Friday, December 4, 2015

Markets soar after November jobs report

Dow surged 261, advancers over decliners a relatively mild 2-1 & NAZ gained 71.  The MLP index sank to another low, dropping 5+ to the 272s, while the REIT index added 5+ to go over 320.  Junk bond funds were mixed & Treasuries also saw strong demand.  Oil sank below 40 & gold shot up about 35. 

AMJ (Alerian MLP Industrials tracking fund

CLF16.NYM....Crude Oil Jan 16...40.21 Down .....0.87  (2.1%)

GCZ15.CMX...Gold Dec 15....1,085.40 Up ...23.70 (2.2%)

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Employers added more jobs than forecast in Nov, underscoring Federal Reserve confidence that the US economy is strong enough to withstand higher borrowing costs.  The 211K increase in payrolls followed a 298K gain in Oct that was bigger than previously estimated, according to the Labor Dept.  The forecast called for a 200K advance.  The jobless rate held at a more than 7-year low of 5%.  A healthy rate of hiring has raised the odds that Fed officials will raise interest rates this month.  Employee pay increased at a steady pace last month.  Average hourly earnings at private employers rose 0.2% after a 0.4% gain.  Year-over-year hourly pay rose 2.3% after a 2.5% gain a month earlier.  Employment in Nov was spurred by the biggest increase in construction hiring since Jan 2014.  Retailers, health-care providers & leisure & hospitality companies added jobs at a healthy, but slower pace than in Oct.  Revisions to prior reports added 35K jobs to overall payrolls in the previous 2 months.  Construction companies took on 46K workers, led by residential specialty contractors & boosted by warmer weather across much of the US.  Payrolls at retailers rose almost 31K, a step down from the month before.  The underemployment rate, which adds in part-time workers who’d prefer full-time positions & people who want to work but have given up looking, crept up to 9.9% from 9.8% in Oct.  The figure reflected an increase in the number of Americans working part-time for economic reasons.  The labor force participation rate, the share of working-age people who are employed or looking for work, rose to 62.5% from 62.4%.  With the Fed widely expected to raise rates in less than 2 weeks, the Nov jobs data will likely be used to guide the pace of future increases.  Progress in the labor market has played a large role in building the Fed’s confidence that the economy can withstand higher interest rates.  The second part of the central bank’s dual mandate, stable prices, has been more elusive.  Its 2% target for inflation hasn’t be met since Apr 2012.

Payrolls in U.S. Increased More Than Forecast in November

OPEC agreed to set a new 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 sharply.  The increase is from a previous output target of 30M barrels & does not include production from Indonesia, which joined the producer group after a break of almost 7 years.  OPEC pumped about 31.4M barrels a day of crude in Oct.  Saudi Arabia, the group’s biggest producer & architect of the current policy, has remained opposed to a cut in production unless countries outside the group cooperate.  The group has pumped more than its collective target of 30M barrels a day the past 18 months.  OPEC’s policy is squeezing incomes for its members, whose combined annual revenue could fall to $550B from an average of more than $1T in the past 5 years.

OPEC Sets New Output Ceiling and Sinks Crude Market

The trade deficit unexpectedly widened in Oct as weaker foreign orders for US goods & services outweighed a cooling in imports.  The gap increased 3.4% to $43.9B from a revised $42.5B in Sep that was larger than previously estimated, according to the Commerce Dept.  The forecast was for a deficit of $40.5B.  A strong dollar & weaker global growth caused exports to slump to the lowest level in t3 years, one reason why American manufacturers are struggling.  The drive toward energy independence & lower fuel prices also drove down petroleum imports, which sank to the lowest level in more than a decade.  After eliminating the effects of price fluctuations, which generates the numbers used to calculate GDP, the trade deficit widened to $60.3B from $57.4B a month earlier.  This report ran counter to preliminary estimates issued last month that showed a narrowing in the trade gap on goods.  The revised numbers will probably prompt cuts in  estimates for Q4 growth.  Exports dropped 1.4% to $184.1B, the weakest in 2 years, from $186.8B the prior month.  They’ve receded from the record $197.8B reached in Oct 2014.  Imports decreased 0.6% to $228B from $229.2B in Sep.  The value of petroleum purchases from abroad sank to $12B, the least since 2003.

Trade Gap Unexpectedly Widens on Drop in U.S. Exports

The big gains may not hold when it sinks in that the odds for a rise in the interest rate are likely in less than 2 weeks.  The significant increase in  gold prices along with modest market  bread is not encouraging for stocks.  Oil remains depressed as OPEC does not decrease production in a world that is already producing too much.  Dow is up only about 80 since the beginning of Oct, a drab follow-up after extraordinary gains in Oct.

Dow Jones Industrials


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