Wednesday, January 28, 2015

Market sell-off on speculation the Fed plans interest rate hikes

Dow dropped 195 (closing at the low), decliners over advancers 3-1 & NAZ lost 43.  The MLP index sank 11+ to 439 (double digit daily swings have become common) & the REIT index was lost 2+ to the 353s.  Junk bond funds slid lower & Treasuries rallied, bringing the yield on the 10 year Treasury to 1.72% (from 1.83% yesterday).  Oil sank into the 44s & gold eased lower.

Dow Jones Industrials

CLH15.NYM....Crude Oil Mar 15....44.29 Down ...1.94  (4.2%)

Live 24 hours gold chart [Kitco Inc.]

The Federal Reserve (FED) maintained its pledge to be “patient” on raising interest rates & boosted its assessment of the economy & labor market, even as it expects inflation to decline further.  “Economic activity has been expanding at a solid pace,” the FOMC said today.  “Labor market conditions have improved further, with strong job gains and a lower unemployment rate.”  Policy makers said inflation “is anticipated to decline further in the near term,” adding that price gains are likely to “rise gradually toward 2 percent over the medium term” as transitory effects of low energy prices dissipate.  FED officials are confronting divergent economic forces as they weigh the timing of the first interest-rate increase since 2006.  Surprisingly strong job gains argue for tightening sooner, while inflation held down by a plunge in oil prices & a cooling global economy provides grounds for delay.  The FED acknowledge global risks, saying that it will take into account readings on “international developments” as it decides how long to keep rates low.  The FED also dropped a clause from its Dec statement that the assurance of patience was consistent with a previous pledge to hold rates low for a “considerable time,” especially if “projected inflation continues to run below” the 2% target.  The FED has kept its main interest rate near zero since Dec 2008.  All 10 voting FOMC members backed today’s policy statement.  Robust economic growth is giving officials reason for optimism, even as weaker global demand and a stronger dollar cut into overseas earnings of companies.  Since the last meeting, FED officials learned that the economy grew at a 5% annual pace in Q3, the most since 2003.  Unemployment is at a 6-year low of 5.6%, & the economy added 252K workers last month to cap the biggest annual gain since 1999 with growth of almost 3M jobs.  However its 2nd mandate, for stable prices, remains well out of reach.  Its preferred inflation gauge, personal consumption expenditures, rose 1.2% in Nov from a year earlier & has lingered below the central bank’s 2% target for 31 months.

Fed Stays Patient on Rates Amid Strong Job Gains, Low Inflation

Hess Corp reported a Q4 net loss of $8M (3¢ per share), compared with profit of $1.9B, or $5.76, a year earlier.  EPS excluding one-time items was 18¢, 2¢ below the estimate.  Sales fell 19% to $2.53B.  HES has been hit hard as crude prices dropped.  The company announced Mon it would cut its capital spending plan for the year 16% to $4.7M.  HES divested downstream businesses in 2013 & 2014, including energy marketing, terminals, gasoline stations & refineries to focus on production before the price of oil plunged.  “Our company is well positioned to manage through the current price environment with a strong balance sheet and resilient portfolio,” Hess said.  “Our 2015 budget reflects a disciplined approach to maintaining our financial strength and flexibility while preserving our long-term growth options.”  Based on current oil prices, the company forecasts a pretax loss in 2015 as the company estimated all-in production costs of $49-$50 a barrel this year.  The company will “moderate” share buybacks & has cut its 2015 capital budget.  It is pressing service companies for lower costs & may cut spending further or tap cash & credit if the price slump persists.  Lower prices reduced adjusted income by $340M.  HES sold oil for an average $74.97 a barrel in the qtr, down from $98.27 a year earlier.  Oil & gas production was 362K barrels of oil equivalent a day, up 18% from a year earlier & 7.1% better than analysts’ estimates.  HES expects production, excluding Libya, to average 350K- 360K barrels a day in 2015, an increase of 10-13% from 2014.  The stock sank 5.59.  If you would like to learn more about HES, click on this link:

Hess Posts Loss After Boosting Output Ahead of Oil Collapse

Hess Corp (HES)

Chancellor Angela Merkel’s gov lifted the economic growth forecast for this year amid rising confidence in the benefits of low oil prices & the ECB’s stimulus plans.  Germany’s economy will grow by about 1.5%, compared with 1.3% forecast in Oct, as growth in consumer spending & wages accelerates, the Economy Ministry said in its outlook published today.  “The German economy is in good shape,” the Economy and Energy Ministry said in its report published twice yearly.  Europe’s biggest economy “weathered geopolitical turbulence, returning to growth last year.”  While criticized by German politicians & the Bundesbank, the ECB’s decision to pump as much as €1.1T ($1.25T) into the 19-nation euro area is buttressing company confidence.  The ministry expects oil prices to average $59 per barrel this year, cutting costs for business, & for consumer confidence to remain strong as unemployment falls further.  Household spending is forecast to grow 1.6% after rising 1.1% last year.  Export growth was forecast to slow to 3.6% this year from 3.7%.  The ZEW’s investor expectations gauge rose to its highest level in 11 months in Jan while Ifo’s business confidence index rose for a 3rd month. Unemployment in Q1 will extend its decline, the Labor Ministry said, citing its monthly survey of regional vacancies.  Bundesbank President Jens Weidmann has called oil prices a “mini stimulus program” & questioned the ECB's anti-deflation agenda, saying the dip in inflation is temporary & linked to lower crude prices.  No “deflationary tendencies” are in sight in Germany.  Consumer prices are forecast to increase by an average 0.8% this year, with gross wages rising an average 3.2%.  The national minimum wage just introduced will also boost private consumption.

Germany Lifts 2015 Economic Outlook as Oil, QE Signal Stimulus

Janet did not bring out buyers today.  The latest round of speculation is that interest rates will be increased this year, the best guess is during Q2.  That's only a few months away.   Even Apple (AAPL) pulled back after Janet's announcement for a gain of "only 6.17."  Lingering effects from oil hitting multi year lows is also a drag & that is not going away any time soon.  The markets are on defense with Dow down a whopping 600+ in Jan as it comes to a close.

Dow Jones Industrials

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