Monday, December 15, 2014

Lower markets despite improved US factory output

After trading higher in pre-market, Dow fell 16, decliners over advancers 3-2 & NAZ lost 18.  The MLP index dropped 6+ to 427 & the REIT index was off 1 to the 322s.  Junk bond funds slid lower & Treasuries lost ground.  Oil fell to 57 & gold pulled back.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM...Crude Oil Jan 15...57.74 Down ......0.07  (0.1%)

GCF15.CMX...Gold Jan 15.....1,211.20 Down ...10.90  (0.9%)

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Confidence among US homebuilders hovered in Dec close to a 9-year high, indicating the residential real estate recovery continues to make progress.  While the National Association of Home Builders/Wells Fargo sentiment gauge decreased to 57 this month from 58 in Nov, readings greater than 50 mean more respondents said conditions were good.  The forecast projected an advance to 59.  The housing market has made gradual improvement this year, helped by mortgage rates below 4% & unemployment at the lowest level in 6 years.  A pick-up in wage growth & sustained gains in consumer sentiment will support momentum in the industry into next year as the Federal Reserve (FED) considers its first interest rate rise since 2006.  “We are in a slow march back to normal” the association said.  “As we head into 2015, the housing market should continue to recover at a steady, gradual pace.”  Confidence retreated in 3 of the 4 regions, with the Northeast showing the biggest drop.  The group’s gauge of prospective  buyer traffic held at 45, while the index of current single-family home sales decreased to 61 from 62. 

Homebuilder Confidence in U.S. Hovers Around Nine-Year High

Industrial production surged in Nov by the most since May 2010 as US assembly lines churned out more consumer goods & business equipment, signaling manufacturing is bolstering economic growth.  The 1.3% gain in output at factories, mines & utilities followed a 0.1% increase the prior month that was previously reported as a decline, according to the FED.  Manufacturing rose 1.1%, the most in 9 months, & output at utilities was the strongest in almost 8 years.  The report showed the biggest gain in consumer goods production in 16 years, indicating rising auto sales & a pickup in retail purchases are helping factories work thru a slowdown in global markets.  More hiring, slumping gasoline prices & a jump in confidence add to signs of improving household demand & sustained output.  The forecast called for a 0.7% after a previously reported 0.1% decrease in Oct.  Capacity utilization, which measures the amount of a plant that is in use, rose to 80.1%, the highest since Mar 2008, from 79.3% the prior month.  Utility output jumped 5.1%, the most since Feb 2007, after a 0.7% drop the previous month.  Last month was the coldest Nov since 2000.  Mining production, which includes oil drilling, decreased 0.1%.  Oil % gas well drilling dropped 0.5% after a 0.8% decline.  Production of consumer goods advanced 2.5%, the largest gain since Aug 1998, led by cars, electronics & energy.  The output of motor vehicles & parts increased 5.1%, the first gain since Jul.  Excluding autos & parts, factory production rose 0.9% after rising 0.5% in the prior 2 months.  Industry data show robust demand for vehicles.

Industrial Production in U.S. Jumps by Most Since May 2010

China's Premier Li Keqiang
Photo:   Bloomberg

With the stroke of a pen, China may meet its 2014 economic growth target.  China’s statistics bureau is predicted to announce results of its 3rd national economic census this month after a year’s worth of interviews & data collection from millions of businesses.  The past 2, published in 2009 & 2005, prompted additions to GDP estimates as the value of services was revised higher.  This time, 2013 GDP will be revised up by 1-3%, as much as $275B, & 2014 GDP growth will be bolstered by 0.1-0.3 percentage point, according a forecast.  With national goals a fixture for China’s Communists, a recalculation could raise the chance of Premier Li Keqiang reaching this year’s 7.5% growth target.  The leadership last week probably eased its objective for 2015, amid signs the pace of expansion weakened further this quarter.  China is grappling with a housing downturn that’s weighing on everything from steel & cement prices to rail-freight traffic & electricity output.  The central bank cut interest rates for the first time in 2 years last month, & more monetary easing is expected next year.  Another change that may boost the size of 2013 GDP, though not the 2014 growth pace, is a new calculation of the economic contribution from home owners’ accommodation.  In the past, the NBS priced self-owned residency on historical costs, while the new method will value that based on estimated rental costs using current market rates.  China announces a GDP target at the congress each Mar.  This year, growth was set to be in the lower band of the about 7.5% target ahead of the revision.

China Growth Goal May Be Met With Revised Data Belying Slowdown

Sliding oil prices continue to weigh down the markets.  Dow was up more than 100 before the markets opened, but that enthusiasm did not last.  Lower oil prices negativity is too much to overcome.  Dow has dropped more than 500 in the first half of Dec, not a good way to close out the year.

Dow Jones Industrials

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