Monday, December 7, 2015

Markets retreat as oil collapses to a 6 year low

Dow sank 117, decliners over advancers 4-1 (a broad based retreat) & NAZ was off 40.  The MLP index tumbled 16+ to the 251s (first seen about a dozen years ago) & the REIT index fell a fraction to the 319s.  Junk bond funds were weak & Treasuries rallied.  Oil plunged to the 37s (see below) & gold retreated.

AMJ (Alerian MLP Index tracking fund)

CLF16.NYM...Crude Oil Jan 16....37.70 Down ...2.27  (5.7%)

Live 24 hours gold chart [Kitco Inc.]

Consumer borrowing cooled in Oct, reflecting the smallest gain in Americans’ credit-card balances in 8 months.  The $16B increase in total credit followed a revised $28.6B surge in the previous month, according to the Federal Reserve.  Revolving debt climbed $179M after a $6.7B advance.  While households kept their credit-card balances in check in Oct, loan demand for motor vehicles remained robust.  Borrowing probably will stay elevated as auto sales exceeded an 18M rate for a record 3d month in Nov.  Job gains, more progress in restoring household balance sheets & greater disposable income has given Americans the confidence to take on more debt.  Non-revolving loans, which include funding for college tuition & auto purchases, rose $15.8B after a $21.9B increase the previous month.  The forecast called for a $20B increase in total borrowing.  The Fed’s consumer credit report doesn’t track debt secured by real estate, such as home equity lines of credit & home mortgages.

Consumer Borrowing in U.S. Increased at Slower Pace in October

Atlanta Fed leader Dennis Lockhart expressed strong support for boosting short-term rates off near-zero levels, in one of the last statements from a Federal Reserve official before the central bank meets to decide monetary policy next week.  "I'm ready for a decision to lift off" & push rates up from the near-zero setting they have rested at since December 2008," he said.  "I'm satisfied" the criteria set by the Fed to determine when to raise rates "have been substantially met."  He was interviewed ahead of the Dec 15-16 FOMC meeting, where he has a vote.  Central bankers are widely expected to boost rates off levels set during the depths of the financial crisis.  Markets broadly foresee a move higher.  Lockhart, who holds an upbeat view on the economy, said that by & large, he sees no reason why overseas factors should hold the Fed back now as the unemployment rate is low and inflation is likely to rise.  "The U.S. economy has a motor than runs on its own power," Lockhart added.  Fears of a China slowdown appear to have been "overstated" & "the best prediction for China is that, yes, they will grow more slowly than they have in recent years, but still at a respectable rate of growth."  The durability of China's continued expansion will be a boost to "the overall tone of global psychology," he said.  Lockhart has confidence that the process of starting Fed rate rises won't unsettle financial & emerging markets.  "The discussion of a raising rate environment has been in the air for well over a year now," he said.  "Emerging markets are either eager for us to get on with it, or are at least sort of prepared and resigned to a rising dollar rate environment."

Fed's Lockhart Pushes for Rate Hike

Oil prices are back in retreat mode, pushing energy stocks closer to clinching another year of big losses.  Crude plunged to its weakest level since Feb 2009 & crossed below the $38-a-barrel mark for the first time since Aug.  Brent crude, the intl benchmark, was down to $40.72, the lowest mark in nearly 7 years.  The latest sharp move to the downside comes after OPEC held steady.  At the Fri meeting, the oil cartel did not come to a consensus on cutting production & stuck with a plan spearheaded by Saudi Arabia to leave the spigots open.  The decision left little doubt in the market that global supplies will remain robust at least for the near future.  Oil prices have fallen well below levels seen in early 2014, when US futures traded as high as $108 a barrel.  Swelling crude inventories set in motion a rapid decline in prices.  OPEC, looking to defend its market share, kept output rates unchanged at a Nov meeting.  By the end of last year, oil was trading at a 50% discount & energy stocks are feeling the effects of oil’s yearlong slump.  So far this year, energy is the worst-performing sector with a 19.2% drop, its steepest loss since 2008.  If the red ink holds, it would be the first time that the energy sector has posted back-to-back annual declines since 2002.  Energy stocks slipped 10% in 2014.

Oil Crumbles to 2009 Lows After OPEC Stands Still

While the stock market may not technically being a bear market, it feels that way with crumbling oil prices leading the way down.  As if that weren't bad enough, the FED will almost certainly raise interest rates next week, spooking the markets even more.  Holiday cheer for the stock market seems far away.

Dow Jones Industrials

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