Friday, October 9, 2015

Markets little changed ahead of earnings season next week

Dow climbed 33, advancers slightly ahead of decliners & NAZ gained 19.  The MLP index extended gains went 1 to the 446s (although still off more than 200 from last year's record highs) & the REIT index lost a fraction to the 318s.  Junk bond funds had modest gains & Treasuries went up while stocks waffled.  Oil was higher but back off from earlier highs in the 50s & gold is over 1150 again, a key support level.

AMJ (Alerian MLP Index tracking fund)

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CLX15.NYM....Crude Oil Nov 15....49.34 Down ...0.09  (0.2%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve Bank of Richmond pres Jeffrey Lacker said the US is already at full employment & the central bank may risk overheating the economy as it attempts to drive additional job gains.  With the unemployment rate at 5.1%, the central bank has achieved its goal & “exhausted relevant slack in the labor market,” he said.  “We’re there,”  The forecast of that rate among officials is 4.9%.  “Pushing on to wring more slack out -- there is some risks associated with that,” said Lacker.  Inflation pressures may emerge with a lag, but the “risks can be very real.”  He dissented at the Sep meeting, preferring a 0.25 percentage point increase in the federal funds rate.  Lacker said once the effects of lower oil & import prices dissipate, inflation could reach the Fed’s goal “fairly rapidly.”  Lacker was sanguine about the recent slowdown in employment, saying it could be attributed to a growing scarcity for qualified labor.  Employers added 139K workers a month to payrolls on average in September and August, down from 243,000 the prior three months.  “The thing I am concerned about is the possibility that the slowdown represents a significant tightening in the labor market,” Lacker said, noting that job openings surged to a record in Jul.  “The longer we keep real interest rates so far out of alignment with consumption growth, the more risk we run,” he said. The concern is that the economy “runs past itself” so that when interest rates do increase, a pullback in growth could be “abrupt and contractionary,” Lacker said.

Lacker Says Fed Taking Risks With Economy at Full Employment

A top Chinese central banker said a “persistent" weakening of the yuan would be inconsistent with the fundamentals of the economy, & the country is committed to making its currency regime more flexible & market based.  “As wide-ranging structural reforms are being carried out, the Chinese economy will become more balanced and sustainable," People’s Bank of China Deputy Governor Yi Gang said at the IMF annual meetings in Lima.  Reforms to make the yuan more market-determined will make its exchange rate more flexible, “floating around the equilibrium level in both directions."  The yuan has fallen 2.1% against the dollar since Aug 11, when the central bank announced steps to put the currency more in line with market forces.  Global finance chiefs persuaded China to "refrain from competitive devaluations" at a Group of 20 meeting last month.  Yi said the correction in China’s stock market has “largely run its course," adding that the decline has had a limited impact on the country’s economy.  Chinese officials will “review and improve the regulatory framework of the market, strengthen supervision, and take measures to restore the functioning of the equity market, when appropriate," he said.  Chinese officials spent 1.5T yuan ($236B) purchasing shares thru Aug amid a rout that started in Jun & wiped out $5T in market value.  The gov has tried to bolster the weakest expansion of the Chinese economy in 25 years with measures including interest-rate reductions & the surprise currency devaluation in Aug.  China is seeking to have the yuan added to the IMF’s basket of reserve currencies, which currently includes the dollar, €, £ & ¥.

China's Economy Doesn't Merit Persistently Weaker Yuan: PBOC

Alcoa reported a smaller-than-expected quarterly profit, hurt by a slide in aluminum prices that has prompted the company to separate the smelting operations from the faster-growing plane & car parts business.  Benchmark London Metal Exchange prices fell to 6-year lows towards the end of Sep, a nearly 20% drop from a year earlier.  EPS fell to 2¢ in Q3 from 12¢ a year earlier.  Excluding special items, AA earned 7¢.  Sales fell 10.7% to $5.57B.  Analysts had expected EPS of 13¢ on sales of $5.65B.  The stock sank 75¢.  If you would like to learn more about AA, click on this link:

Alcoa Misses as Aluminum Prices Slide

Alcoa (AA)

Dow had its best week this year rose an amazing 1K since Sep 28.  All the while, little was happening other than praying the expected interest rate hike will be postponed for at least one meeting (maybe longer).  The thinking is that the Fed is planning to increase on Oct 28, but is not committed.  Earnings season along with foreign developments, highlighted by the chaos in the MidEast, will be the major drivers for that decision.  One major difference with the last meeting is that volatility in the Chinese stock market has quieted.  Dow remains very overbought, subject sudden selling.    
Dow Jones Industrials


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