Thursday, November 13, 2014

Markets struggle as oil sinks to new lows

Dow rose 40 after paring early gains, decliners over advancers better than 3-2 & NAZ inched up 5.  The MLP index sank 5 to the 495s & the REIT index went up 1+ to the 318s.  Junk bond funds drifted lower & there was buying in Treasuries late in the day.  Oil extended losses to the lowest in 4 years amid signs that OPEC remains unwilling to reduce output to ease a supply glut along with rising US production (see below) & gold was up fractionally.

AMJ (Alerian MLP Index tracking fund)

3 Stocks You Should Own Right Now - Click Here!

CLZ14.NYM....Crude Oil Dec 14....74.44 Down ...2.74  (3.6%)

Live 24 hours gold chart [Kitco Inc.]

The US budget deficit widened to its largest for the first month of the year since 2010, according to the Treasury, as a calendar quirk caused the gov to spend more.  Outlays exceeded receipts by $121B in Oct, in line with the estimate.  That compares with a $90B shortfall last year.  Adjusting for “timing-related transactions” such as benefit payments booked in Oct instead of Nov, the gap would have been $84B, the lowest for the month since 2007.  Strong hiring has helped to cut the country’s annual deficit from a record $1.4T in 2009, & it is expected to continue the decline this year.  The shortfall in the 12 months ended Sep 30 was $483B, or 2.8% of GDP, & the CBO projected in Aug that the deficit will shrink to 2.6% of GDP this fiscal year.  About $41B of benefit payments normally made in Nov were instead made in Oct, the Treasury said, & tax receipts were probably off by $4B because of the calendar.  The start of this month fell on a weekend this year.  Revenue last month was $213B, 6.9% higher than a year earlier & a record for the month of Oct, while outlays gained 15.5% to $334B.  The deficit for the fiscal year ended in Sep was the smallest since 2007, following months of improving economic growth.

Budget Deficit in U.S. Widens as Calendar Shifts Payments

China's slowdown deepened in Oct as policy makers refrained from economy-wide stimulus, with industrials output & investment trailing estimates.  Factory production rose 7.7% from a year earlier, the 2nd weakest pace since 2009, a gov report showed today.  Investment in fixed assets such as machinery expanded the least since 2001 from Jan-Oct, & retail sales gains also missed forecasts last month.  The gov has kept to targeted steps to shore up the economy this year, rather than a broader response such as nationwide interest-rate cuts, to avert a repeat of a buildup in debt from the record 2008-2009 credit surge.  After the figures, reports spread of a fresh initiative by the central bank to target liquidity injections.  The People’s Bank of China (PBOC) is gauging city commercial banks’ demand for funds to support lending to small enterprises.  Financial institutions in some provinces are submitting applications for collateralized central bank loans, according to an official.  The PBOC will later decide the total size of the injections, which could run into tens of Bs of yuan.  The National Development & Reform Commission, China’s top economic planning body, accelerated approvals for $113B of infrastructure projects, China National Radio reported last week.  The 21 projects, including 16 railways & 5 airports, were approved in the last month.  Growth in retail sales of 11.5% in Oct compared with the 11.6% projection.  The expansion in Jan-Oct fixed-asset investment excluding rural households was 15.9% versus estimates for a 16% increase.  Leaders have discussed lowering the 2015 economic-growth target, giving more room to push structural changes aimed at lowering financial risks.  China is headed for its slowest full-year expansion since 1990.

China Slowdown Deepens as Leaders Said to Mull Target Cut

US crude production climbed above 9M barrels a day last week for the first time in at least 31 years because of the shale boom.  Output rose 1% to 9.06M barrels a day, the most since at least Jan 1983, when the weekly data series from the Energy Information Administration (EIA) began. The EIA has monthly data going back to 1920 & that shows production is at the highest level since Feb 1986.  The combination of horizontal drilling & hydraulic fracturing, or fracking, has unlocked supplies from shale formations in the central US, including the Bakken in North Dakota & the Eagle Ford in Texas.  US crude production will rise to an average of 8.57M barrels a day this year, up from 7.46M last year, the EIA said yesterday.  Output is projected to climb 9.9% to 9.42M barrels a day in 2015, the most since 1972.  But the agency reduced its 2015 US oil production outlook.  “Lower crude prices may curb drilling activity in some lower-producing U.S. basins, but total domestic oil production should continue to increase through next year as crude prices will be high enough to support most drilling in the major shale oil producing areas of Texas, North Dakota, New Mexico and Colorado,” the EIA said yesterday.  West Texas Intermediate crude for Dec has plunged to $74.21 today from $107.73 in Jun.  Further price reductions could change investment decisions.

Crude Production Surges Above 9 Million Barrels a Day

Lower priced oil is supposed to be good for the economy & stock market.  But that picture today is muddy.  One major reason the price of oil is falling because demand is soggy.  China growth is slowing, Europe is trying to fight off a recession & US production is at multi decade highs while demand is less robust than it should be.  Meantime, fighting in DC continues with immigration reform becoming an emotional issue.  Then there is the military conflict in the Ukraine that is spinning out of control.  With all these issues, Dow was able to crawl to a new record.  As I've said before, this is a major disconnect.

Dow Jones Industrials

No comments: