Markets soar as oil recovers to the 32s

Dow surged 243, advancers over decliners 14-1 & NAZ was up a very big 104.  The MLP index soared 15+ to the 239s & the REIT index jumped up 6+ to the 307s.  Junk bond funds rebounded & Treasuries were sold as stocks rallied.  Oil rocketed ahead to the 32s (see below) & gold slid back, taking it below 1100.

AMJ (Alerian MLP Index tracking fund)

CLH16.NYM

...Crude Oil Mar 16

...31.10

....1.57

(5.3%)

GCF16.CMX

...Gold Jan 16

.......1,103.00

...3.90

(0.4%)

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Oil rallied in its biggest 2-day advance since Aug after a slump to a 12-year low prompted some investors to buy back record bearish bets.  Front-month futures have jumped more than 17% after sliding to the lowest since 2003 on Wed.  Speculators earlier this month amassed the biggest ever short position in US crude amid concern that turmoil in China markets would curb fuel demand at a time when fresh exports from Iran exacerbate a global glut.  Some consider this as the “trade of the year,” if it can weather the surge in the Middle East producer shipments

Oil is still down about 15% this year as turbulence in global markets adds to concern over brimming US stockpiles & the prospect of additional Iranian barrels. Markets could “drown in oversupply,” sending prices even lower, according to the International Energy Agency.

Oil Rises in Biggest Rally Since August

Global investors yanked the 2nd-highest weekly amount from high-yield bond funds in the past year, as a commodities selloff leaves some companies struggling to repay debts.  About $4.9B was pulled from speculative-grade debt funds in the week ended Jan 20.  A further $1B was taken out of investment-grade bond funds.  By contrast, $5.1B was put into gov-bond funds, the most in almost 12 months.  Investors are shunning risky assets as a slowdown in China helps push raw-materials prices to near 25-year lows.  Moody’s has put credit ratings on review for dozens of energy & mining companies after cutting its 2016 crude-price forecast & seeing a “fundamental shift” in markets that will strain miners’ cash flows.  Crude's decline has particularly affected the US junk-bond market, as energy companies make up 10% of issuance.  The average yield on corp junk bonds worldwide reached 9.4% on Wed, the highest since 2011.  The notes have lost 3.3% this year, on a total-return basis, following a 2.1% loss in 2015.  Global investors withdrew $5.3B from speculative-grade bond funds in the week ended Dec 16.

Investors Pull $4.9 Billion From Corporate Junk-Bond Funds

German manufacturers & service providers shrugged off uncertainty stemming from turbulence in financial markets as new orders increased, Markit Economics said.  While a Purchasing Managers Index for both industries fell to 54.5 in Jan from 55.5 in Dec, the weakest in 3 months, it still signaled “robust” growth.  A reading above 50 indicates expansion.  “Germany’s private sector economy was largely unaffected by the recent stock-market turmoil,” said Markit.  “Companies should remain in expansion mode in coming months. New orders continued to rise strongly and employment was raised at a healthy rate as capacity pressures continued to build.”  Slumping oil & intl financial-market turmoil sparked by weaker growth in China are threatening to weigh on the economy in Germany & the euro area.  Yesterday, the ECB held out the prospect of more stimulus as early as Mar to stoke inflation.  While German input prices fell for the first time in almost a year, companies were still able to slightly raise charges, Markit said.  New orders rose for a 13th month & the country's labor market continued to strengthen.  A composite PMI for France climbed to 50.5 in Jan from 50.1.  A measure for the euro area probably fell to 54.1 from 54.3.

German Economy Largely Unfazed by Market Volatility, Markit Says

Today's advance in the stock market was big enough to bring the Dow back above 16K.  But it's still down 1.3K in Jan, making for one ugly month.  These are volatile times & investors should prepare themselves for more wild swings.  In a vastly oversold market, violent recoveries can be expected & short term influences, such as short covering, can add to volatility.  It will be interesting if the gains hold in the PM, going into the weekend or will short term traders cash in their profits in the PM.

Dow Jones Industrials