Thursday, March 31, 2016

Markets finish the quarter with minimal fluctuations

Dow fell 31, advancers over decliners 3-2 & NAZ was up fractionally.  The MLP index jumped up 8+ to go 271 & the REIT index went up 2+ to 241.  Junk bond funds traded higher & Treasuries advanced.  Oil was about even & gold finished the qtr with a modest gain.

AMJ (Alerian MLP Index tracking fund)

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CL.NYM....Crude Oil May 16....38.44 Up ...0.12 (0.3%)

Live 24 hours gold chart [Kitco Inc.]

In the 3 months since the U.S. lifted its 40-year ban on crude oil exports, a curious thing has happened.  Rather than flooding global markets, US crude shipments to foreign buyers have stalled.  At the same time, imports into the US jumped to a 3-year high in what looks to be a reversal of a years long decline in the amount of foreign crude brought into the American market.  US producers, who reaped the benefits of the shale revolution, no longer enjoy a steep price advantage over foreign rivals in selling to domestic refiners.  Production has fallen by about 600K barrels a day from its peak of 9.6M in 2015.  Now refineries are buying foreign oil to replace the lost US output, &, along with traders, are storing much of the less-expensive imported oil to sell when prices rise.  During the early years of the shale boom, the millions of barrels of light, sweet crude had one big problem: no affordable access to refiners on the coasts of Texas & Louisiana.  To tap into the cheaper oil pooling in Oklahoma, pipelines that used to bring imported oil up from the Gulf were reversed to take shale oil down to the coast.  Refiners in Philadelphia & NJ also began buying North Dakota crude instead of foreign oil, moving it by train across the country.  By Oct 2014, imports had fallen by about 40% from a high in 2006.  Now refineries along the coasts are choosing to buy imports instead of WTI.  One of the biggest winners is Nigeria, which is regaining lost market share.  Imports from Nigeria surged to 559K barrels a day in mid-Mar, compared with an average of 52K for all of 2015.  Refiners are also taking more heavy oil from Mexico & Venezuela.  Not only is it about $9 a barrel cheaper than WTI, it’s also what US refineries prefer to handle.  The US is hoarding a lot of the imported oil.  As of Mon, US commercial crude inventories hit 534M barrels, near the all-time high in 1929, when US commercial storage hit 545M barrels, as huge oil finds coincided with the beginning of the Great Depression.  Today, producers & traders are opting to wait for prices to rise instead of selling, especially with the futures market signaling that oil prices will rise.

The U.S. Is a Big Oil Importer Again

Midwest business activity picked up in Mar as firms amped up production & hiring, more evidence that pressures hurting US producers may be dissipating.    The Chicago Business Barometer, also known as the Chicago PMI, climbed to 53.6 from 47.6 in Feb.  The 50 mark is the threshold between expansion & contraction.   Economists expected a rise in the index to 50.0.  Sharp bounces in production & employment pulled the index higher this month.  Producers reported an upturn in demand & expressed optimism that orders would continue to rise over the next 3 months.  As demand resurfaced & sentiment improved, firms across the region increased hiring.  The employment gauge rose back above the 50 mark to the highest level in nearly a year, breaking what had been a trend of weak hiring in the region.  The Chicago PMI is the last in a batch of regional surveys looked to for clues on the state of the national manufacturing sector.  Reports this month have shown marked improvement across the country as a break in the $ climb has helped exporters, though manufacturers most exposed to the price of oil are still struggling.  Unlike other regional purchasing managers' reports, the Chicago-area survey includes some firms from the much bigger service-sector, where more favorable conditions have offset manufacturing weakness.

Midwest Manufacturing Jumps Out of Contraction in March

McDonald's, a Dow stock & Dividend Aristocrat, is adding more than 1K restaurants in China & is hunting for an investment partner in Asia to speed its expansion & smooth over a rough recent history in the region.  Over the next 5 years, the company wants to build out its franchise business in China, Hong Kong & South Korea, adding more than 1.5K restaurants to its current 2.8K.  In China alone, it aims to have 3.5K restaurants by 2020, up from 2.2K now, CEO Steve Easterbrook said.  The expansion plans come after a MCD announcement last year that it was closing 350 restaurants in China, Japan & the US.  It uses franchisees & licensees in its more mature markets, like the US.  But elsewhere it has largely relied on a more costly model of operating its own restaurants to oversee their quality & growth.  MCD has had trouble finding collaborators in Asia.  It announced last year plans to sell its restaurants in Taiwan & Japan to a franchise operator but hasn't yet closed a deal.  This announcement also zeroes in on a goal to make China the company's #2 market, up from the 3rd-largest behind the US & Japan.  In the next 5 years, MCD will open at least 250 restaurants a year & boost the rate of its franchised outlets beyond 30%, closer to the US rate of 90%.  MCD operated all its restaurants in China for more than 2 decades, until 2008 when it turned to franchising.  The stock lost 15¢.  If you would like to learn more about MCD, click on this link:

McDonald's Plans to Add More Than 1,000 Restaurants in China

McDonald's (MCD)

Trading today turned out to be uneventful with little news to drive traders.  The article about oil is interesting.  Low prices have changed that market.  For 3 weeks, oil has been unable to crack thru the important 40 resistance level & lately has fluctuated in the 38s.  Dow rose almost 300 in Q1, but if oil prices stall or retreat, that advance may be over.

Dow Jones Industrials


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