Thursday, January 14, 2016

Markets finally rise, led by higher oil prices

Dow shot up 208, advancers over decliners a meager 3-2 & NAZ added 49.  The MLP index recovered 2+ to the 242s (remaining at depressed levels) & the REIT index lost 2+ to the 307s.  Junk bond funds slid lower & Treasuries were sold as stocks rallied.  Oil went up, but still under 31, & gold was up a tad.

AMJ (Alerian MLP Index tracking fund)

CLG16.NYM...Crude Oil Feb 16...33.36 Down ...0.61  (1.8%)

GCF16.CMX...Gold Jan 16......1,085.70 Down ...1.80  (0.2%)

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Federal Reserve Bank of St. Louis pres James Bullard, one of the most vocal policy makers in recent months arguing to raise interest rates, sounded a more cautious note today by saying the latest decline in oil prices may delay the return of inflation to the central bank's 2% target.  “With renewed declines in crude oil prices in recent weeks, the associated decline in market-based inflation expectations measures is becoming worrisome,” Bullard said.  While central bankers typically “look through” oil price changes, “one circumstance where one may be more concerned is when inflation expectations themselves begin to change due to the changes in crude oil prices,” he said.  Bullard added the “very substantial” drop in oil prices has contributed to low inflation, & further declines may delay the return of inflation to target.  Under a scenario in which prices fall thru Jun, a return to 2% wouldn’t occur until mid-2017, he added.  “Headline inflation will return to target once oil prices stabilize, but recent further declines in global oil prices are calling into question when such a stabilization may occur,” he continued.  Bullard described falling oil prices as a net positive for the US.  “Automobile sales, for instance, have been strong,” he said.  “More generally, real personal consumption expenditures growth accelerated during the period of the large drop in oil prices from mid-2014 to mid-2015. This could be viewed as mild evidence that the oil price decline is a bullish factor for the U.S.”

Fed's Bullard Says Oil's Fall May Delay Inflation Return to 2%

The number of applications for unemployment benefits unexpectedly increased last week, a sign labor market momentum may be starting to cool.  Initial jobless claims rose 7K to 284K, the 2nd-highest level since Jul, according to the Labor Dept.  The forecast called for a decline to 275K.  Concerns that a slowdown in China & other emerging economies will limit prospects for US growth have roiled equity markets & may make some employers more cautious about their staffing levels.  A sustained pickup in the pace of dismissals that takes claims well above 300K will probably be needed to confirm demand for workers is waning.

The 4-week moving average of claims increased to 278K from 275K, the highest since Jul.  The number continuing to receive jobless benefits rose 29K to 2.26M & the unemployment rate among people eligible for benefits increased to 1.7% from 1.6%.

Initial Jobless Claims in U.S. Unexpectedly Increased Last Week

Asian stocks resumed their 2016 rout, with the regional benchmark index falling for the 8th time in 9 days, as Japanese shares tumbled following a renewed selloff in US equities.  The MSCI Asia Pacific Index sank 1.7% to 120 in Tokyo, as all 10 industry groups retreated.  The gauge trimmed a retreat of as much as 2.6% in PM trading as the Shanghai Composite Index reversed losses.
The MSCI Asia Pacific Index jumped 1.7% on Wed, its steepest gain in almost a month.  South Korea's Kospi index lost 0.9%. Australia's S&P/ASX 200 Index sank 1.6%, taking its decline from an Apr peak to 18%.  New Zealand’s S&P/NZX 50 Index dropped 0.7%.  Taiwan’s Taiex slipped 1%, while Singapore's Straits Times Index sank 1.9%% & Hong Kong’s Hang Seng Index retreated 0.6%.  The Shanghai Composite Index climbed 2%, reversing a loss of as much as 2.8% & sending a gauge of volatility to the highest levels since Sep.  Stocks rebounded as 28 companies listed on ChiNext small-caps index vowed to take action to stabilize the market & the China Securities Regulatory Commission assured investors that the forthcoming registration system for IPO won't lead to an oversupply of new shares.  The Shanghai gauge has slumped 15% in 2016, making it one of the world's worst-performing equity indices, amid concern about the outlook for the economy & uncertainty over the central bank’s exchange-rate policy.

Asian Stocks Resume 2016 Slump as Japanese Shares Lead Declines

While the rally may look encouraging to some, there is little to cheer about.  Market breadth is only modest & the slight recovery in oil prices means little.  The stock market remains depressed, with the high yield sector seeing a lot of selling.  Dow is still down 1K in Jan, with a gloomy outlook as earnings season begins.

Dow Jones Industrials



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