Tuesday, December 2, 2014

Markets rise on benefits from lower oil prices

Dow climbed 63, advancers over decliners 5-2 & NAZ gained 21.  The MLP index jumped 10 to the 475s after major selling in the last 2 trading days & the REIT index was off fractionally in the 323s.  Junk bond funds were weak & Treasuries pulled back.  Oil saw more selling, taking it down to the 67s, & gold was also lower.

AMJ (Alerian MLP Index tracking fund)

CLF15.NYM...Crude Oil Jan 15...67.71 Down ...1.29  (1.9%)

GCZ14.CMX...Gold Dec 14...1,198.30 Down ...19.70  (1.6%)

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Fed Vice Chairman Stanley Fischer
Photo:   Bloomberg

Sharply lower oil prices will boost spending & aid US growth, said 2 of the Federal Reserve's (FED) most influential officials, playing down the risk that plunging energy costs could push inflation further below the FED goal.  Fed Vice Chairman Stanley Fisher & New York Fed President William C. Dudley, speaking at separate events, both stressed the positive economic impact from the steepest decline in oil prices for 5 years.  “I’m not very worried,” Fischer said.  “The lower inflation that we’ll get from the lower price of oil is going to be temporary.”   He also said lower oil prices were “a phenomenon that’s making everybody better off.”  The FOMC, which next meets Dec 16-17, will take energy prices into account in their assessment of inflation & the economy.  The FED preferred gauge of price pressures facing US consumers rose 1.4% in Oct from the same period a year ago & has not been above the central bank’s 2% inflation target since Mar 2012.  Inflation that’s too low increases risks of a slide into deflation, a protacted & broad-based decline in prices that hurts growth by encouraging consumers to delay spending.  Economists expect the FED to ignore short-term oil price movements when officials gather for this month’s FOMC meeting, & Dudley said investors’ expectations of a mid-2015 interest-rate increase “seem reasonable to me.”  Officials are expected to debate whether to repeat a pledge to keep interest rates low for a “considerable time” in the policy statement to be released at the end of the meeting.

Fischer, Dudley See Oil Slump Spurring U.S. Consumers to Spend

The drop in oil prices will provide a net boost to the global economy while posing risks for energy-producing nations including Russia, IMF Managing Director Christine Lagarde.  “On a net-net basis, it is probably good for the global economy,” Lagarde said in her first comments on last month’s 18% decline in crude prices.  For Russia, the drop is a “significant threat” that “is adding to their fragility & their vulnerability, and they know it. It remains to be seen what the reaction will be.”  The remarks illustrate the benefits & dangers from surging US oil production that’s reshaped the world’s geopolitical landscape amid a weaker-than-anticipated global recovery.  A 30% decline in oil prices translates into an 0.8% boost in growth for “most advanced economies” & “probably 0.6 percent for the U.S.,” Lagarde said.  While exporters are taking a hit, “it’s a net booster on an aggregate basis,” Lagarde said.  Oil & gas provide 68% of Russia’s exports & 50% of its federal budget.  Russia has already lost almost $90B of its currency reserves this year, equal to 4.5% of its economy, as it tried to prevent the ruble from tumbling after Western countries imposed sanctions to punish Russian meddling in Ukraine.  The ruble is down about 35% against the dollar since Jun.  Lagarde said she recently told an audience in Kuwait that Middle East countries should be prepared to run fiscal deficits.  Venezuela & small African countries would also be among those hit hard, Lagarde said.  The IMF may be called upon to help smaller countries that rely on oil exports, she said.  Regarding Ukraine, she said that “a lot more financing is going to be needed” to support a government “that is serious about reforming the country.”  Lagarde has previously warned that residual debt from the financial crisis & high unemployment is threatening to relegate the global economy to a sustained period of underwhelming growth, a risk she terms the “new mediocre.”  The IMF cut its forecast for 2014 global growth in Oct for the 6th time since Jan 2013.

Lagarde Says Oil Decline Good for World Economy, Bad for Russia

Wal-Mart, a Dow stock & Dividend Aristocrat, website took a record number of orders yesterday as shoppers sought discounts on Cyber Monday.  Customers viewed more than 1.5B pages on Walmart.com in the 5 days thru yesterday, a period dubbed “The New Black Friday.”  Mobile devices accounted for about 70% of traffic.  WMT is spreading out its promotions to lure shoppers during a holiday season that promises to hold a number of challenges.  While analysts have predicted retail sales will increase in the final 2 months of the year, many of those purchases are expected to shift online or be won with discounts that threaten retailers’ profitability.  The stock rose 17¢.  If you would like to learn more about WMT, click on this link:

Wal-Mart Has Record Cyber Monday as Shoppers Seek Deals

Wal-Mart (WMT)

Stocks are having a good day again as Dow is flirting with a new record.  There is not a great deal happening although more monetary officials are talking up the economic benefits of lower oil prices.  The plunge in oil makes traders nervous as they try to assess what they will bring.  MLPs are having a significant recovery.  Even though the index is having one of its best days in history, after its recent sharp decline it's difficult to evaluate all these swings.

Dow Jones Industrials

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