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Tuesday, March 1, 2016
Markets advance on auto sales data
Dow surged 179, advancers over decliners 3-1 & NAZ jumped up 69. The MLP index slid back fractionally to the 249s & the REIT index shot up 5 to the 315s. Junk bond funds climbed little higher & Treasuries were sold while stocks rallied. Oil was flattish after recent strength & gold declined.
Ford (F) light vehicle sales soared 20% in Feb,
while Fiat Chrysler (FCAU) deliveries climbed 12%. Both
far exceeded estimates thanks to promotions tied to the Presidents Day holiday & continued strong demand for sport utility vehicles & pickups.
Nissan also beat estimates, but General Motors (GM) missed. Ford,
projected to report a 13%, topped that in
all 3 categories: cars, SUVs & pickups. FCAU, projected
to report a 9.2% increase, extended its US sales-gain streak to
71 months. Jeep deliveries advanced 23% from a year earlier to
68K, led by the Cherokee & Grand Cherokee. The SUV brand reported
its best Feb ever, as did Ram pickups, sales chief
Reid Bigland said.
Automakers & dealerships layered on discounts during the long holiday weekend to
catch buyers who might have put off purchases when a Jan storm
dumped 2 feet of snow in eastern US. Nissan
also beat estimates with an 11%. However GM sales fell 1.5% to 227K vehicles, missing the
estimate for a 5.2% gain. GM cut back sales of
low-priced cars to rental agencies by 16K vehicles (39%),
while retail sales rose 7%. If GM had matched rental fleet sales
from this time last year, its total sales would have been up 7%,
said Kurt McNeil, VP of US sales. “We’re still
very bullish on the market,” he added. “Jobs data is
strong, fuel prices are at historic lows and interest rates are low. We
think it could potentially be a record year.” Ford's surge was
especially strong among sport utility vehicles The
estimate for last month's annualized selling rate, adjusted for
seasonal trends, was 17.6M vehicles, an increase
of 1.2M from the pace a year earlier & would mark the best
Feb since 2000. FCAU projected a 17.9M rate,
including medium & heavy-duty trucks, which typically account for at
least 200K. GM said the light-vehicle rate was probably 17.7M.
Factory activity in Feb shrank less than forecast as gains in
new orders & production provided signs that the beleaguered industry
could soon stabilize. The Institute for Supply Management index
climbed to 49.5, the highest since Sep, from 48.2 in Jan. While the
reading was just shy of 50, the dividing line between contraction &
expansion, last month's improvement corroborates other industry reports
that suggest the manufacturing slump may be easing. Factories have
been plagued by a steady stream of headwinds since mid-2014, including
soft overseas markets, a strengthening dollar, weakness in the
capital-intensive oil industry & a buildup in inventories that reduced
the need for additional production. As those hurdles start to fade,
factories should also find a source of strength in domestic demand,
which is being boosted by consumers with solid job gains & a nascent
pickup in wage growth.
The forecast called for 48.5. The
new orders gauge was 51.5, matching the Jan reading (the highest since Aug). The production measure climbed to 52.8, a 6-month high, from 50.2. The employment index increased to 48.5
from 45.9, indicating factories trimmed staff at a slower pace. Shipments abroad continued to be pressured as the stronger $ & soft global demand combine to make it harder for foreign
markets to purchase US goods. Export orders measure decreased to
46.5, the lowest in 5 months, from 47 in Jan. Exports have
contracted in eight of the past 9 months. The gauge of factory
inventories improved to 45, meaning stocks were being cut at
a slower pace, from 43.5, while customer stockpiles declined to 47 from
51.5. This was the first reading lower than 50, meaning factory
managers no longer believe their customers have too many goods on hand,
since Jul. The report also showed that while prices continue to
fall, the pace of decline is starting to moderate. The prices-paid index
improved to 38.5 from 33.5. The measure has been contracting since
Nov 2014. The ISM report adds to evidence that the pressure
on manufacturing may be easing somewhat.
Federal Reserve Bank of NY pres William C. Dudley said
that while he still expects inflation to reach the central bank's 2% target over time, he's lost some confidence in that prediction
following recent turbulence in financial markets. “On balance, I am somewhat less confident than I was before,” Dudley said. “Partly,
this reflects my assessment that uncertainty to the outlook has
increased and that downside risks have crept up.”
The
vice chair of the policy-setting FOMC was
speaking at a rare joint conference with the People's Bank of China. At
the same venue, PBOC Deputy Governor Chen Yulu warned that a
strengthening $ could fuel a crisis in emerging markets, & said
the central banks of the world's top 2 economies should work more
closely to counter a trend of weakening global economic-policy
coordination. Dudley said that “tighter
financial conditions abroad do spill back into the U.S. economy, and
policy makers must take this into account in their assessment of
appropriate monetary policy." At the same time, market volatility won't
dictate policy decisions. He has so far marked down his forecast for US
economic growth this year “very modestly,” & still believes it will
average around 2%, enough to continue reducing labor-market slack & stoke inflation. Although
Dudley said his “overall outlook has not changed substantially,”
downside risks have increased, & could trigger revisions to the
outlook if they continue. He flagged declines in market-based measures
of inflation expectations as well as those derived from consumer surveys
as “concerning,” & added that internal Fed models assigned greater
odds to the economy disappointing policy makers' projections than
exceeding them. “At this moment, I judge
that the balance of risks to my growth and inflation outlooks may be
starting to tilt slightly to the downside,” Dudley said. “The recent
tightening of financial market conditions could have a greater negative
impact on the U.S. economy should this tightening prove persistent.”
The first economic reports were favorable. Auto sales are doing well, but it's difficult to see them rising far above present levels which are already near record levels. Oil trading is quit today, but that will continue to cause major swings in the stock market & high volatility will continue for some time. Dow is still down more than 700 YTD.
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