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Monday, December 7, 2015
Markets decline, led by lower oil prices
Dow dropped 149, decliners over advancers a very big 4-1 & NAZ fell 40. The MLP index plunged 16 to the 251s (first seen more than a decade ago) & the REIT index slid a fraction to 320. Junk bond funds slid lower & Treasuries went up. Oil dropped to the 38s (see below) & gold also was sold.
Oil prices fell to their lowest in nearly 7 years after
the OPEC meeting ended in disagreement over production cuts & without a
reference to its output ceiling, while a stronger dollar made it more
expensive to hold crude positions. OPEC ended
its policy meeting Fri without agreeing to lower production. For the first time in decades, oil ministers dropped any reference to
the group's output ceiling, highlighting disagreement among members
about how to accommodate Iranian barrels once Western sanctions are
lifted. OPEC's output of more than 30M barrels per day (bpd) has
compounded an oil glut, pushing production 0.5-2M bpd
beyond demand & putting many producers under pressure, especially
small-sized US shale drillers that have piled up large amounts of
debt. Saudi Arabia, the world's biggest oil exporter, is banking on producers of unconventional oil buckling for output to fall. Saudi Aramco CEO Amin Nasser said today that he hoped to see oil prices adjust at the beginning of
next year as unconventional oil supplies start to decline. In a sign that US production could dip, Baker Hughes Nov data
showed US rig count numbers were down 31 month on month to 760
rigs. But others disagreed. The French oil company Total,
said at the same event that it did not expect prices to recover next
year as production growth was set to outstrip a rise in demand.
German industrial production rose less than predicted in Oct amid a slump in energy output. Output,
adjusted for seasonal swings and inflation, rose 0.2% from
Sep, when it declined 1.1%. The reading, which tends to be volatile, is
the first positive one in 3 months and compares with an
estimate for a 0.8% gain & production was unchanged from a year earlier
With
factory output contracting in Q3, growth in Europe’s
largest economy has been driven by domestic demand on the back of
record-low unemployment & cheap oil. Further stimulus announced by the ECB is set to boost demand both within
the country & in the euro area. Manufacturing
output rose 0.7% in Oct from the previous month, driven by a
2.7% increase in investment-goods production & energy output slumped 5.9%, the most since Nov 2008. “The
latest high level of energy production couldn’t be maintained” after
“the wind and sun-rich summer bolstered production of renewable energies
notably,” the Economy Ministry said. Nonetheless,
“industrial production started the fourth quarter on a positive note.
That’s the first step to overcome the weak phase of the previous
months.” The ministry said
Fri that factory orders rose for the first time in 4 months in
Oct, increasing 1.8%. Unemployment fell to the lowest rate on
record in Nov & business confidence unexpectedly jumped to the
highest level since Jun 2014. “The German economy is currently growing primarily on the back of lively domestic demand,” the Bundesbank said on Fri. “With export markets outside the
euro area expected to rebound and economic growth within the euro area
gaining a little more traction, the healthy underlying state of the
German economy should stand out even more clearly over the next two
years.”
Sweden's Electrolux said its deal to buy the General Electric, a Dow stock, appliance business had fallen thru after GE terminated the $3.3B agreement. The Justice Dept asked a federal court in Jul to stop
Electrolux, which makes Frigidaire, Kenmore & Tappan appliances, from
buying the appliance business & has said the deal would push prices up by 5%. The dept said the proposed deal violates US antitrust law. Electrolux said its strategy to grow profitably in promising segments, product categories and emerging markets was unchanged. Electrolux said it was prepared to divest assets to appease the DOJ. Electrolux said that it is required
to pay a termination fee of $175M & GE had requested pay-out of that amount. GE stock fell 24¢. If you would like to learn more about GE, click on this link: club.ino.com/trend/analysis/stock/GE?a_aid=CD3289&a_bid=6ae5b6f7
The enormous rally was overdone, today is time for payback. Chaos in the oil market affects all markets. There have been no updates on US retail sales, but the negative news will hurt. GE's inability to sell its appliance business indicates that the gov is another negative influence on the market. The stock market is back on defense.
....1.37 
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