Thursday, December 31, 2015

Markets close the year on a down note.

Dow sank 135, decliners over advancers almost 2-1 & NAZ was off 36 (but hanging in above 5K).  The MLP index rose 3+ to the 282s & the REIT index fell 3+ to the 324s.  The MLP index was 459 at the end of 2014 & the REIT index was 327.  Junk bond funds drifted lower in what has been a rough year for them & Treasuries rose as stocks were sold.  Oil was fractionally higher in the 36s & gold was up a tad at 2061.  Both had brutal years.

AMJ (Alerian MLP Index tracking fund)

CLG16.NYM...Crude Oil Feb 16...36.52 Down ...0.08  (0.2%)

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The number of Americans filing applications for unemployment benefits rose more than projected during the Christmas week, reaching the highest level in almost 6 months, perhaps reflecting typical swings during holidays.  Jobless claims jumped 20K to 287K, according to from the Labor Dept.  The forecast called for 270K.  Applications haven't been this high since Jul 4.  While there was nothing unusual in the state-level data, the jump could have been caused by the volatility introduced when the numbers are adjusted for seasonal variations.  Limited layoffs, steady hiring & an unemployment rate at more than a 7-year low underscore job market improvement that allowed the Federal Reserve to lift interest rates this month.  The previous week’s figure was unrevised at 267K.  The 4-week moving average increased to 277K from 272K.  The number continuing to receive jobless benefits rose 3K to 2.2M & the unemployment rate among people eligible for benefits held at 1.6%.

Jobless Claims in U.S. Increase to Highest Level Since July

An index measuring the economy of the Midwest fell to its lowest level in Dec since Jul 2009, underscoring the extent to which manufacturing has become a drag, especially in the manufacturing-heavy Midwest.   The Chicago Business Barometer, commonly known as the Chicago PMI, shrank to 42.9 this month from 48.7 in the prior one.  Readings below 50 indicate contraction.  The barometer's measurement of new orders fell to the lowest level since May 2009, indicating that business in the pipeline for some manufacturers is also slowing.  The barometer had a "particularly volatile year," according to Philip Uglow, chief economist of MNI Indicators, which publishes the report.  The weakness in the report "lends weight to the Fed's gradual approach to tightening, with the flexibility to change direction if needed," Uglow said.  A special question in this month's report showed that 55.1% of respondents expect demand to strengthen in 2016, compared to 14.3% who think it will lower.

Midwest Manufacturing Slips Deeper into Contraction

The People’s Bank of China refrained from offering reverse-repurchase agreements in open-market operations for the first time in 6 months, halting cash injections that helped drive borrowing costs lower amid the slowest economic growth in 2 decades.  The decision to withhold the short-term lending tool comes after their use was scaled back in the Tues auction window, when 10B yuan ($1.5B) of 7-day agreements were made available.  That compares with a total of 70B yuan at the Dec 22 & 24 auctions & resulted in a net 60B yuan being drained from the banking system this week.  Lenders’ demand for funds typically rises in the run-up to year-end liquidity checks by regulators.  The benchmark 7-day repurchase rate fell 11 basis points to 2.32% in Shanghai, extending this year’s decline to a record 264 basis points.  The PBOC drained a net 20B yuan via open-market operations this month, & let 80B yuan of treasury deposits mature, which also pulled funds from the financial system.  It wasn’t all take, however, with the central bank having added 100B yuan using 6-month loans under its Medium-term Lending Facility on Dec 18. 

PBOC Doesn't Offer Reverse Repos for First Time in Six Months

Dow had its first down year since the terrible year of 2008.  The index dropped more than 300 in a year when it tried several time to rally, but those attempts could not be sustained.  Maybe 2016 will be better.  However numerous headwinds are not encouraging.

Best Wishes for the New Year!!

Dow Jones Industrials

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