Markets retreat as oil sells off again

Dow dropped 56, decliners over advancers 2-1 & NAZ fell 27.  The MLP index lost 2+ to the 279s & the REIT index was fractionally lower to the 328s.  Junk bond funds were sold & Treasuries were flattish.  Oil sank to the 38s, unable to get a rally going this week, & gold was weak.

AMJ (Alerian MLP Index tracking fund)

CLG16.NYM

...Crude Oil Feb 16

...36.94

...0.93

(2.5%)

GCZ15.CMX

...Gold Dec 15

.....1,079.70

...2.20

(0.2%)

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Contracts to purchase previously owned US homes unexpectedly fell in Nov, confirming earlier figures that showed the industry lost momentum toward the end of the year.  The index of pending home sales dropped 0.9%, after a revised 0.4% gain the prior month, according to the National Association of Realtors.  The forecast called for an increase of 0.7%.  The pullback underscores concern raised by the slump in sales of existing homes last month, weakening the real-estate group argument that new mortgage-lending rules caused the slowdown.  Rising prices & a limited supply of properties on the market have restrained buyers, making for a slow recovery in housing.   “Home prices rising too sharply in several markets, mixed signs of an economy losing momentum and waning supply levels have acted as headwinds in recent months,” NAR chief economist Lawrence Yun said.  “Available listings that are move-in ready and in affordable price ranges remain to come by.”  2 of 4 regions saw a decrease, the report showed.  That included a 5.5% drop in the West & a 3% decline in the Northeast.  Compared with a year earlier, the index increased 5.1% on an unadjusted basis, after a 2.3% gain in the prior 12-month period.  The pending sales gauge was 106.9 on a seasonally adjusted basis, the lowest since Jan.  A reading of 100 corresponds to the average level of contract activity in 2001, or “historically healthy” home-buying traffic.  Real-estate agents continue to report “healthy levels of buyer interest” as mortgage rates remain low and hiring is “solid,” Yun added.

Pending Sales of U.S. Existing Homes Unexpectedly Decrease

Russia may cut its oil-price estimate for the 2016 budget next year, possibly following other crude-exporting nations as the commodity, which makes up about 40% of the country’s budget revenue, nears 11-year lows.  “We should be ready for any oil price developments -- our estimates for next year are for about $40 a barrel for budget calculations,” Finance Minister Anton Siluanov said.  His ministry will prepare proposals to review fiscal plans at the end of Q1 “if the situation doesn’t change,” he said.  The 2016 budget, signed by pres Putin earlier this month, is based on an average oil price of $50 a barrel.  Russia, the world’s biggest energy exporter, is struggling to make up for the expected drop in budget revenue as US & European sanctions over its role in the Ukrainian conflict restrict its access to global financial markets.  Its plight resembles those of other crude exporters that have slashed their estimates for next year.  Saudi Arabia, Russia’s main rival in the market, will probably use a price of about $29 a barrel in its 2016 budget & Kuwait will use $30 a barrel.  Brent crude, the grade used to price Russia’s main export blend, slid 1.6% to $37.18 a barrel.  Low energy prices have pushed Putin’s gov to tap its rainy-day Reserve Fund, one of its 2 sovereign wealth funds, to the tune of 2.6T rubles ($35.5B) to cover this year’s fiscal gap.

Russia May Cut Crude Estimate in 2016 Budget as Prices Plunge

Puerto Rico Governor Alejandro Garcia Padilla will likely let bondholders know whether they'll be paid or not at the start of the new year when he comments today on the commonwealth’s fiscal crisis & upcoming debt obligations.  He has stressed repeatedly that if forced to choose between paying creditors & keeping essential services running, he will choose the latter.  Puerto Rico & its agencies owe nearly $1B in interest payments Fri, including $357M on general-obligation debt that the its constitution says must be paid before everything else.  Officials have until late Mon night because of the New Year holiday.

Garcia Padilla this month started redirecting revenue used to repay certain agency debt to central gov coffers.  As a result, the Infrastructure Financing Authority, the Highways & Transportation Authority, & the Convention Center District Authority said they’ll use reserves to help pay their investors on Jan 1.  Only one Puerto Rico entity has already skipped debt payments.  The Public Finance Corp, which borrowed to help cover gov budget deficits, in Aug failed to pay principal & interest because lawmakers didn’t appropriate the funds.  Its bonds due in 2031 trade for about 6¢ on the dollar.  Because they’re backed by a weaker legal pledge than other securities, there have been few repercussions.  Garcia Padilla is seeking to reduce the island’s debt by asking investors to accept less than full payment.  If there’s a default, bondholders may sue for repayment, sparking a legal battle that could upset efforts to negotiate a debt-restructuring agreement.

Puerto Rico Governor May Comment on Debt in Risk of Default

Stocks are stumbling around looking for direction.  The data on home sales was disappointing & a major default default is looming.  However the biggest story is that oil prices remain stuck in the mud with no relief in sight.  The depressed oil market has ramifications that affect economies around the globe.  The stock market is standing on weak legs.

Dow Jones Industrials