Wednesday, December 23, 2015

Markets advance on rising consumer confidence

Dow gained 107, advancers over decliners 5-1 & NAZ added 31 (over 5K again).  The MLP index shot up 6+ to the 281s (up 34 from last week's low) & the REIT index rose 1+ to the 322s.  Junk bond funds rose along with stocks & Treasuries slid lower.  Oil is back into the 37s while gold pulled back, near multi year lows.

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CLG16.NYM...Crude Oil Feb 16...36.84 Up ...0.70 (1.9%)

GCZ15.CMX...Gold Dec 15.....1,070.60 Down ...4.20  (0.4%)

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OPEC said demand for its crude will slide to 2020, though less steeply than previously expected, as rival supplies continue to grow.  The organization will need to pump 30.7M barrels a day by the end of the decade, 1.7M barrels more than projected a year ago, & 1M less than the group pumped in Nov.  The forecast underlines the struggle faced by the Organization of Petroleum Exporting Countries as it seeks to defend market share against a surge in output from rivals such as the US & Russia.  While OPEC is slowly taming the expansion of competitors, the collapse in oil prices means the financial costs of its strategy are immense.

“Although lower oil prices continue to foster some demand growth, their impact seems to be limited by other factors,” the group said.  “The removal of subsidies and price controls on petroleum products in some countries and ongoing efficiency improvements will all likely continue restricting oil demand growth.”  The 30.7M barrels of daily output needed from OPEC members in 2020 is about 300K a day less than required this year, when it repeatedly pumped above its production target before scrapping the limit altogether earlier this month.
OPEC assumes that prices will rise to average $80 a barrel in nominal terms in 2020, & $70.70 in real terms.  Last year it had anticipated nominal prices of $110 & real levels of $95.40.  That means the value of the its output in 2020 would be $218B less than estimated a year ago, when it first embarked on the policy to protect market share.  The organization increased its estimate for global oil demand in 2020 by 500K barrels a day to 97.4M a day.  By then, fuel consumption in emerging nations will overtake that in the industrialized economies of OPEC.  The group cut forecasts for non-OPEC supply in 2020 by 1M barrels a day to 60.2M a day as “market instability” leads to reductions in spending & drilling.  Non-OPEC supply will still grow by 2.8M barrels a day this decade, including 800K barrels of additional US shale oil.  But the outlook was “clouded by uncertainties.”

OPEC Sees Demand for Its Crude Oil Falling for Rest of Decade

Confidence ended the year on a brighter note as low prices put US consumers in the holiday spirit.  The University of Michigan final sentiment index for the month climbed to 92.6, the highest since July, from 91.3 in Nov.  The projection called for a reading of 92 after the Dec preliminary figure of 91.8.  Cheap gasoline prices & a labor market that’s added millions of Americans to payrolls have buttressed sentiment this year, while demand picked up enough to help convince the Federal Reserve that the economy could withstand higher interest rates.  The conversion of job growth into bigger wage gains will be needed in the months ahead to further boost confidence and spending.  “The latest gain was largely due to lower inflation, which bolstered real incomes and brightened buying plans for household durables,” the Michigan survey said.  “Given the continued weakness in the global economy and the strong dollar, consumers can be expected to become even more demanding of price discounts in the year ahead.”  The consumer sentiment figure almost reached the 92.9 average for this year, which is the highest since 2004.  The sentiment survey’s current conditions index, which measures Americans’ assessment of their personal finances, rose to 108.1 in Dec, the highest since Jun, from 104.3 last month.  The measure of expectations 6 months from now decreased to 82.7 from 82.9.

Confidence Rises to Five-Month High as Americans Cheer Discounts

New homes in the US sold at a slower pace than projected in Nov, a sign momentum in housing is cooling as the year draws to a close.  Sales rose 4.3% to a 490K annualized pace following a 470K rate in Oct, according to the Commerce Dept.  The estimate called for a 505K pace, & purchases in the prior 3 months were revised lower.  After a strong start to the year, housing has posted choppy progress lately, held back in part by a limited selection of homes that’s causing prices to appreciate faster than wages.  Continued progress in the labor market that results in higher pay will be needed to boost demand further, giving builders renewed incentive to step up construction.  New-home purchases were 11.1% higher in Nov than the same period in 2014 on an unadjusted basis.  The median price of a new home increased 0.8% last month from a year ago to $305K.  Purchases rose in 2 of 4 regions, led by a 20.5% increase in the West, which was the most in more than a year.  The supply of homes at the current sales rate decreased to 5.7 months from 5.8 months in Oct.  There were 232K new houses on the market at the end of last month, up from 227K.  Sales of new properties, which are counted when contracts are signed, are considered a more timely

Sales of New Homes in U.S. Were Weaker Than Forecast in November

The consumer confidence data was good enough to keep the bulls happy, & they are in a buying mood.  Even junk bond funds are attracting buyers.  With only ½ of trading tomorrow, this week should be able to close out on a bullish tone.  Santa Claus has finally appeared.

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