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.

AMJ (Alerian MLP Index tracking fund)

CLF16.NYM...Crude Oil Jan 16...38.60 Down ....1.37  (3.4%)

GCZ15.CMX...Gold Dec 15....1,077.80 Down ...6.70  (0.6%)

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.

Oil at Lowest in Almost Seven Years

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.”

German October Industry Output Rises, Below Expectations

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:

Sale of GE Appliances Falls Through

General Electric (GE)

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.

Dow Jones Industrials

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