Monday, January 5, 2015

Markets collapse after WTI falls below $50

Dow sank 331, closing near the lows, decliners over advancers more than 3-1 & NAZ sold off 74.  The MLP index plunged a massive 21+ to the 448s while the REIT index climbed 1+ to the 333s.  Junk bond funds sold off & Treasuries rose, money coming from stock sales.  Oil had another bad day & gold went higher (above 1200) on Greek financial drama.

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CLG15.NYM....Crude Oil Feb 15....50.28 Down ...2.41  (4.6%)

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The Federal Reserve (FED) shouldn’t raise iinterest rates too soon because the US economy still needs the support of easy monetary policy, said John Willliams, pres of the San Francisco FED.  “I see no reason whatsoever to rush to tightening,” Williams said today.  “This is a U.S. economy that although doing a lot better, still needs monetary accommodation for above-trend growth.”  He added that he doesn’t rule out tightening later in the year.  Most members of the FOMC expect to begin raising rates for the first time since 2006 some time this year.  Williams (a voting member of the FOMC) reiterated his view that mid-2015 was a reasonable starting point to think about liftoff.  He expects the FED will move slowly.  “My own view is the pace of tightening will be pretty gradual over the next few years once we start liftoff,” he said.  He also anticipated divergence in monetary policies between the FED, the Bank of Japan & the ECB will “create some turbulence” in financial markets.  The FOMC last month replaced a pledge it would hold rates low for a “considerable time” with an assurance it would be “patient.”  Chair Janet Yellen said the central bank was unlikely to move before the end of Apr.  Williams said he wasn’t concerned that weak energy prices will cause a significant drop in underlying inflation.  Still, he would like to see more evidence that wages are ticking up.  The fact that current rates are close to zero provides another argument for patience, he added.

Fed’s Williams Sees No Reason to Rush With Rate Increases

Iran's oil exports have fallen 60% to 1M barrels a day, according to Oil Minister Bijan Namdar Zanganeh.  Iran, constrained by intl sanctions on its energy & financial industries, “won’t give in over 1 million barrels a day,” Zanganeh said.  The minister didn’t elaborate, nor did he specify dates for the 60% cut in the nation’s exports.  US & European sanctions on Iran over its nuclear program have curbed foreign investment & hindered development of the Persian Gulf state’s oil & natural gas reserves.  Iran produced 2.77M barrels a day of oil in Dec, down from an average of 3.58M in 2011.  Oil exports are its main source of income.  Brent crude, a pricing benchmark for more than half of the world’s oil, tumbled 48% last year, the most since the 2008 financial crisis.  Saudi Arabia, the biggest member in OPEC, has rebuffed calls from Iran & others in the group to cut output amid a struggle with US shale producers for market share.

Iran ‘Won’t Give In’ After 60% Decline in Oil Exports

This week Mario Draghi will get his first taste of one of the dominant challenges for the euro-area economy for 2015.  Consumer prices probably recorded the first annual decline in more than 5 years in Dec amid a slide in the cost of oil, aggravating concern at the ECB that subdued inflation will become entrenched.  With Italy in recession, French momentum lackluster & Germany struggling to leave a weak patch behind, policy makers are haggling over stimulus as govs drag their feet on economic reforms.  Inflation data on Wed may tip the scales in favor of large-scale sovereign-bond purchases when the ECB pres leads a meeting of the Governing Council later this month.  He said last week that the risk of deflation “cannot be entirely excluded,” while others led by Bundesbank President Jens Weidmann favor holding off to allow previous measures to take effect.  German inflation slowed to the weakest in more than 5 years in Dec, a sign that euro-area prices have started to decline.  The region’s rate probably fell to minus 0.1%.  That would be the first drop since Oct 2009, when the economy was struggling to recover from a slump after the financial crisis.  Core inflation is predicted to have held at 0.7%.  The ECB aims to keep inflation just below 2% & the ECB said last week that consumer prices may decline “during a substantial part of 2015.”  Policy makers’ analysis is complicated by the prospect of renewed political turmoil in Greece, which holds snap elections on Jan 25, 3 days after the Governing Council meeting.  The vote could deal power to opposition group Syriza, which wants to abandon the austerity measures & economic overhaul linked to the country’s bailout agreements.

Draghi Gets Taste of 2015 Euro-Area Inflation Challenge as ECB Readies QE

Stocks are starting the new year on the wrong foot.  Falling oil prices (as well as lower natural gas prices) are difficult for the stock market to absorb.  On the surface, they should be a solid plus for the economy, but not this time around.  Confusion about Greece & the future of its economy adds to uncertainty in the stock market.  All considered, the market breadth today was not as bad as it could have been considring the size of the declines by the averages.  But that's not much consolation for most investors.

Dow Jones Industrials

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