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Thursday, January 28, 2016
Markets crawl higher on hopes for oil production cuts
Dow inched up 14, advancers over decliners 2-1 & NAZ added 2. The MLP index jumped 12+ to the 254s & the REIT index went up 1+ to the 309s. Junk bond funds edged higher & Treasuries were weak. Oil shot up to the 33s (see below) while gold was flattish.
Oil climbed to a 3-week high after Russia's Energy Minister was
reported to say that OPEC & other producers will meet next month to
discuss a potential production cut & futures surged. Alexander Novak said the meeting participants may
discuss a Saudi Arabian proposal for all oil-producing countries to trim
production by 5%. The Organization of
Petroleum Exporting Countries abandoned its output target in Dec at a
meeting in Vienna, & Saudi Arabia has led the group in fighting for
market share against higher-cost producers such as shale drillers in the
US.
Oil
is down about 6% this year as volatility in global markets adds
to concern over brimming US stockpiles & an expected increase in
Iranian exports after the removal of intl sanctions. Saudi
Arabia, the de facto leader of OPEC, has insisted that output cuts can
only happen with the cooperation of other producers. Yesterday, Russia talked down the prospect of working with OPEC to cut output as the country's energy minister met with heads of the nation's biggest
oil companies to discuss coordinating with the group. Pres Putin's spokesman said that while
consultations with other producing countries were regular, there wasn't
any “specific discussion on coordination of actions” on output.
Orders for business equipment fell in Dec by the most in 10
months, a sign US companies were slashing capital investment even
before the turmoil in global financial markets. Bookings for
non-military capital goods excluding aircraft plunged 4.3% last
month after a 1.1%t decrease in Nov that was previously
reported as down 0.3%, according to the Commerce Dept. Orders for all durable goods slumped 5.1%, the most since Aug 2014,
reflecting a broad-based pullback. Spending on equipment may stay
depressed as a further decline in oil prices prompts energy companies to
retrench. What's more, US exporters continue to struggle against
softer global demand and an appreciating $.
The
forecast estimated orders
for all durable goods would fall 0.7%. Bookings for non-defense
capital goods excluding aircraft, a proxy for business investment,
were projected to slip 0.2%. Shipments of non-military
capital goods excluding aircraft, used to calculate GDP, decreased 0.2% after falling 1.1% the month before. Equipment
spending cooled in Q4 after rising at a
9.9% annualized pace in Q3, the strongest since
the same period in 2014. Companies placed fewer orders for
communications gear, computers, machinery & transportation equipment.
The only increases were in primary metals & electrical equipment. Commercial
aircraft orders slumped 29.4% after falling 23.3% a month earlier. Excluding
transportation equipment, which often swings from month to month,
bookings decreased 1.2%. Orders
for military equipment dropped 34.4% last month, while demand
for non-defense goods decreased 2.9% after falling 2%. This
report indicates companies are making progress paring inventories after
stockpiles earlier this year outstripped demand. Durable goods
inventories increased 0.5%, the most since the end of 2014. The
plunge in crude oil prices has prompted producers to reduce investment. .
Applications for unemployment benefits in the US declined last week
from a 6-month high, indicating layoffs remain low following the
volatility typically associated with post-holiday staff adjustments. Jobless
claims fell 16K to 278K from
294K in the prior period, according to the Labor Dept. The forecast called for 281K. The number of those continuing to
receive benefits climbed. Claims near 4-decade lows are consistent with labor market improvement that the
Federal Reserve cited on yesterday. The 4-week moving average decreased to 283K last week, from 285K. The
number continuing to receive jobless benefits rose 49K
to 2.27K & the unemployment rate among
people eligible for benefits climbed to 1.7% from 1.6% the
prior period. Since
early Mar, claims have been below the 300K level that economists
say is typically consistent with an improving job market.
The talk about production cuts by OPEC are being treated as a lot of hot air. That's all it is. Even if there are cuts, they will take time to be felt in the oil market & Iran will be adding to production when given the green light. Meanwhile, sluggish growth around the world, especially in China, will weigh on demand. Dow is still looking up at 16K, hoping to rise above that level.
...1.58 
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