Friday, March 11, 2016

Higher markets on China loan data and rising oil prices

Dow shot up 196, advancers over decliners more than 5-1 & NAZ gained 62.  The MLP index jumped up 5+ to the 262s & the REIT index rose 3+ to 324.  Junk bond funds gained & Treasuries were sold, taking the yield on the 10 year Treasury to almost 2%..  Oil went up to the high 38s on a favorable report from IEA (see below) & gold retreated.

AMJ (Alerian MLP Index tracking fund)

CLJ16.NYM.....Crude Oil Apr 16...38.73 Up ...0.89 (2.4%)

GCH16.CMX...Gold Mar 16.....1,269.70 Down ...2.30  (0.2%)

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Global stocks & sovereign bonds unwound previous losses as traders warmed to ECB President Mario Draghi's policy measures.  Credit markets, the main beneficiaries of the program, extended yesterday's rally.  Oil led commodities to a 3-month high & supported emerging markets after China strengthened the yuan's fixing by the most in 4 months.

Markets were whipsawed in the wake of the ECB policy announcement, which included a reduction in borrowing costs & an expansion of the central bank's QE to corp bonds, before Draghi asserted that he didn't anticipate cutting interest rates further.  Central banks remain key to the health of the global economy, with measures by the People's Bank of China & separate meetings next week by the Fed, the Bank of Japan & Bank of England all closely watched.  Banks, energy & tech shares, which have paced the rebound in equities since mid-Feb, led gains in the S&P 500 .

Stocks Surge as Draghi's Plan Gets Second Look

Oil prices may have passed their lowest point as shrinking supplies outside OPEC & disruptions inside the group erode the global surplus, the International Energy Agency said.  Production outside OPRC will decline 750K barrels a day this year, or 150K barrels a day more than estimated last month.  Markets are also being supported by output losses in Iraq & Nigeria, and as Iran restores production more slowly than planned following the end of intl sanctions.

“There are signs that prices might have bottomed out,” the Paris-based adviser to 29 countries said in its monthly report.  “For prices there may be light at the end of what has been a long, dark tunnel” as market forces are “working their magic and higher-cost producers are cutting output.”  Oil prices have recovered 50% from the 12-year lows reached in Jan as US shale production retreats & as some OPEC members led by Saudi Arabia reached a tentative accord with Russia to maintain output at current levels. This "freeze" deal, while currently supporting prices, is unlikely to have a substantial impact on markets in H1-2016.  This view on prices is a shift from last month’s report, in which it said that crude could sink further as the market remained “awash in oil.”  The outlook for the balance of supply against demand in the first half is “essentially unchanged” from last month, IEA said.  World oil consumption will increase by 1.2M barrels a day, helping to reduce the global surplus from 1.7M barrels a day in H1 to 200K a day in H2.  Inventories in the developed world contracted last month for the first time in a year from the “comfortable” levels recorded in Jan, according to the report.

IEA Says Oil Price May Have Bottomed

China's broadest measure of new credit dropped sharply after a record surge a month earlier.  Aggregate financing was at 780B yuan ($120B) in Feb, according to the People's Bank of China, compared with the forecast of 1.84T yuan . New yuan loans were 726B yuan, compared to the estimate of 1.2T yuan.  Money supply increased 13.3% from a year earlier,, less than the 14% gain in the prior month & below the 13.7% projected.  The numbers may reflect some distortions arising from the week-long lunar new year holiday in early Feb.  China increased its full-year M2 money-supply target, signaling that supporting economic growth has taken over as the top priority over reducing financial risks.
In Jan, aggregate financing soared to a record 3.4T yuan, while new yuan loans also hit an unprecedented level of 2.5T yuan.  The strong figures were helped by banks front loading their 2016 lending targets, strong corp bond issuance, & companies switching foreign currency loans into yuan ones.

China’s February New Credit Plunged From Prior Month Record

Everything is coming out favorable today & stocks are being bid higher.  But the oil report did not deal with the vast amounts of oil, waiting to be sold.  The bulls are back in charge of the stock market, taking the Dow well over 17K.

Dow Jones Industrials


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