Tuesday, September 1, 2015

Market rout on growing global growth worries

Dow dropped 469 (hanging in above 16K), decliners over advancers 6-1 & NAZ dove 140.  The MLP index slumped 8+ to 350 (down more than 200 from last year's record) & the REIT index fell 5+ to the 293s.  Junk bond funds climbed higher & money flowed from stocks to Treasuries.  Oil gave up much of its 3 day rally & gold was little changed throughout trading.

AMJ (Alerian MLP Index tracking fund)

CLV15.NYM....Crude Oil Oct 15....46.23 Down ...2.97  (6.0%)

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Detroit’s 3 carmakers all reported surprisingly robust Aug sales, powered by pickups & sport utility vehicles, suggesting consumers are undeterred by the marked decline in global stock markets.  Ford (F) & Fiat Chrysler Automobiles (FCAU) reported unexpected sales increases, while General Motors (GM) posted a small drop, after cutting back low-margin sales to rental fleets, & boosted its full-year outlook for the market by 300K vehicles.  Declines for Nissan & Toyota (TM) were narrower than the estimates.  America’s love affair with new trucks shows that the economy is still a standout as Europe’s recovery ambles along & China is slowing.  Not even the drop in the Dow Jones last month kept consumers from dealerships.  Auto stocks fell much less today than those of other sectors.  GM’s 0.7% decline beat estimates, leading the company to say that industry sales this year may reach 17.3M, up from an original forecast of as many as 17M cars & light trucks.  Ford light-vehicle deliveries increased 5.6% & FCAU's rose 1.7%.  FCAU sold 201K vehicles, topping 200K for the 2nd time this year.  8 models, including 4 Jeeps, had their best Aug ever.  All major automakers were projected to report declines & the industry was projected to post a 3.3% monthly decrease in deliveries of cars & light trucks to about 1.53M.  Consumers typically flock to dealer lots on Labor Day weekend, the traditional end of summer, as the model year is changing over, drawn by new designs or discounts on outgoing vehicles.  Last year, the weekend made up 1/5 of Aug sales, leading to the most sales in any Aug since 2003.  TM 8.8% drop in sales was narrower than the 10% decline estimated.pickups and SUVs.  Nissan posted a 0.8% decrease, compared with the estimate for a 3.9% drop.  Honda reported a 6.9% decline, in line with the estimate

Automakers Beat Estimates, Post ‘Exceptionally Strong’ Sales

Federal Reserve Bank of Boston pres Eric Rosengren said uncertainty over inflation & global growth justifies a modest pace of interest-rate increases, regardless of when the central bank begins tightening.  “Given current and forecast conditions, not only is the pace likely to be gradual, but the federal funds rate in the longer run may be lower than in previous tightening cycles,” he said today.  The FOMC will meet in 2 weeks to consider raising rates for the first time since 2006.  He said recent stock market turmoil, & data pointing to weaker global growth, could sap confidence that inflation would head higher.  “We are exposed to international factors, so if there is a global slowdown, we won’t be perfectly insulated,” he told the audience.  “But I think the U.S. economy is strong enough,” that the risk of foreign weakness tipping the U.S. into a recession is a “relatively low-probability event.”  Data on inflation, he said, was not clear-cut.  “Recent reports on wages and salaries still show few signs that the tightening labor markets are translating to increases in wages and salaries consistent with reaching 2 percent inflation,” he said.  Prices in the US rose 0.3% in the 12 months thru Jul.  Inflation has lingered below the Fed 2% target for more than 3 years.  Rosengren's own outlook on inflation is dependent on whether he believes the economy will continue to expand faster than the long-term potential for growth.  That, in turn, is threatened by recent turmoil in stock markets and falling commodity prices, which are “consistent with a weaker global economy,” he added.  Such developments “might suggest a downward revision in the forecast that is large enough to raise concerns about whether further tightening of labor markets is likely,” Rosengren said.  He also said that “there’s an awful lot of uncertainty about inflation,” adding that “our best guess is that we’re on a path that will get us to 2 percent inflation.”  Higher uncertainty was an argument for proceeding more slowly with the pace of rate increases than in previous tightening cycles, in order to “enable monetary policy makers to gauge how tight labor markets can be while maintaining stable prices.”

Fed’s Rosengren Says Inflation Doubts Justify Slow Rate Pace

IMF Managing Director Christine Lagarde said the global expansion outlook is worse than the lender anticipated less than 2 months ago, with advanced & Asian economies growing more slowly than expected.  “We expect global growth to remain moderate and likely weaker than we anticipated last July,” Lagarde said in a speech.  “This reflects two forces: a weaker than expected recovery in advanced economies, and a further slowdown in emerging economies, especially in Latin America.”  The IMF is joining private forecasters in anticipating slower expansion as China’s growth weakens & Brazil’s economy shrinks.  The fund had already in Jul cut its world growth forecast to 3.3% from 3.5% this year while maintaining its 2016 outlook at 3.8%.  In Asia, the rate of expansion “is turning out slower than expected -- with the risk that it may slow even further given the recent spike in global risk aversion and financial market volatility,”  Lagarde added.  China is shifting to a more market-oriented economy, & the “unwinding of risks built up in recent years is complex and could well be somewhat bumpy,” she said.  “That said, the authorities have the policy tools and financial buffers to manage this transition.”

Lagarde Says Global Growth Outlook Weaker Than IMF July Forecast

Sep has the reputation for being the worst month of the year & today is suggesting this one will be another ugly month.  Aug was bad enough & the bears want to add to the market's pain.  As important as the first Fed rate is, global growth has taken over center stage & that does not look encouraging.  The high volatility in oil is at the center of increased uncertainty.  Hang on for a rough ride in Sep!!  Dow is already down 10% YTD.

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