Friday, December 4, 2015

Markets rally on November jobs data

Dow soared an astounding 369 (closing near the highs), advancers over decliners an unimpressive 2-1 & NAZ jumped 104.  The MLP index dropped 9+ to the 268s (first reached 10 years ago) & the REIT index went up 5+ to go over 320.  Junk bond funds fluctuated & Treasuries rose, dropping the yield on the 10 year Treasury 6bp.  Oil sank to 40, a key support level, on news from the OPEC meeting (see below) & gold exploded, its biggest gain in 2 years.

AMJ (Alerian MLP Index tracking fund)

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CLF16.NYM....Crude Oil Jan 16....39.88 Down ...1.20  (2.9%)

Live 24 hours gold chart [Kitco Inc.]

Mario Draghi defended the ECB expanded stimulus program a day after investors panned it, while saying further action can be taken if needed.  The combination of measures “was not a package meant to address market expectations,” he said.  “It was meant to address the reaching of our objectives.”  Draghi argued that the newest measures announced, including the reinvestment of principal payments on the debt held, will add €680B ($740B) in liquidity to the system by 2019.  The package was precisely designed to react to a situation where the euro-area recovery is continuing steadily while prices remain too susceptible to slipping into deflation, he argued, & added that there had a been very broad support on the Governing Council to the proposal.  “It was not a revolution,” Draghi said, calling the package a “recalibration.” “It was not a novel monetary policy change.”  Even so, he said that should economic conditions change, he’s ready to do more if needed.  “There cannot be any limit to how far we are willing to deploy our instruments, within our mandate,” he said. “QE is here to stay.”  The ECB pres said that the institution has “broad discretion” to design programs within its mandate to reach its goals, including the active use of the balance sheet.  The inflation rate in the  euro area was only 0.1% in Nov.  “We will secure the return of inflation to 2 percent without undue delay,” Draghi said.  “Thanks to our monetary-policy actions, the risk of deflation in the euro area is firmly off the table.”

Draghi Says There Can't Be a Limit to ECB Action Within Mandate

OPEC set a record oil-output ceiling of 31.5M barrels a day, a level that’s in line with the group’s most recent production estimate & crude fell.  The increase from a previous target of 30M barrels doesn’t include production from Indonesia.  OPEC sent crude prices reeling a year ago when it decided to maintain output as it sought to force higher-cost producers to scale back their operations in an oversupplied market.  Saudi Arabia, OPEC's biggest producer and architect of the current policy, has remained opposed to a production cut unless countries outside the group cooperate.  OPEC also needs to prepare for increased shipments from Iran when international sanctions are lifted.  The group pumped about 31.4M barrels a day in Oct.

Iran won’t accept any production curbs until it restored about 1M barrels a day of output, Oil Minister Bijan Namdar Zanganeh said.  Saudi Arabia said it didn’t feel obliged to cut production, which is running close to a record.  The meeting in Vienna is still in progress.

OPEC Offers No Hope for End to Oil Slump

Gap sales at established stores fell 8% in Nov, worse than expected, with declines at all 3 of its major brands.  Analysts expected same-store sales to fall 6.3%.  Total sales for the 4 weeks ended Nov 28 declined 9% to $1.57B from a year ago.  On a constant-currency basis, sales tumbled 8%.  Same-store sales in Nov fell 4% at its namesake chain, 19% at Banana Republic & 9% at Old Navy.  Same-store sales, which GPS defines as stores open for at least a year along with online sales, are a key metric for retailers, stripping out the impact of recently opened or closed stores.  Analysts expected same-store sales to fall 4.6% at the namesake chain, 10.9% at Banana Republic & 7.2% at Old Navy.  Gap has been trying to revamp its namesake brand.  The company brought on new leadership, including former Banana Republic veteran Wendi Goldman, who had led the Pink line at Victoria's Secret.  In Jun, the company launched cost-cutting moves including the elimination of 250 corp jobs & closing 175 North America Gap stores.  Last month, GAP lowered its full-year earnings guidance.  The stock managed a gain of pennies in this today's surging market.  If you would like to learn more about GPS, click on this link:

Gap's November Sales Drop, Shares Fall

Gap (GPS)

The strength of the rally is curious, especially since it signals strongly that the FOMC will raise interest rates in a few days.  Maybe the rate hike has been so well advertised that it is baked into the market.  There are an abundance of negative signals out that.  Market breadth is drab to say the least.  REITs unperformed the index with only modest changes.  Junk bond funds were only mixed (as opposed to joining in the rally).   There was demand for Treasuries & gold had one of its best days in the last couple of years.  Those are negative bets on the economy.  The rally smells, too much & too fast.

Dow Jones Industrials


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