Wednesday, September 30, 2015

Markets advance, after Q3 was the worst quarter in 4 years

Dow jumped up 235, advancers over decliners better than 3-1 & NAZ flew up 102.  The MLP index soared (I mean soared) 24+ to the 303s & the REIT index went up 2+ to 304.  Junk bond funds were mixed & Treasuries retreated.  Oil slid lower & gold sold off again, heading for 1100.

AMJ (Alerian MLP Index tracking fund)

CLX15.NYM....Crude Oil Nov 15....45.15 Down ...0.08  (0.2%)

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A measure of factory activity in the upper Midwest region fell for a 6th straight month in Sep in a broad pullback, Marquette University & the Institute for Supply Management-Milwaukee.  Their index on manufacturing in the Milwaukee region dropped to 39.44 in September, its lowest level of the year.  The Aug reading was 47.67.  A reading below 50 indicates regional manufacturing activity is contracting.  Most components including new orders, production & employment fell sharply.  "There has been slowing demand from customers as the end of fiscal year is approaching," Marquette University & the Institute for Supply Management-Milwaukee said.  The survey's 6-month business outlook fell to 57.7 in Sep from 65.4 in Aug.

Midwest Manufacturing Slips into Contraction Territory

The Senate overwhelmingly passed legislation to avert a gov shutdown, sending the measure to the House just hours before funding for federal agencies runs out at midnight.  The bill would keep federal agencies funded at current levels thru Dec 11 & does not include a controversial provision to cut off money to Planned Parenthood that many conservative Reps had demanded.  The funding bill aims to give congressional negotiators & Obama about 10 weeks to work out a longer-term budget deal that lasts at least thru the new fiscal year ending Sept 2016.  But first, the House needs to approve the measure in time for Obama to sign it into law before a midnight deadline.  Timing for that vote was still uncertain but House Reps said they were aiming for a PM vote.  The House Rules Committee was expected to consider whether any allow amendments to the funding bill at a meeting late Wed morning.  Conservative Reps were making a last-ditch effort to amend the funding measure to restore a controversial provision that would cut off all federal funds to Planned Parenthood.  The 172-member Rep Study Committee's proposed amendement also would prohibit Obama from lifting anti-nuclear sanctions on Iran during the duration of the stopgap funding measure.

Senate Sends Bill to House to Avert Shutdown

Global growth will only modestly accelerate next year as the world grapples with the twin prospects of rising US interest rates & slowing expansion in China, IMF Managing Director Christine Lagarde said.  The likelihood that the Federal Reserve will tighten monetary policy, coupled with China’s slowdown, "are contributing to uncertainty and higher market volatility" in the global economy, Lagarde said.  The fund’s World Economic Outlook, to be released next week, will confirm that the global growth rate is expected to be weaker this year than in 2014, she said.  In Jul, the IMF projected world growth of 3.3% this year, down from 3.4% in 2014, & accelerating to 3.8% next year.  The IMF now expects only a "modest acceleration" in 2016, Lagarde said.  “We see global growth that is disappointing and uneven,” Lagarde added.  “The ‘new mediocre’ of which I warned exactly a year ago -- the risk of low growth for a long time -- looms closer.”  While emerging markets are generally better prepared for higher US rates than in the past, rising borrowing costs & a stronger dollar “could reveal currency mismatches, leading to corporate defaults -- and a vicious cycle between corporates, banks and sovereigns,” Lagarde said.  More broadly, most advanced economies should continue to keep monetary policy loose, while incorporating "spillover” risks into their decision making.  Emerging economies need to improve their monitoring of the foreign exchange exposures of major companies, while countries with room to raise public spending should try to boost growth by increasing investment, especially in infrastructure, she said.

IMF's Lagarde: Global Economy is Slowing

This was an unusually volatile day, even for the last day of the qtr.  Lost on many, the MLP index had a record rise (after being vastly oversold).  Oil is depressed.  Now Russia is making airstrikes in Syria, adding confusion to an unstable region.  The Reps may want to shut down gov tonight.  That will be resolved one way or the other around midnight, maybe later.  The US has the strongest economy in the world but it continues to give inconsistent data.  Then there is a likelihood of a rate hike in a couple of weeks.  Lots to worry about after Dow lost more than 1300 in Q3.
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Markets bounce back after ADP employment report

Dow added 228, advancers over decliners 5-1 & NAZ soared 87.  The MLP index recovered a relatively modest 5+ to the 284s after yesterday's drubbing & the REIT index rose 2 to the 303s.  Junk bond funds were mixed & Treasuries pulled back.  Oil inched higher & gold sold off again.

