Wednesday, April 8, 2015

Markets move higher as policymakers are divided on raising rates

Dow went up 27, advancers over decliners 3-2 & Treasuries gained 40.  The MLP index lost a fraction to 434 & the REIT index gained chump change to the 338s.  Junk bond funds did little & Treasuries drifted lower.  Oil steepened its losses after the EIA reported an inventory build of 11M barrels, far exceeding expectations.  Gold dropped to nearly 1200.

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CLK15.NYM....Crude Oil May 15....50.80 Down ...3.18  (5.9%)

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Federal Reserve policy makers last month were split over whether they would raise interest rates in Jun, a debate that occurred before recent disappointing payroll figures, minutes of their most recent policy meeting showed.  “Several participants judged that the economic data and outlook were likely to warrant beginning normalization at the June meeting,” according to minutes of the Mar 17-18 FOMC meeting.  Others argued that energy-price declines & the dollar’s appreciation would continue to curb inflation, suggesting that a rate increase should be delayed until later in the year.  A couple said the economy probably wouldn’t be ready for tighter policy until 2016.  In its statement following the Mar meeting, the FOMC dropped a pledge to be “patient” as it considered the first rate rise since 2006, while also reducing forecasts for the path of increases.  Janet Yellen has since said that borrowing costs would probably be raised gradually, without following a predictable pattern.  The Fed said in its Mar statement that it will be appropriate to raise rates once it has seen further labor-market improvement & it’s “reasonably confident” inflation is likely to move back up toward its 2% target.  The minutes revealed some details about what would give officials that confidence.  “Further improvement in the labor market, a stabilization of energy prices and a leveling out of the foreign-exchange value of the dollar were all seen as helpful in establishing confidence that inflation would turn up,” the minutes showed.  The FOMC in Mar said job gains had been “strong” & that labor-market conditions had “improved further,” even as growth “moderated somewhat.”  Since the meeting, economic data have suggested the economy cooled as a result of unusually harsh winter weather, tepid overseas markets & a slowdown in energy-related capital investment.

Fed Officials Divided Over June Liftoff, FOMC Minutes Show

Federal Reserve Bank of NY pres William Dudley said the central bank should err on the side of waiting too long as it considers when to raise interest rates for the first time in almost a decade.  “Our intention would be to be conservative,” Dudley said today.  “I think there are strong arguments for being a little on the late side.”  He added a premature rate increase could force policy makers to reverse course & lower the federal funds rate back to near zero whicht would damage the Fed’s credibility.  Dudley’s remarks reinforce recent signals by policy makers that they are in no hurry to start raising rates.  The FOMC last month opened the door to a rate increase as early as Jun, while emphasizing it will respond to incoming economic data, which in recent weeks has pointed to slower growth.  Yellen said 2 weeks ago she expects the Fed to raise rates this year & the subsequent pace of tightening will be gradual, without following a predictable path.  Fed Governor Jerome Powell said earlier today that damage done by the financial crisis & hidden slack in the labor market justified a gradual approach to raising rates.  Dudley also cited labor-market slack as a reason to keep borrowing costs low.  “We have a lot of long-term unemployed in the economy, and it’s really important to bring those people back into the work force,” he said.  Dudley cautioned against placing too much importance on a disappointing jobs report last month.  “That’s just a single month,” he said.  “I wouldn’t take a huge signal from the 126,000.”  Additional improvement in the job market, he said, could help boost wages, an important component in assuring policy makers that inflation will pick up.  The Fed’s most recent policy statement makes clear officials won’t raise rates until they are “reasonably confident” that inflation will move back up toward the bank’s 2% goal over the medium term.

Dudley Says Fed Should Err on Side of Raising Rates Late

Procter & Gamble, a Dow stock & Dividend Aristocrcat, has kicked off the sale of some of its beauty brands as it seeks to shed laggard assets.  PG has sent out sale documents to potential bidders for its Wella haircare unit, cosmetics brands & its fragrance business, according to leakers.  The businesses could be sold individually or combined, & could fetch as much as $19B.  The sale is part of a plan, announced by CEO AG. Lafley in Aug, to reinvigorate growth by divesting as many as 100 of its slower-selling brands that account for about 10% of its $83B in revenue.  Alongside a potential sale, PG is also exploring an IPO of some of its beauty brands.  The troubled beauty division, which includes the Cover Girl, Max Factor & Clairol brands.  PG is also considering selling part of the Wella business, one of the people said.  The stock rose 38¢.  If you would like to learn more about PG, click on this link:

P&G Kicks Off Sale of Beauty Brands Including Wella

Procter & Gamble (PG)

Minutes from the latest FOMC show the biggies are divided about when to raise.  That means every piece of economic data coming out will be cross examined.  When all is said & done, nobody will know until Jun at the earliest.  Back to the present, earnings are coming & analysts have been lowering estimates for obvious reasons.  After Alcoa (AA) tonight, the big banks will report.  So far, Dow is up about 100 in Apr.

Dow Jones Industrials

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