Tuesday, January 6, 2015

Markets continue sliding as oil falls to $49

Oil fell 67, decliners over advancers 3-2 & NAZ fell 27.  The MLP index dropped another 2+ to the 245s & the REIT index shot up 3+ to the 336s (a multi year high).  Junk bond funds drifted lower & Treasuries advanced, taking the yiled on the 10 year Treasury below 2%.  Oil sank to 49 while gold rose.

AMJ (Alerian MLP Inde tracking fund)

CLG15.NYM...Crude Oil Feb 15....49.02 Down ...1.02  (2.0%)

GCF15.CMX...Gold Jan 15.......1,209.30 Up .....5.40 (0.5%)

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Service industries expanded in Dec at the slowest pace in 6 months, indicating the biggest part of the US economy cooled as the year drew to a close.  The Institute for Supply Management’s non-manufacturing index fell to 56.2 from a Nov reading of 59.3 (the 2nd-strongest since 2005).  But the average for all of 2014 was the highest in 9 years.  The forecast called for a figure of 58.  Gains in consumer spending will probably underpin the service industries that make up almost 90% of the economy as global markets struggle to gain momentum.  Increased hiring & the cheapest gasoline since 2009 are helping spur sales from auto dealers to apparel retailers.  The non-manufacturing survey covers an array of industries including utilities, retailing, & health care, as well as construction & agriculture.  A slowdown to a more sustainable pace of growth was also reflected in the group’s factory survey released last week.  The ISM manufacturing index also fell in Dec to a 6-month low as businesses adjusted to weaker overseas markets & some companies delayed orders in anticipation oil prices would fall further.  The ISM report showed the new orders measure declined to 58.9 last month, the lowest since Apr, from 61.4.  The business activity index decreased to 57.2, the weakest since Mar, from the prior month’s 64.4.  The measure parallels the ISM’s factory production gauge.  Cheaper fuel helped drive down the index of prices paid at service providers to 49.5, the first time since 2009 that more companies reported costs were falling than rising.  The employment gauge fell to 56 from 56.7.

Service Industries in U.S. Expand at Slowest Pace in Six Months

China is accelerating 300 infrastructure projects valued at 7T yuan ($1.1T) this year as policy makers seek to shore up growth that’s in danger of slipping below 7%.  Premier Li Keqiang's gov approved the projects as part of a broader 400-venture, 10T yuan plan to run from late 2014-2016, according to leakers.  The move illustrates concern among officials that China’s planned shift to a domestic-consumption driven economy has yet to produce enough growth momentum.  The approvals contrast with past moves to boost growth via infrastructure in which the gov gave the green-light to projects individually.  They are part of efforts to respond to weak output.  The projects will be funded by the central & local govs, state-owned firms, loans & the private sector.  The investment will be in 7 industries including oil & gas pipelines, health, clean energy, transportation & mining.

China Fast-Tracks $1 Trillion in Projects to Spur Growth

US oil drillers laid down the most rigs in Q4 since 2009.  And things are about to get much worse.  The rig count fell by 93 in Q4 thru Dec 26, & lost another 17 last week.  About 200 more will be idled over the next quarter as US oil explorers make good on their promises to curb spending, according to Moody’s.  Drillers are already running the fewest rigs in 9 months after a more than 50% drop in US benchmark West Texas Intermediate oil in 2014, the steepest decline in 6 years & the 2nd-worst since the commodity began trading in 1983.  Meanwhile, production from Russia & Iraq last month reached the highest level in decades.  It is expected that the rig count may drop a couple hundred rigs in Q1.  Russian oil production rose 0.3% in Dec to a post-Soviet record of 10.7M barrels a day.  Iraq exported 2.94M barrels a day in Dec, the most since the 1980s, the Oil Ministry said.  US oil production is projected to rise even as the rig count plummets, supported by horizontal drilling that yields more crude from wells, gov forecasts show.  Output reached a record 9.14M a day in Dec, according to the Energy Information Administration.

Biggest Drop in Oil Rigs Since 2009 Foretells ‘Tough Year’

Gloom is not leaving the stock market any time soon.  The plunge in oil prices is overwhelming all other news.  WTI had been above 107 at midyear & now is only 49.  The fundamental problem with oil is that demand is too low & it looks like it may not rebound any time soon.  Today's weak economic data was not helpful.  Dow is already down 400 in just the early days of the new year & the stock market is clearly on defense.

Dow Jones Industrials

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