Wednesday, February 25, 2015

Markets vacillate after Yellen completes 2 days of testimony

Dow inched up 15, advancers over decliners 5-4 & NAZ fell about 1.  The MLP index jumped 4+ to the 453s (but flattish since early Dec) & the REIT index was fractionally higher to the 336s.  Junk bond funds were mixed & Treasuries crawled higher.  Oil rose as Saudi Arabia says demand is growing & gold eased lower.

AMJ (Alerian MLP Index tracking fund)

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Live 24 hours gold chart [Kitco Inc.]

Fed Chair Janet Yellen aggressively defended the central bank’s independence from the constantly shifting political whims of DC.  Yellen said any additional oversight by elected officials would leave the Fed, & ultimately monetary policy, vulnerable to the political agendas of legislators.  After discussing the independence of the Fed, she reiterated her comments: the economy is improving & interest rates will move higher when the Fed believes the economy is strong enough to stand on its own without Fed stimulus. 
Yellen & her colleagues have given every reason to believe interest rates will likely move higher in mid-2015, the time frame economists have long predicted.  But that could change if the tone of the economic data shifts significantly.

Fed Likely to Move Glacially on Rate Hikes

Crude oil in storage in the US jumped 2%, to 434M barrels, according to EIA weekly data.  The increase of 8.43M barrels was more than double the estimate & was the biggest increase in a month.  US oil storage is bursting at the seams amid a global glut of supply that has driven prices down by half since last summer.  US inventories remain at their highest levels in at least 80 years.  But oil prices fluctuated as the inventory news was tempered by slowing growth in production last week, rising a fraction of a percent to 9.29M barrels a day, the EIA reported.  Production continues at the highest rate since 1972.   Winter weather & refinery outages have contributed to the glut of US crude.  Even when those conditions subside, high levels of production & vast quantities in storage may continue to suppress oil prices for the near & medium-term.

U.S. Oil Inventories Surge for Seventh Week

American Express, a Dow stock, is raising interest rates for a large number of its credit cards following a review that began a year ago.  Its US consumer credit cards, which have annual rates well below market rates (some as low as 3¼%) will be affected.  AXP is raising its annual percentage rates by an average of 2.5 percentage points to align the rates with what it offers currently to customers with similar credit profiles.  The annual rate for new customers will be at least 12.99%, but some of its older customers would continue to have lower rates despite the hike.  The company sent letters to its cardholders saying it is making adjustments after finding its rates were below those of rival cards.  More than 1M cardholders would be affected by the hike.  The proposed raises will affect the company's variable-rate products, including some of its proprietary & co-brand credit cards.  Earlier this month, AXP said its earnings would suffer for 2 years after failing to renew deal with Costco Wholesale (COST).  AXP stock rose 1.31.  If you would like to learn more about AXP, click on this link:

AmEx to Raise Rates on Some U.S. Cards

American Express (AXP)

Janet had to face a grilling on the independence of the Fed, but she survived.  More importantly, she said higher interest rates are coming around mid year.  That's only a few months away.  Oil production in the US keeps climbing.  Just a few months ago, US daily production was topping 9M barrels per day.  Now it's about 9.3M.  Russia is the biggest producer at 10.7M barrels & #2 Saudi Arabia is around 10M.  They're not cutting production & global consumption will be 93M this year.  With sluggish growth in the global economy, oversupply should keep oil prices depressed for months.

Dow Jones Industrials

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