Thursday, June 4, 2015

Lower markets on IMF forecast for lower US growth

Dow lost 100 (going under 18K), decliners over advancers almost 3-1 & NAZ fell 18.  The MLP index dropped 4+ to the 421s, nearer its yearly lows, & the REIT index inched up a fraction to 315.  Junk bond funds were lower & Treasuries rallied after recent selling.  Oil dropped & gold also pulled back.

AMJ (Alerian MLP Index tracking fund)

CLN15.NYM....Crude Oil Jul 15...59.09 Down ...0.55  (0.9%)

GCM15.CMX...Gold Jun 15...1,174.90 Down ...9.80  (0.8%)

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The Federal Reserve should delay raising interest rates until the first half of 2016, the IMF said as it cut its US growth forecast for the 2nd time this year.  The lender also said that the dollar was “moderately overvalued” & a further marked appreciation would be “harmful,” on its annual checkup of the US economy.  “The FOMC should remain data dependent and defer its first increase in policy rates until there are greater signs of wage or price inflation than are currently evident,” the IMF said.  Based on the fund’s economic forecast, & “barring upside surprises to growth and inflation, this would put lift-off into the first half of 2016.”  A stronger dollar, declining oil investment & a West Coast port strike in Q1 will pull down US growth to 2.5% this year which previously projected the economy to expand 3.1% in 2015.  Economists also expect US growth of 2.5%.  Janet Yellen on May 22 said she still expects to increase interest rates this year if the economy meets her forecasts.  The Fed, which hasn’t raised rates since 2006, will need to see continued improvement in labor market conditions & be “reasonably confident” that inflation will move back to 2%, she said.  The strengthening dollar & global disinflationary trends will probably weaken inflation pressures, according to the IMF.  The report also discussed financial stability, with the IMF pointing to higher risks in shadow banking, a potential lack of liquidity in fixed-income markets, & greater market risk-taking in the insurance industry.

IMF Urges Fed to Postpone Rate Liftoff to First Half of 2016

Fewer workers filed applications for unemployment benefits last week, signaling the US job market remains firm even after growth plunged at the start of the year.  Jobless claims decreased 8K to 276K in the latest week ended from a revised 284K in the prior period, accodoing to the Labor Dept.  The forecast called for 278K.  The number receiving unemployment insurance payments was the smallest in more than 14 years.  Dismissals that have remained subdued mean employers could consider adding to staff as the economy emerges from a Q1 slump.  It was the 13th consecutive week that the number of applications held under 300K, which is consistent with an improving labor market.  The 4-week average of applications increased to 274K from 272K in the prior week.  The number continuing to receive jobless benefits declined 30K to 2.2M, the fewest since 2000.  The unemployment rate among people eligible for benefits fell to 1.6% from 1.7%.  While the persistently low levels of layoffs are typically associated with a healthy pace of hiring, bigger job gains have been slow to develop in Q2.

Fewer American Workers File Claims for Unemployment Benefits

OPEC has been pumping above its production quota for months, determined to subdue supply from higher-cost producers.  The strategy is working, with a record drop in the number of active US rigs & billions cut from global producers’ spending plans.  In contrast, some of OPEC’s members spent this week outlining how they plan to expand output.  Oil giants are seeking to invest in Iran once sanctions end.  Iraq’s oil minister, Adel Abdul Mahdi, said he would talk with most oil executives at the seminar under way before tomorrow's meeting, when the ministers will formally decide on OPEC’s production target.  It is expected that the 12-nation group will maintain the current daily limit of 30M barrels. OPEC pumped 31.6M barrels a day last month, the most since 2012, as its members compete for market share & try to crowd out higher-cost producers including shale drillers.  Prices dropped the most in 4 years after the last meeting in Nov, when OPEC left output unchanged despite a global surplus.  Iraq, leading the surge in production, will add about 100K barrels a day to its exports in Jun, Abdul Mahdi said, an increase of 3.2% from May when the nation shipped a record 3.15M barrels a day.  “The main and most important fields are in safe areas, and operations there are normal, infrastructure is improving, security is improving in terms of loading, storage,” Abdul Mahdi said.  About 800K barrels a day of Basrah Heavy, a new grade introduced this month, have been sold for Jun, he added.  Also, Iran’s oil minister delivered a letter to the group telling them to make room for the country’s rising output.  Iran is discussing its nuclear program with world powers, & an easing of sanctions against the Persian Gulf state would allow it to boost production and exports of crude.  “With sanctions removal, after a short time we can return our production to pre-sanctions levels,” its minister said.  While oil prices have been low for several months, “things will balance out,” OPEC Secretary-General Abdalla El-Badri said.

OPEC Braces for More Oil as Iran, Iraq Plan to Expand Supply

Another dreary day in the stock market.  The forecast by the IMF for slower US growth this year is not a surprise, but that caused traders to sell.  Tomorrow will be a big day for the markets with the Jun jobs report & the decision by OPEC on setting its production goal.  Today's down market reflects nervousness out there.

Dow Jones Industrials

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