Monday, February 29, 2016

Markets slide lower despite gains in oil

Dow dropped 123 (at the lows), advancers over decliners 5-4 & NAZ lost 32.  The MLP index climbed 3+ to a little over 250 & the REIT index lost a fraction, going below 311.  Junk bond funds advanced & Treasuries rallied.  Oil went up again, heading for 34 (see below), & gold had a good gain.

AMJ (Alerian MLP Index tracking fund)

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CLJ16.NYM....Crude Oil Apr 16....33.51 Up ...0.73 (2.2%)

Live 24 hours gold chart [Kitco Inc.]

Contracts to purchase previously owned homes unexpectedly dropped in Jan by the most in 2 years, representing a setback in residential real estate leading up to the spring selling season.  The pending home sales index fell 2.5%, the biggest drop since Dec 2013, after a 0.9% increase a month earlier that was larger than initially reported, according to the National Association of Realtors.  The projection called for the index to rise 0.5%.  Still-tight credit conditions for some Americans, dwindling home choices & higher property prices could be limiting enthusiasm among prospective buyers.  At the same time, persistent job gains, historically low mortgage rates & nascent signs of stronger wage growth should help keep housing from faltering.  “While January’s blizzard possibly caused some of the pullback in the Northeast, the recent acceleration in home prices and minimal inventory throughout the country appears to be the primary obstacle holding back would-be buyers,” the NAR said.  “Additionally, some buyers could be waiting for a hike in listings come springtime.”  The Realtors group revised Dec data from an initially reported 0.1% increase.  Purchase contracts dropped 0.9% in the 12 months ending in Jan after a 3.1% annual advance in Dec, the NAR report showed.  The pending sales index was 106 on a seasonally adjusted basis, the lowest in a year.  Pending sales are a leading indicator because they track new purchase contracts.  Existing-home sales are tabulated when a deal closes, usually a month or 2 later.  Those re-sales, which make up about 90% of the market, unexpectedly climbed in Jan to the 2nd-highest pace since early 2007, NAR reported last week.  Prices climbed from Jan 2015 as the number of dwellings on the market fell.

Pending Sales of U.S. Existing Homes Fall by Most in Two Years

Intense competition among the world's top sports apparel companies is great news for Foot Locker, which beat Q4 earnings expectations even as other traditional retailers in the marketplace floundered.  Adjusted EPS grew 16% to $1.16, better than the $1.12 that had predicted.  Revenue grew 5% to $2.007B, up from $1.91B for the same period a year ago.  Full year sales grew 3.6% to $7.4, a record high for FL.  The sports apparel space is in the midst of a renaissance.  The rise of formal athletic apparel, known as the “athleisure” trend, is increasing demand for basketball & running shoes.  FL has worked closely with its suppliers to stock stores with the apparel that is currently resonating with consumers.  As new brands are churned out new, innovative products in an effort to carve out market share in the US & beyond, FL is poised to reap the benefits.  The stock fell 1.64.  If you would like to learn more about FL, click on this link:

Foot Locker Enjoys Sports Apparel War Spoils

Foot Locker (FL)

Oil prices jumped today after China moved to boost its slowing economy & Saudi Arabia pledged to work with other crude producers to limit market volatility, developments that fed hopes the oil selloff would end.  A survey indicated that OPEC pumped less crude this month than in Jan, boosting market sentiment.  Oil prices remain down about 70% from their mid-2014 highs above $100 a barrel, though a steady rebound over the past 2 weeks has had some traders & investors wondering whether the market has reached a near-term floor.  Even so, the survey showed crude is expected to average at just over $40 a barrel this year.  China, the world's largest oil importer, cut its reserve requirement ratio, the amount of cash banks must hold as reserves, for a 5th time in a year.  Saudi Arabia, which is working with OPEC members Venezuela & Qatar & non-OPEC producer Russia on a plan to freeze oil output at Jan highs, said it wanted stability in crude prices.  But banks say that without an outright cut in output, a production freeze will not boost prices much.  Iran has been a stumbling block to the plan, with its target to raise output to reach pre-sanction export levels.  Iran said today its exports rose over the past month, reaching a 1.75M bpd peak.  The survey on OPEC output indicated its production fell 280K barrels per day (bpd) from Jan.  However production was still about 31M bpd.

