Monday, March 21, 2016

Markets pause after 5 weeks of gains

Dow dropped 37, decliners over advancers almost 3-2 & NAZ was off 6.  The MLP index lost 2 to the 272s & the REIT index was up fractionally in the 335s.  Junk bond funds inched higher & Treasuries were sold.  Oil is now above 41 & gold slid lower.

AMJ (Alerian Index MLP tracking fund)

CLJ16.NYM....Crude Oil Apr 16...39.47 Up ...0.03 (0.1%)

GCH16.CMX...Gold Mar 16....1,244.80 Down ...9.00  (0.7%)

3 Stocks You Should Own Right Now - Click Here!

Federal Reserve Bank of Richmond pres Jeffrey Lacker said that inflation will rise back to the Fed's 2% target once energy prices stabilize & the $ stops advancing.  “I am reasonably confident that, barring subsequent shocks, inflation will move back to the FOMC’s 2 percent objective over the medium term,” Lacker said.  Lacker, who doesn't vote on monetary policy this year, dissented in Sep & Oct in favor of an earlier liftoff of interest rates from zero.  Consistently among the most hawkish of officials in favoring action to head off inflation or asset price bubbles, Lacker didn't comment on the decision last week to hold its target for the benchmark policy rate unchanged.  “Inflation has been held down recently by two factors, the falling price of oil and the rising value of the dollar,” he said.  “But neither factor is likely to depress inflation indefinitely. After the price of oil bottoms out, I would expect to see headline inflation move significantly higher.”   Oil prices have already shown signs of stabilizing.  Lacker described inflation expectations, which he said play a critical role in determining US prices, as “well anchored.”  The Richmond Fed leader said he wasn't bothered by forecasts of inflation for the next 5 or 10 years of slightly below 2%, which “is not inconsistent with the expectation that inflation will move back to the Fed's target.”

Fed's Lacker Confident Inflation Poised to Rebound to 2% Target

Sales of previously owned US homes dropped more than forecast in Feb after reaching the 2nd-highest level since 2007 as low inventory levels continue to limit progress in housing.  Closings on existing homes, which usually take place a month or 2 after a contract is signed, decreased 7.1% to a 3-month low 5.08M annual rate after a 5.47M pace in Jan, the National Association of Realtors said.  Sales were weaker than the most pessimistic forecast.  Faster growth in residential real estate is being hampered by a limited selection of available properties that has led to higher offering prices.  While mortgage rates are attractive, affordability remains an issue for potential first-time & lower-income buyers whose participation would help broaden the market’s improvement.  Purchases of existing homes decreased in all 4 regions last month, led by a 17% slump in the Northeast & a 13% decline in the Midwest.  “The question is, is this the beginning where homebuyers are beginning to show resistance to higher prices or is this a one-month fluke in the data,” the NAR said.  “Now we are seeing fewer renters interested in buying. They’re indicating affordability is an issue.”  Compared with a year earlier, purchases increased 6.4% on an unadjusted basis.  The number of existing properties on the market fell 1.1% to 1.88% from 1.9M a year earlier.  At the current pace, it would take 4.4 months to sell those houses compared with 4 months at the end of Jan & was 4.6 months in Feb 2015.  The median time a home was on the market decreased last month to 59 days from 64 days in Jan.  In general, tight inventory levels have helped boost the values of homes on the market.  The median price of an existing home rose to $210K from $201K in Feb 2015.

Previously Owned U.S. Home Sales Decline More Than Forecast

Germany could give itself & the euro area a boost if it takes advantage of low interest rates to finance a public-investment program, the ECB said, the key finding from a study just released.  It would simulate the effect of an expansion of public investment equal to 1% of GDP over 5 years in a large euro area country such as Germany & the stimulus would have a greater impact if it were financed by debt or higher revenue & accompanied by an expansive monetary policy.  “An increase in public investment will have the strongest short-term demand effects, including in terms of spillovers to other countries, with an anticipated accommodative monetary policy,” according to the study.  “This finding strengthens the case for increasing public investment in the current low-inflation environment.”  Policy makers outside Germany, Europe’s biggest economy, have been pushing the country for years to increase spending to help boost growth across the region. But that's at odds with Chancellor Angela Merkel & Finance Minister Wolfgang Schaeuble's election promise of continuing to maintain a balanced budget even in the face of increased spending for the refugee crisis & negative rates on some German debt.

“A debt or revenue-financed increase in productive public investment implies significantly larger short-term output gains compared with an increase in investment financed by cutting other public expenditure,” according to the report.  However, the effects are not fully self-financing and lead to higher public debt in the long term.  That's why a loose monetary policy is important.

ECB Says Germany Could Boost Euro-Area Growth by Borrowing More

There is not much going on in the stock market today.  Dow has shot up from under 16K to the mid 17K area in just 5 weeks.  Time to take a rest.  Q1 ends next week & that will be followed by earnings reports which are being revised lower.

Dow Jones Industrials


No comments: