Wednesday, January 13, 2016

Markets fluctuate after Chinese stock market declines to 5 month low

Dow slid back 7, decliners just ahead of advancers & NAZ lost 12.  The MLP index rose 1+ to the 255s & the REIT index was fractionally higher in the 314s.  Junk bond funds pulled back & Treasuries retreated.  Oil rebounded, off the 30 low yesterday, (see below) & gold was flattish.

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CLG16.NYM...Crude Oil Feb 16...31.27 Up ...0.83 (2.7%)

GCF16.CMX...Gold Jan 16.......1,086.00 Up ...0.40 (0.0%)

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Federal Reserve Bank of Boston pres Eric Rosengren said estimates for US economic growth are falling, putting the central bank's projected path for rate increases at risk.  While the projection last month provides a “reasonable estimate” for the likely path of the policy rate in 2016, that forecast faces “downside risks,” Rosengren said.  “I will remain highly attentive to foreign economic conditions, any weakening of the domestic economic situation, and the path of U.S. inflation.”  The FOMC raised the benchmark interest rate by a qtr percentage point, a move Rosengren supported, based largely on progress made returning millions of Americans to work after the 2009 recession.  The projection of FOMC members called for 4 additional qtr-point increases in 2016.  Rosengren is considered among FOMC members most supportive of loose monetary policies.  “Policy makers should take seriously the potential downside risks to their economic forecasts and manage those risks as we think about the appropriate path for monetary policy,” he said.  “These downside risks reflect continued headwinds from weakness within countries that represent many of our major trading partners, and only limited data to support the projected path of inflation,” he added.   “Further tightening will require data continuing to be strong enough that growth will be at or above potential, so that Federal Reserve policy makers can be confident that inflation will reach our 2 percent target,” Rosengren said.

Fed's Rosengren Says Growth, Inflation Risks Threaten Rate Path

Oil prices rose for the first time in 8 sessions as an unexpected draw in weekly US crude oil inventories & positive Chinese trade data gave investors reasons to buy crude futures.  US crude stocks fell unexpectedly last week, data from industry group the American Petroleum Institute.  Crude inventories fell 3.9M barrels in the week to 480M, compared with expectations for an increase of 2.5M barrels.  Crude stocks at the Cushing, Oklahoma delivery hub fell by 302K.  China reported exports dipped just 1.4% in US $ terms in Dec, compared to forecasts of an 8% drop, positively surprising world markets.  The world's 2nd-biggest oil consumer has also been taking advantage of the oil price rout to stock reserves & increase exports of refined products, & may be set to overtake the US as the world's largest importer.  But the bearish outlook for oil remains.  The potential for the calling of an emergency OPEC meeting also weakened on today when Iran's oil minister was quoted as saying he had not received any request for such a gathering.

Oil Rises for First Time in Eight Days

Chinese stocks dropped to the lowest levels since the depths of last year's rout in a late-day selloff as an unexpected rebound in exports & gov efforts to stabilize the yuan failed to ease investor concerns about the economy.  The Shanghai Composite Index slid 2.4% to 2949, the the lowest level since Aug 26.  PetroChina, long suspected to be a target of state-backed fund buying because of its large weighting in the gauge, tumbled by the most in 14 months.  All 10 industry groups in the CSI 300 Index declined.  The Shanghai gauge fell below the 3K level for the first time since the peak of the selloff in Aug, when $5T was wiped out during a selling frenzy triggered by concern about the record use of leverage to buy stocks.  After rebounding in Q4 as the gov took measures to prop up equities, shares have resumed declines. The index has tumbled 17%, almost 3 times the pace of the MSCI All-Country World Index.  While exports improved, other facets of the economy remain in the doldrums. Data over the weekend showed producer prices extending declines to a record 46 months.  The official purchasing managers index signaled weakness for a 5th straight month in Dec, keeping the manufacturing gauge near a 3-year low.  Overseas shipments climbed 2.3% in yuan terms from a year earlier, compared with a 3.7% drop in Nov.  Imports extended a stretch of declines to 14 months, falling 4% in yuan terms, compared with a 5.6% drop a month earlier.
The yuan traded in Hong Kong headed for the biggest 5-day gain on record as China's central bank steadied the currency’s fixing & intensified efforts to curb outflows.

Dow futures were up nicely but that enthusiasm did not last.  Considering its devastating bear market, higher oil prices today mean little.  More selling lies ahead, part of the reason  the Dow could not hold onto early gains.  An unsettled stock market in China is not helping matters.  Earnings season is about too begin & prospects are not encouraging.  Dow remains on defense, down almost 1K in Jan.

Dow Jones Industrials

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