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.

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CLJ16.NYM....Crude Oil Apr 16...33.78 Up ...0.03 (0.1%)

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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.

Ford, Fiat Chrysler Crush Estimates for U.S. Sales in February

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.

Manufacturing in U.S. Steadies in February as New Orders Expand

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.”

Fed's Dudley 'Somewhat Less Confident' on Inflation Outlook

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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