Wednesday, December 2, 2015

Markets waver as Yellen testifies before Congress

Dow fell 15, decliners over advancers better than 3-2.& NAZ rose 11.  The MLP index sank 5+ to 290 (close to multi year lows) & the REIT index lost 1+ to 324s.  Junk bond funds were mixed & Treasuries declined. Oil dropped in the 41s & gold is flirting with lows not seen since 2010.

AMJ (Alerian MLP Index tracking fund)

CLF16.NYM...Crude Oil Jan 16...41.02 Down ...0.83  (2.0%)

GCZ15.CMX...Gold Dec 15...1,058.60 Down ...5.20  (0.5%)

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Federal Reserve Bank of Atlanta pres Dennis Lockhart said he favors raising interest rates this month, adding to signs that the central bank will proceed with its first increase since 2006.  “Absent information that drastically changes the economic picture and outlook, I feel the case for liftoff is compelling,” Lockhart said.  The FMOC is considering tightening policy as the economy expands & the labor market shows signs of continued progress.  Payrolls are estimated to have increased by 200K last month & the unemployment rate stayed at 5%.  The Atlanta Fed official said employment gains have clearly met the FOMC's desire for further improvement as a criterion for liftoff.  “I think the economy is closing in on full employment,” which would suggest stronger wage gains, Lockhart added.  “The trend in wage growth has been weak for some time, but it may be picking up.”  Inflation hasn’t met the Fed’s target of 2%, but that’s because of transitory factors including falling energy prices & a stronger US dollar, Lockhart said.  The Dallas Fed’s trimmed-mean measure of prices, which excludes outlying price changes, has gained 1.7% over the past year, Lockhart said.  “Comparing this and like calculations to headline numbers suggests to me that much of what’s suppressing inflation is transitory in nature,” he said.  “I have bought into that view.”
Lockhart has never dissented from an FOMC decision.

Fed's Lockhart Says Interest-Rate Liftoff Case Is ‘Compelling’

Companies added more workers in Nov than forecast, a sign the labor market continues to strengthen.  The 217K increase in employment was the biggest in 5 months & followed a 196K rise in the prior month that was more than previously reported, according to the ADP Research Institute.  The Nov gain exceeded the highest projection.  Companies are adding employees & retaining those already on their payrolls as a tighter labor market makes it difficult for them to find skilled and experienced workers.  Federal Reserve policy makers are closely monitoring progress toward full employment as they consider whether the economy is strong enough to withstand an increase in their benchmark interest rate.  “Job growth remains strong and steady,” Mark Zandi, chief economist at Moody’s Analytics, said.  Moody’s produces the figures with ADP.  “The economy is fast approaching full employment and will be there no later than next summer.”  Goods-producing industries, which include manufacturers & builders, increased headcounts by 13K.  Hiring at factories climbed 6K, while construction companies added 16K jobs.  Payrolls at service providers rose 204K, led by a 59K jump at professional & business services.  Companies employing 500 or more workers added 74K jobs.  Medium-sized businesses, with 50-499 workers, boosted headcount 62K & small companies took on 81K workers.  The ADP figures are based on data from businesses with almost 24M workers on their combined payrolls.

ADP Says Companies in U.S. Added 217,000 Workers in November

China shares rose the most in nearly a month, as hopes build for broad stimulus measures from Beijing.  The Shanghai Composite Index rose 2.3% to 3537, marking its largest daily percentage gain since Nov 4.  Hong Kong's Hang Seng Index rose 0.4%.  Analysts say that China could roll out more stimulus measures as soon as year-end, as it seeks to reach its growth target of about 7% for 2015.  An official reading of Chinese manufacturing activity Tues fell to its lowest level in more than 3 years.  Speculation has built about what shape that stimulus could take.  The Shanghai Composite traded near flat for most of the day, before soaring in the last hour, a pattern analysts identify with state-led buying.  State funds have played a huge role in stabilizing the mainland market, which fell more than 40% during the summer before bottoming out in late Aug.

China Stocks End Sharply Higher

Stocks are digesting yesterday's big gain.  Tomorrow, Mario Draghi may throw more money at euro economies & OPEC ministers are meeting to decide what to do with the low prices of oil.  The interest rate hike remains the #1 item for most traders, with more & more signs that the FOMC will finally be brave enough to raise rates.

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