Thursday, September 18, 2014

Markets rise on jobless claims data

Dow jumped 85 to a new record, advancers over decliners a mild 3-2 & NAZ added 22.  The MLP index rose 1 to the 532s & the REIT index lost a fraction to the 299s. Junk bond funds crawled higher & treasuries retreated.  Oil slid lower & gold futures tumbled to an 8- month low after the Federal Reserve raised its outlook for interest rates, crimping demand for an inflation hedge.

AMJ (Alerian MLP Index tracking fund)

CLV14.NYM....Crude Oil Oct 14...94.60 Up .....0.18  (0.2%)

GCQ15.CMX...Gold Aug 15.....1,223.50 Down ...15.70  (1.3%)

Housing starts slumped in Aug after reaching the highest level in almost 7 years in Jul, pointing to an uneven pickup in the residential real-estate market that will limit its contribution to economic growth.  Beginning home construction fell 14.4%, the most since Apr 2013, to a 956K annualized rate following a revised 1.12M pace revised for Jul (the strongest since Nov 2007), according to the Commerce Dept.  Last month’s reading was lower than the most pessimistic forecast & building permits also fell.  Slow wage growth & tight lending standards continue to challenge the homebuilding industry by placing homeownership out of reach for some Americans.  Even so, job market progress & low interest rates could pump life into residential real-estate as the economic expansion gains momentum.  The report showed permits for future projects dropped 5.6% to a 998K pace in Aug from a 1.06M rate the prior month.  They were projected to ease to a 1.04M rate.  Starts of single-family properties declined 2.4 % to a 643K.  Construction of multifamily projects such as condominiums & apartments which tends to be volatile slumped 31.7% to an annual rate of 313K, the fewest since Oct.  All 4 regions showed a decrease in groundbreaking last month, led by a 24.7% drop in the West that was the biggest since Nov 2012.

Housing Starts in U.S. Dropped More Than Forecast in August

The number of Americans filing applications for unemployment benefits plunged last week to a 2-month low, a sign the labor market continues to strengthen.  Jobless claims decreased 36K to 280K, according to the Labor Dept.  The forecast called for a decline to 305K.  Those already collecting unemployment benefits fell to a more than 7-year low.  Companies are retaining workers as stronger household & corp demand fuels order growth.  Fewer layoffs & more job gains represent a labor market that has “improved somewhat further,” even as other indicators point to persistent slack, Federal Reserve policy makers said yesterday.  Jobless claims last week were the lowest since mid-Jul & the 2nd-lowest since 2000.  The 4 week average of initial claims decreased to 299K from 304K the week before.  The number continuing to receive jobless benefits dropped 63K to 2.43M, the lowest in 7 years.  In that same period, the unemployment rate among people eligible for benefits fell to 1.8% from a revised 1.9% in the prior week.  Initial jobless claims reflect weekly layoffs & typically decrease before job growth can accelerate.

Jobless Claims in U.S. Decline to Two-Month Low of 280,000

Draghi Loan Plan Missing Estimates Complicates ECB Stimulus
Photo:   Bloomberg

Mario Draghi is facing renewed pressure to implement quantitative easing after banks borrowed less than estimated in the ECB first targeted-loan offer.  The ECB lent €82.6B ($106B) to euro-area banks at a fixed interest rate of 0.15% in its targeted longer-term refinancing operations today, below all predictions.  Spanish & Portuguese bonds rose, indicating that investors are betting the ECB may ultimately resort to large-scale purchases of gov debt as it strives to avert deflation in the area.  Draghi has signaled he wants to boost the institution’s balance sheet to as much as €3T from €2T.  The 4-year loans are intended to spur lending to the real economy, with the offers of cheap cash tied to the size of banks’ loan books.  8 TLTROs will be held thru 2016 & the next one is scheduled for Dec.  At least 40% of the funds in today’s operation went to Italian & Spanish banks.  ECB said today that the total take-up of the TLTROs will be “significant” & will lead the balance-sheet expansion.  Draghi’s liquidity drive underscores how the world’s biggest economies are diverging.  The central banks of China & Japan are also adding stimulus, while the US Federal Reserve & Bank of England are debating when to tighten policy as their economies recover.

Draghi Loan Plan Missing Estimates Hampers ECB Stimulus

The jobless numbers were welcomed by the markets & housing data was pretty much ignored.  The US economy continues to bump along with an upward bias.  But there are fits & spurts, not a good sign as higher interest rates are approaching.  The growing war activities by the US will be paid with dollars which will worsen the deficit.  The euro economies & China are also iffy, looking for direction.  But Dow is at a new record.

Dow Jones Industrials

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