Thursday, October 8, 2015

Dow climbs back over 17,000 after Fed minutes released

Dow gained 138 (closing near the highs), advancers over decliners better than 3-1 & NAZ added 19.  The MLP index gained 3+ to the 345s & the REIT index went up 2+ to the 318s.  Junk bond funds rose 1% or more & Treasuries were sold as stocks rallied.  Oil shot up to the 49s (see below) & gold slid lower.

AMJ (Alerian MLP Index tracking fund)





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Federal Reserve officials put off an interest-rate increase in Sep because of growing risks to their outlook for economic growth & inflation, mainly from China, even as they continued to say they were on track to raise the target later this year.  Policy makers “agreed that developments over the inter-meeting period had not materially altered the committee’s economic outlook,” according to minutes of the last meeting.  Nonetheless, ’’the committee decided that it was prudent to wait for additional information confirming that the economic outlook had not deteriorated.’’  The FOMC noted that domestic economic conditions, including data on consumer spending & housing, had continued to improve, & the labor market had reached or was close to the committee’s long-run estimates for unemployment.  Still, concerns over China & its potential spillover to other economies “were likely to depress U.S. net exports” & cause further strengthening of the dollar, which could damp inflation in the US.  “Participants anticipated that the recent global developments would likely put further downward pressure on inflation in the near term,” the minutes said.  “Compared with their previous forecasts, more now saw the risks to inflation as tilted to the downside.”  The minutes showed the committee held a lengthy discussion about how far they should attempt to push down unemployment even after recognizing labor resources had been “substantially reduced” in recent months.  Some members pointed to remaining slack represented by part-time workers & those outside the work force.  “A number of participants noted that eliminating slack along such broader dimensions might require a temporary decline in the unemployment rate below its longer-run normal level, and that this development could speed the return of inflation to 2 percent,” the minutes said.  Officials also largely dismissed worries over recent drops in stock markets.  “Participants indicated that they did not see the changes in asset prices during the intermeeting period as bearing significantly on their policy choice except insofar as they affected the outlook for achieving the committee’s macroeconomic objectives,” they said.

Minutes Show Fed Leaders Delayed Rate Hike Over Global Risks


Fiat Chrysler Automobiles & the UAW said they had reached a new tentative 4-year labor agreement that averted a threatened strike of the automaker’s US operations.  The agreement must be ratified by a vote of its 40K union workers.  A previous proposed contract was rejected by rank & file UAW workers late last month.  It's not clear whether the company will spend more than it would have under the proposal it offered the UAW last month.  Workers have said they turned down the previous contract because many wanted a 2-tier wage & benefit system eliminated.  Short of that, they sought a cap on that lower-paid 2nd tier at 25% of the total union workforce.  Many workers also wish to undo some of the concessions they have given since 2007 to keep the company competitive.  The stock rose 68¢.  If you would like to learn more about FCAU, click on this link:
lub.ino.com/trend/analysis/stock/FCAU?a_aid=CD3289&a_bid=6ae5b6f7

Fiat Chrysler, UAW Reach Tentative Agreement

Fiat Chrysler Automobiles (FCAU)



Oil prices climbed to their highest in 5 weeks, as buoyant Chinese equity markets encouraged buying, & as Russia's military involvement in Syria brought a geopolitcal risk premium into the market.  The market shrugged off concern about the higher-than-expected US crude stock build.  Brent crude oil futures rose 1.60 to 52.93 & US crude futures rose over 50 at the highs.  PIRA Energy Group, a closely watched forecaster that predicted the collapse in oil prices a year ago, said it sees crude prices at $70 per barrel by the end of 2016 & $75 a barrel in 2017.  Syrian troops & allied militia backed by Russian air strikes & cruise missiles attacked rebel forces as the govt extended a major offensive in the west.  The US ruled out military cooperation with Russia & called its strategy "tragically flawed."  Brent is on track to rise more than 10% this week, close to its largest weekly increase since early 2009, after oil industry executives warned that this year's fall below $50 would force higher-cost producers to reduce output.

Oil rallies to 5-week high on Chinese stock rise, Syria worry

Since Dow has jumped 1K starting Sep 29 with only 1 minor setback along the way.  That rates as one extraordinary rise, especially without any major news behind it.  Yes there was one item, speculation the Fed would delay a rate increase for at least one more meeting & that excited the bulls.  The MidEast, where much of the world's oil comes from, is slipping into chaos because the US & Arab countries are letting Russia & Iran take over.  China is trying to come up with more magic to restart its growth engine.  Europe is only eking out growth (less than 1% annual gains are considered good).  And the US economy is commonly believed to have another sub 3% growth rate for this year.  That news is behind the 1K gain.  Let's see what earnings announcements do for the overbought stock market.  

Dow Jones Industrials








 

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