Thursday, January 21, 2016

Rising markets led by slightly higher oil prices

Dow bounced back 93, advancers over decliners  2-1 & NAZ went up 29.  The MLP index recovered 1+ to the 214s (but down a massive 340 from the record highs in 2014) & the REIT index was off fractionally to the 298s.  Junk bond funds slid lower & Treasuries rose.  Oil rebounded (if you can call it that) slightly in the 26s & gold fell below 1100.

AMJ (Alerian MLP Index tracking fund)

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The number of applications for unemployment benefits unexpectedly increased last week to a 6-month high, indicating tempered progress in the labor market.  Initial jobless claims climbed 10K to 293K, according to the Labor Dept.  Last week coincided with the period that the gov surveys businesses & households to calculate payrolls and the jobless rate for Jan.  Plunging oil prices may encourage further cuts in the energy sector at the same time manufacturers reconsider headcounts as the global economy slows.  Even so, a sustained rise in jobless claims would be needed to confirm that layoffs are on the rise & suggest a general weakening in the labor market.  Applications last week were the most since Jul 4.  The forecast in a called for claims of 278K.  The 4-week moving average increased to 285K, the highest since mid-Apr, from 278K.  That compares with an average of 270K during the comparable employment survey period for Dec.

Even with the unexpected increase, claims have held below 300K since early Mar, a level that is typically consistent with an improving job market.  The number continuing to receive jobless benefits fell 56K, the most since early Jul, to 2.21M.  The unemployment rate among people eligible for benefits dropped to 1.6% from 1.7%.

Jobless Claims in U.S. Increased Last Week to a Six-Month High

China's central bank cranked up cash injections in its money-market operations for the 3rd week in a row, heading off a squeeze as a seasonal jump in demand for funds coincides with surging capital outflows.  The People's Bank of China added 400B yuan ($61B) to the financial system using reverse-repurchase agreements, the most in 3 years, bringing net injections via its various lending tools for the month to more than 1T yuan.  The Chinese New Year holiday, a period when families get together for celebrations & exchange gifts, will shut banks for the week starting Feb 8.  China is trying to hold borrowing costs down to support its economy without spurring a capital exodus that drove the yuan to a 5-year low this month.  GDP rose last year at the slowest pace in a qtr century & intervention to prop up the exchange rate led to a record $513B drop in the nation’s foreign-exchange reserves.  The PBOC conducted 110B yuan of 7-day reverse-repos & 290B yuan of 28-day contracts, more than the 160B yuan that matured.  It also injected 762.5B yuan into the banking system via 3-, 6- & 12-month loans, while Short-Term Liquidity Operations were used to add 55B yuan of 3-day loans on Mon & a further 150B yuan of 6-day funds on Wed.  In addition, the monetary authority auctioned 80B yuan of 9-month treasury deposits to ensure liquidity supply.  An estimated $843B of capital flowed out of China in the 11 months thru Nov & policy makers are having to add funds to the financial system to prevent interest rates rising as money exits.

PBOC Injects Most Cash in Three Years in Open-Market Operations

Mario Draghi said the ECB may bolster stimulus in Mar as threats to the euro-area recovery mount.  The single currency slid.  “Downside risks have increased again amid heightened uncertainties about emerging-market growth prospects,” he said after officials kept interest rates unchanged at record lows.  “The credibility of the ECB would be harmed if we weren’t ready to revise the monetary-policy stance.”  The ECB risks seeing its inflation-boosting package of negative interest rates & at least €1.5T ($1.6T) in bond purchases thwarted by a Chinese economic slowdown that threatens to cool global growth.  Emphasizing the central bank's commitment to its ultra-loose policy settings, Draghi began his statement by reverting to forward-guidance language & declaring that interest rates will “remain at present or lower levels for an extended period of time.”  The ECB kept its deposit rate at minus 0.3% & the main refinancing rate at 0.05%.  A chief concern for policy makers is that slumping oil & intl financial-market turmoil is weighing on consumer prices.

Brent crude has dropped almost 40% since the ECB Dec 3 meeting, when policy makers cut the deposit rate & extended their bond-buying program until at least Mar 2017.  Euro-area inflation was 0.2% last month, still far below the central bank goal of just under 2.  Inflation expectations as measured by 5 year, 5 year forwards are slumping.

Draghi Says ECB May Boost Stimulus in March on Global Risks

There was buying in the PM yesterday in a VASTLY oversold market.  At its lows, Dow was down an ENORMOUS 2K in Jan.  Even beaten up high yield securities found buyers.  All considered, today's rise in stocks is mostly bargain hunting in an extremely oversold stock market.  Market breadth is meager & it is becoming more certain that Jan will be a down month for the stock market.  China pumping mopney into the economy may have negative consequences later in 2016.  US GDP estimates for Q1 are being revised lower & 2016 has the makings of glum year.

Dow Jones Industrials


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