Monday, December 22, 2014

Markets rise as oil is hit with selling

Dow climbed 154 closing at the highs, advancers over decliners a modest 4-3 & NAZ went up 16.  The MLP index was up 1+ to the 454s & the REIT index added 4+ to the 332s, a new multi year high.  Junk bond funds fell & Treasuries rose.  Oil dropped to the 55s & gold sold off in the PM (shown in the chart below).

AMJ (Alerian MLP Index tracking fund)

CLG15.NYM....Crude Oil Feb 15....55.28 Down ...1.85  (3.2%)

Live 24 hours gold chart [Kitco Inc.]

Sales of previously owned US homes slumped in Nov from a one-year high, underscoring the uneven nature of the current recovery in residential real estate that’s been one of its defining characteristics.  Purchases fell 6.1% to a 4.93M annual rate last month, the weakest reading since May, from a 5.25M pace in Oct, according to the National Association of Realtors.  Demand dropped in all regions of the country, suggesting anomalies such as bad weather were not at play.  Scant inventory & slow return of first-time buyers after the worst recession in decades era are working to counteract ultra-low mortgage rates.  A strengthening labor market will be needed to boost growth in the industry as the Federal Reserve considers raising benchmark interest rates next year.  Purchases increased 2.1% on an adjusted basis compared with a year earlier, when a temporary jump in mortgage rates hurt demand.  The number of properties on the market dropped 6.7 % from a month earlier to 2.09M, the fewest since Mar.  At the current pace, it would take 5.1months to sell those houses, the same as in Oct.  The size of the decline in sales last month was “somewhat of a puzzle,” Lawrence Yun, NAR chief economist, said.  All the things that typically influence demand are constructive, including a strengthening economy, more hiring, rising consumer confidence, higher stock prices & low mortgage rates, he said.  That probably means the decline could be a “one-month aberration,” said Yun.  The drop in inventory may also mean prospective home buyers just don’t have enough of a selection & are staying away until there is more supply.  One longer-term challenge that the real-estate agents’ group is tracking is the possibility that current owners are suffering from “rate-lock,” meaning they don’t want to risk losing their ultra-low mortgage rates moving, Yun said.  He addeld that the stock market’s swoon in early Oct could have scared some prospective buyers the following month, & that bad weather probably didn’t play a role in the slowdown.  All 4 regions showed a decrease in sales last month, led by a 9.6% drop in the West.  Purchases of single-family homes declined 6.3%, & sales of condominiums were down 4.8%.

Housing in Uneven Recovery as Existing Home Sales Drop: Economy

Libya's oil output fell below its own consumption as fighting spread to Mellitah, a region that hosts the country’s 4th largest oil port, the state petroleum company said.  National Oil already this month declared force majeure at 2 export terminals, Es Sider & Ras Lanuf, after an attempt by Islamist militias to capture them.  Force majeure is a legal status that protects a company from liability when it can’t fulfill a contract for reasons beyond its control.  National Oil (NOC) yesterday reported clashes in the Mellitah area, Libya’s westernmost oil port.  “There is no damage to the facilities till this hour, and the port of Mellitah is still open,” said a spoksman for the company.  The US Energy Information Administration estimates Libya's consumption was 239K barrels of oil a day in 2013.  The last estimate of the country’s production, on Dec 15, was 350K barrels a day.  Sitting on Afrcia's largest oil reserves, the North African country produced about 1.6M barrels a day before the 2011 rebellion that ousted Muammar Qaddafi.  “National Oil Corp. is following with deep concern the events that happened over past two days in the region of Mellitah and their implications for the oil and gas complex,” the NOC said.  Libya is divided after its internationally recognized gov, led by Abdullah al-Thinni, sought refuge in the country’s eastern region after Islamist militias took over Tripoli about 5 months ago.  Omar al-Hassi set up a rival gov in the capital with the backing of Islamist militants.  Thinni announced plans this month to assert his gov’s control of oil payments made by foreign companies, prompting the Islamist forces backing his rival to try to seize the oil terminals protected by the Petroleum Facilities Guard.  The fighting that limits exports is a negative in the oil market.

Libya Oil Output Drops as Fighting Spreads to Third Oil Port

Procter & Gamble, a Dow stock & Dividend Aristocrat, agreed to sell portions of 2 soap brands to Unilever as CEO A.G. Lafley works to slim down the company.  The sale, for an undisclosed amount, includes the Camay brand worldwide & the Zest brand outside of North American & the Caribbean.  Unilever also will get a factory in Mexico that employs about 170.  PG said earlier this year that it will sell as many as 100 product lines, accounting for about 10% of its revenue, to focus on its main home- and personal-care businesses.  The company already has agreed to sell its pet-food units & the Duracell battery brand in multibillion-dollar deals.  The stock went up 61¢.  If you would like to learn more about PG, click on this link:

P&G Sells Two Soap Brands to Unilever as Lafley Pares Businesses

Procter & Gamble (PG)

Now that the excitement from the FOMC announcement has been digested, the markets are back to watching oil price swings.  Libya is a major oil exporter & fighting in the country is another factor contributing to the collapse of oil prices.  Of course, negatives today can turn into positives tomorrow if the pendulum swings back.  After the rally last week, Dow is up almost 1.4 YTD & close to its record high while the S&P 500 is at new record highs.

Dow Jones Industrials

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