Oil up on Saudi Support, China; Poll Shows Less OPEC Output


Dow finished the month up a meager 50, hardly a significant rebound.  Oil & the goings on in China are 2 of the major drivers & they are far less than encouraging.  While off its lows, oil has significant challenges as oil producing countries are struggling to look for ways to limit production.  The Chinese economy is getting stimulus help from the PBOC which is not doing very much good.  The US economy is not turning out impressive numbers & GDP growth in Q1 looks like it will be mediocre.  Dow is down more than 900 YTD.

Dow Jones Industrials


Martkets fluctuate as oil conitinues to rise

Dow lost 26, advancers over decliners 4-3 & NAZ slid back a fraction.  The MLP index was fractionally higher to the 247s & the REIT index gained a fraction to the 311s.  Junk bond funds were mixed & Treasuries rose.  Oil went up to the 33s (see below) & gold was also in demand.

AMJ (Alerian MLP Index tracking fund)

CLJ16.NYM.....Crude Oil Apr 16...33.10 Up ...0.32 (1.0%)

GCH16.CMX...Gold Mar 16.....1,228.00 Up ....8.20 (0.7%)

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Chinese stocks fell, with the benchmark index approaching the lowest level since Nov 2014, as some investors were disappointed by a lack of specific measures to boost growth during the G-20 meetings in Shanghai.  The Shanghai Composite Index dropped 4.6% & has declined 24% this year, the worst performer among 93 global equity indexes, on concern capital outflows will accelerate & earnings deteriorate as the economic slowdown deepens.

The Shanghai Composite declined 2.9% to 2687.  The equity gauge fell 1.8% in Feb, extending the 23% plunge in Jan.  After the Mon close, China’s central bank cut lenders reserve-requirement ratios by 0.5 percentage points.  Increased volatility in stocks threatens to undo efforts to project an image of stability in the financial markets after months of turbulence reverberated across the world.  China is due to report its first gauge of economic strength for Feb tomorrow with the release of the Purchasers Manufacturing Index.  The measure probably remained unchanged at 49.4 from a month earlier.  Property prices in the richest cities are surging at the same time as margin traders unwind bullish bets on equities.

China Stocks Tumble Toward 15-Month Low as Stimulus Bets Unwind

The Institute for Supply Management-Chicago gauge of factory activity in the Midwest region fell to 47.6 in Feb from 55.6 the month prior.  The forecast was for  a smaller decline to a reading of 53.0.  Readings above 50 point to expansion, while those below indicate contraction.

Midwest Manufacturing Back in Contraction

Brent crude edged higher, adding to strong gains last week, on rising hopes that the market has bottomed out & as Saudi Arabia said it would work with other producers to limit oil market volatility.  Since Feb 11, the last time Brent was below $30, the crude benchmark has risen by 17%, though prices are still a fraction of the $115 of 20 months ago.  "The kingdom (of Saudi Arabia) seeks to achieve stability in the oil markets and will always remain in contact with all main producers in an attempt to limit volatility and it welcomes any cooperative action," the Saudi cabinet said.  Saudi Arabia & several fellow OPEC members agreed with non-OPEC Russia this month to freeze output at Jan levels in an attempt to prop up prices.  Russian pres Putin called a meeting with top managers of his country's leading oil producers tomorrow.  However, Iran remains the main obstacle to a global output freeze because it is determined to ramp up supply after the country emerges from intl sanctions in Jan.  On Mon Iran said it had increased exports steeply over the past month.  Exports climbed as high as 1.75M barrels per day, adding to an already oversupplied market.  US producers cut the number of rigs drilling for oil for a 10th week running, taking the rig count to its lowest since Dec 2009.

Oil Higher as Saudis Advocate Cooperation to Stabilize Market

Ahead of Feb data, which is coming out this week, stocks are not doing a lot.  Oil is strong on hopes for favorable word about limiting oil production.  That remains far away given different agendas from different producing countries.  US economic data keeps coming in uneven.

Dow Jones Industrials