving cars & sensor-enabled contact lenses.  Earlier this year, GOOG researchers tested Project Wing in Queensland, Australia.  The company tested drones with 2 farmers, who were delivered items including radios, dog treats & cattle vaccines.  The technology envisioned is at least several years away from US approval.  The companies want to fly drones autonomously without a traditional pilot who can seize the controls in an emergency.  The FAA in a Nov outline of its plans for drone use said it won’t permit such flights.  GOOG hasn’t requested an exemption allowing it to test its unmanned aircraft in the US, a spokesman for the FAA, said.  “We’re aware of the project and we’ve had discussions with them,” Dorr added.  GOOG stock went up 2+.  If you would like to learn more about GOOG, click on this link:

Google Takes Rivalry With Amazon to the Skies Testing Drones

Google (GOOG)

After selling early in the month from increased fighting in global conflicts, Dow has rebounded with a gain of more then 500 for Aug.  Worries about fighting has diminished as traders are optimistic about more stimulus coming from central banks, starting with ECB next week.  Economic fundamentals continue to be mixed highlighted by inconsistent data from US consumers.  But Dow & S&P 500 are near or at record highs because they pay more attention to central bankers, not a good background for higher stock prices. 

Dow Jones Industrials

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Markets fluctuate on uneven economic data

Dow lost 16, advancers ahead of decliners 3-2 & NAZ added 13.  The MLP index jumped 4 to the 539s (another record & up a staggering 76 YTD) & the REIT index rose 1 to the 311s.  Junk bond funds did little & Treasuries edge higher.  Oil & gold hardly moved.

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM...Crude Oil Oct 14...95.31 Up ...0.76 (0.8%)

GCU14.CMX...Gold Sep 14....1,286.00 Down ....2.70  (0.2%)

Consumer Spending
Photo:   Bloomberg

US consumer spending unexpectedly dropped in Jul for the first time in 6 months, a sign households are lagging behind as wages fail to accelerate.  Household purchases decreased 0.1% after increasing 0.4% in Jun, according to the Commerce Dept.  None of the economists projected a decrease.  Incomes climbed 0.2%, the smallest monthly advance this year.  Consumer spending, which accounts for 70% of the economy, has been held back by tight credit & meager wage growth that is barely able to keep up with inflation.  A sustained labor market upswing is needed to lift earnings & help boost outlays at retailers.  Purchases last month dropped 0.2% following a 0.2% increase in Jun after adjusting for inflation.  Spending on durable goods, including cars & trucks, declined 0.6% after adjusting for inflation, following a 0.5% advance in Jun.  Purchases of non-durable goods, which include fuel & clothing, fell 0.2%.  Household outlays on services decreased 0.1%.  Prices tied to consumer spending rose 1.6% in the year ended Jul, the same as in the prior month.  Federal Reserve policy makers aim for price increases of 2% a year.  The core prices category, which excludes fuel & food, increased 0.1% in Jul from the prior month & was up 1.5% from a year ago.  Merchants are coping with a retail slump that has them relying on sales & trying more promotions to drive customer traffic.

U.S. Consumer Spending Falls for First Time in Six Months

Consumer sentiment unexpectedly rose in Aug, showing a brightening in Americans’ moods as the labor market gains traction.  The Thomson Reuters/University of Michigan final sentiment index rose to 82.5 from 81.8 in Jul.  The projection called for 80 after a preliminary Aug reading of 79.2.  Payroll gains at their strongest pace since 1999 & muted firings are keeping consumers upbeat about the economic outlook.  Stronger wage increases & more broad-based improvement in the labor market may be needed to return sentiment to pre-recession levels & help spur consumer spending.  The index averaged 89 in the 5 years before Dec 2007, when the last recession began, & 64.2 in the 18-month contraction that followed.  The Michigan sentiment survey’s gauge of current conditions, which measures Americans’ views of their personal finances, rose to 99.8 in Aug, the highest in 7 years, from 97.4 a month earlier.  The initial figure was 99.6. The index of expectations 6 months from now declined to 71.3 from 71.8 last month.  That preliminary reading was 66.2.

Consumer Sentiment in U.S. Unexpectedly Increased in August

European Central Bank President Mario Draghi
Photo:   Bloomberg

Euro-area inflation slowed in Aug & the region’s unemployment rate remained close to a record, increasing pressure on the ECB to take action to kindle the bloc’s faltering recovery.  Consumer prices rose 0.3% in Aug from a year earlier after a 0.4% increase in Jul, the EU statistics office said, the weakest rate since Oct 2009 & in line with the forecast.  Unemployment remained at 11.5% in Jul.  Today’s data add to the case for more stimulus when policy makers meet next week.  ECB President Mario Draghi has pointed to sliding investor bets on prices, sparking a debate about whether quantitative easing is needed to steer inflation in the region back toward the ECB’s goal of just under 2% & foster economic growth.  The core inflation rate, which strips out volatile items such as energy, food, tobacco & alcohol, rose to 0.9% from 0.8% in Jul, according to Eurostat.  Draghi’s hint that the ECB is considering large-scale asset purchases, a tool it has so far shunned, came less than 3 months after policy makers unveiled unprecedented stimulus that included targeted long-term loans for banks & a negative deposit rate.

Euro Inflation Slows as Draghi Hints at More ECB Stimulus

Stocks are meandering around on low volume.  However, consumer spending & attitudes remain inconsistent, not encouraging for a stronger economic rebound.  There are reports that cots have been set up in the NYSE so traders can take naps.  Even in an uneventful day, the rise for the MLP index is startling.  Energy has been hot this year & the need for more infrastructure to bring energy to markets is not lost on investors.

Dow Jones  Industrials

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