Wednesday, February 17, 2016

Markets rise led by higher oil prices

Dow went up 180, advancers over decliners more than 6-1 & NAZ gained 59.  The MLP index rose 5+ to the 234s & the REIT index added 3+ to the 301s.  Junk bond funds climbed higher & Treasuries retreated again.  Oil had a big jump to the 29s & gold inched higher.

AMJ (Alerian MLP Index tracking fund)

CLH16.NYM...Crude Oil Mar 16...30.14 Up ...1.10 (3.8%)

GCG16.CMX...Gold Feb 16......1,209.20 Up ...1.30 (0.1%)

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US manufacturing output rose in Jan by the most since Jul 2015, a sign the industry was starting to stabilize at the beginning of the year.  The 0.5% advance, which make up 75% of all production, followed a 0.2% decrease the prior month, according to the  Federal Reserve.  Total output, which also includes mines & utilities, jumped a larger-than-projected 0.9%.  Factory production was boosted by the biggest gain in the output of consumer goods since Jul on increases in both durables & nondurables.  The improvement indicates the worst of the drag from a stronger $, malaise in overseas markets & less spending in the energy sector may be starting to diminish.  For total industrial production, the survey called for a 0.4% rise & the prior month was revised to a 0.7% decrease from a previously reported 0.4% decrease.  The Jan increase was the biggest since Nov 2014.  Utility output surged 5.4%, the most since 2009, after a 2.9% drop the previous month.  Production rebounded as more seasonable weather revived demand for home heating following the warmest Dec on record.  Mining production, which includes oil drilling, was unchanged following 4 straight declines.  The report showed drilling dropped 5.9% last month.  Capacity utilization, which measures the amount of a plant that is in use, rose to 77.1% from 76.4% in the prior month.  Capacity at factories climbed to 76.1%, the first increase in 3 months.  Factory output of consumer goods climbed 1.6% after falling 4 consecutive months.  The output of motor vehicles & parts increased 2.8%.  Excluding autos & parts, manufacturing rose 0.3% after no change.

Manufacturing Production in U.S. Increases by Most Since July

New-home construction in the US unexpectedly cooled in Jan, indicating there is a limit to how much gains in residential real estate will boost growth.  Housing starts dropped 3.8% to a 1.1M annualized rate, the weakest in 3 months, from a 1.14M pace the prior month, according to the Commerce Dept.  The forecast was 1.17M.  Permits, a proxy for future construction, were little changed.

While all 4 regions of the US saw a decline in construction, a crippling East Coast winter storm probably deepened the setback at the end of the month.  A strengthening job market is projected to buoy housing demand this year, helping offset still-tight credit standards for some prospective buyers & turmoil in financial markets.   Permits declined 0.2% to a 1.2M annualized rate, indicating little scope for a rebound in construction this month.  The drop in starts last month was led by a 3.9% decrease in construction of single-family houses to a 731K rate.  Work on multifamily homes, such as condominiums & apartment buildings, fell 3.7% to an annual rate of 368K.  While Jan on the whole was warmer than usual across the country, a crippling winter storm in the Mid-Atlantic & Northeast probably curbed homebuilding later in the month. 

Housing Starts in U.S. Drop to Lowest Level in Three Months

US wholesale prices unexpectedly increased in Jan as higher food costs more than made up for the plunge in energy.  The 0.1% gain in the producer-price index followed a 0.2% decline in Dec, the Labor Dept reported.  Wholesale prices were down 0.2% from Jan 2015.  Inflation has been muted for much of the past few years, exacerbated recently by a continued drop in oil prices.  As that decline stabilizes & the labor market strengthens, Federal Reserve policy makers are betting that inflation will drift closer toward their goal.  The forecast called for a 0.2% month-over-month decrease in wholesale prices.  Food prices increased 1%, the biggest gain since May, after a 1.4% drop & energy expenses declined 5% after a 3.5% drop the month before.  Wholesale prices excluding these 2 components climbed 0.4% from the month before, compared with the 0.1% increase forecast.  It followed a 0.2% increase in Dec & those costs were up 0.6% from Jan 2015.  Also eliminating trade services to arrive at a reading some economists prefer because it excludes one of the most volatile components, wholesale costs rose 0.2% from a month earlier (the same as in Dec).

Wholesale Prices in U.S. Rise on Higher Food Costs

This has been a very good week for the stock market which is trying to put together 3 consecutive days of higher prices.  Optimism about limits on oil production is behind much of this enthusiasm.  Meanwhile economic data keeps coming in mixed.  The economies of China & Europe still need a lot of help for them to contribute to growth around the world.  After this rally, Dow is down more than 1K YTD.

Dow Jones Industrials


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