Tuesday, March 8, 2016

Lower markets with oil leading the selloff

Dow dropped 109 (finishing not far from the lows), decliners over advancers almost 3-1 & NAZ tumbled 59.  The MLP index plunged 16+ to the 256s & the REIT index was off 3+ to 320.  Junk bond funds inched higher & Treasuries rose.  Oil gave up some of its recent gains, dropping to the 36s, while gold hardly budged.

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CLJ16.NYM....Crude Oil Apr 16....36.78 Down ...1.12  (3.0%)

Live 24 hours gold chart [Kitco Inc.]

Citigroup revenue from trading in equity & fixed-income markets will drop 15% in Q1 from a year earlier, according to CFO John Gerspach.  In fixed income, spread products continue to be pressured, while interest rates & currencies are hampered by a tough comparison to last year.  Investment-banking revenue will tumble 25%, he added.  Citigroup, along with the competition, is warning about a tough Q1 as low interest rates, plunging commodity prices & volatile stock markets drive customers to the sidelines.  Citi will set aside $400M to cover restructuring costs as the firm continues to adjust its infrastructure & capacity to the sluggish revenue environment.  The bank planned to begin job cuts earlier this year that would affect at least 2K employees.  The cost of credit for the corp bank will be about $350M in Q1, with most of that tied to energy.  Reserves on funded loans to the sector will be about 4.5%, with the level for junk-rated firms amounting to more than 10%.  Citi stock dropped 1.56.  If you would like to learn more about Citi, click on this link:

Citigroup Says Markets Revenue to Drop 15% in First Quarter

Citigroup (C)

Chevron, a Dow stock & Dividend Aristocrat, will slash its capital budget by at least 17% for the next 2 years to save cash as crude prices sit near 10-year lows.  The outlook from one of the largest oil companies highlights the unease permeating the energy industry as execs try to contend with what many are forecasting to be crude prices below $50 per barrel thru at least the end of the decade.  CVX plans to spend $17B & $22B annually in 2017 & 2018.  For 2016, the company has already announced it would spend $26.6B.  "Industry conditions are tough right now, with low oil and natural gas prices," CEO John Watson said.  "We believe markets will improve, and we'll be well positioned when they do."  Part of the spending reduction will come as construction projects are finished around the world, including major liquefied natural gas (LNG) projects in Australia & Angola, as well as oil projects in the Gulf of Mexico.  Yesterday, the company said it had started producing LNG at its Gorgon facility in western Australia & would begin shipping next week, a major milestone for a long-delayed & overbudget project.  Execs reiterated the company's commitment to pay its $1.07 quarterly div, adding they plan to limit debt increases beyond this year.  CVX had already slashed its budget for this year by more than 24%, but the move on today signaled more cuts would be needed, especially to protect the div, which has been called the top priority.  CVX is paying its div partially with debt.  While execs had outlined a plan last fall to cover the div with cash flow by next year, that plan requires oil prices at $50 per barrel.  The stock dropped 1.93.  If you would like to learn more about CVX, click on this link:

Chevron to Slash Budget Over Two Years to Save Cash

Chevron (CVX)

The US Energy Information Administration released its 2016 & 2017 estimates for US crude-oil production & forecasts for West Texas Intermediate crude prices.  It forecasts average US crude output of 8.67M barrels a day for 2016, down from a prior estimate of 8.69M.  For 2017, it sees output of 8.19M barrels a day, down from a previous forecast of 8.46M.  WTI prices are seen at $34.04 a barrel this year, down from a prior estimate of $37.59 & for 2017, it expects to see $40.09 a barrel, down from a prior forecast of $50.

EIA Lowers U.S. Oil Output, Price Estimates For 2016, 2017

The stock market has had one spectacular run, taking the Dow up about 1K in a month.  That is a rare event.  Oil is the leading driver for the stock market & today its bulls took some of their gains.  Fundamental problems with the oversupply of oil will be around for some time, as pointed out in today's news.  Dow made an attempt to rally at midday, but sellers returned in the PM, taking it below 17K.  Maybe this is just a hiccup along the way, but it has the makings of the start of a longer term trend.  There will be more bleeding from the troubled energy sector to the rest of the economy.

Dow Jones Industrials


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