AMJ (Alerian MLP Index tracking fund)

CLX15.NYM...Crude Oil Nov 15...44.96 Down ....0.27  (0.6%)

GCV15.CMX...Gold Oct 15......1,114.40 Down ...12.70  (1.1%)

Companies stepped up hiring in Sep, indicating the job market is standing firm in the face of weaker global demand.  A 200K increase followed a revised 186K rise in the prior month, according to the ADP Research Institute.  The projection called for an advance of 190K.  Additions to company headcounts are consistent with resilient demand in the US even as some industries face challenges of weaker overseas sales.  Labor Dept data on Fri are projected to show payroll gains accelerated in Sep compared with Aug.

“The U.S. job machine continues to produce jobs at a strong and consistent pace,” Mark Zandi, chief economist at Moody’s Analytics said (Moody’s produces the figures with ADP).  “Despite job losses in the energy and manufacturing industries, the economy is creating close to 200,000 jobs per month. At this pace, full employment is fast approaching.”  ADP previously reported an Aug advance of 190K.  Goods-producing industries, which include manufacturers & builders, increased headcounts by 12K.  Hiring in construction climbed 35K, almost twice the 18K gain a month earlier.  But factories cut 15K jobs in Sep (the biggest decline since Dec 2010).  Payrolls at service providers increased by 188K.  Companies employing 500 or more workers created 106K more jobs.  Medium-sized businesses, with 50-499 employees, boosted headcounts by 56K & small companies increased payrolls 37K.  The ADP report is based on data from businesses with almost 24M workers on their payrolls.  The Sep jobs report from the Labor Dept may show private businesses added 200K employees after a 140K increase in Aug while the unemployment rate probably held at 5.1% (lowest since Apr 2008).

ADP Says Payrolls at Companies in U.S. Increase 200,000

The Senate plans to pass a spending bill within the hour to keep the gov running, leaving hours to spare for the House to vote before a potential shutdown.  “I’m optimistic it will pass” in the House, Majority Leader Mitch McConnell, said.  He also said that he, House Speaker John Boehner & Obama plan to start discussions soon on setting gov spending limits for the next 2 fiscal years.  The short-term spending bill (HR 719) would finance the gov thru Dec 11.  “We’ve got a lot on our plate,” Boehner said.  While conservative Reps have said they wouldn’t back any spending extension that continues to fund Planned Parenthood, the House plans to rely on Dem votes to help pass a stopgap funding measure that includes money for the health group.

Senate to Pass Spending Bill to Avoid U.S. Government Shutdown

China’s central bank cut the minimum home down payment required of first-time buyers for the first time in 5 years, stepping up support for the property market after 5 interest-rate reductions since Nov failed to reverse an economic slowdown.  The People’s Bank of China (PBOC) cut the minimum down payment for buyers in cities without purchase restrictions to 25% from 30%.  The previous requirement had been in place since 2010, when the gov boosted the ratio from 20% to help curb property speculation.  The move extends a year of loosening in the property market as Premier Li Keqiang seeks to boost demand after fiscal & monetary stimulus produced few signs of a rebound.  Forecasts suggest growth will slow to 6.8% this year, below the gov target for an expansion of about 7%.   While property investment has remained weak, home sales have recovered after mortgage policy easing & removal of purchase restrictions helped support demand.  New-home prices rose in 35 of 70 cities in Aug, up from 31 in Jul & just 2 cities in Feb.  The gov also has urged some cities to allow citizens to borrow more from housing funds to help buyers, & encouraged cities to securitize more of those loans.

China Cuts Minimum Home Down Payment for First-Time Buyers

Although stocks have returned to their winning ways, Dow is still going to record a big loss in Q3.  Funding to keep the gov running for a couple of months remains uncertain.  The intl scene is not pretty highlighted by more uncertainty over the MidEast region (& oil production).  Earnings season is around the corner & analysts have a lot of fingers crossed.  Moves in today's markets are suspect as fund managers are more concerned with buys & sells to make their data look good, not fundamentals. Also beaten up biotechs are higher on bargain hunting.  Meanwhile yield stocks are up only modestly.

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