Friday, April 15, 2016

Markets drift lower on weak economic data

Dow lost 4, advancers slightly ahead of decliners & NAZ slid back 1.  The MLP index fell 4+ to the 271s & the REIT index added 1+ to the 338s.  Junk bond funds were weak & Treasuries rose.  Oil had a big drop to just above 40 & gold edged higher.

AMJ (Alerian MLP index tracking fund)

CL.NYM....Light Sweet Crude Oil Futures,M...40.59 Down ...0.91  (2.2%)

GC.CMX...Gold Futures,Apr-2016.............1,226.90 Up ...1.90 (0.2%)

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Oil fell for a 3rd day before major suppliers meet in Doha to discuss an output freeze with investors wary of potential disappointment from the talks. 

After a week in which China calmed global markets with signs that stimulus policies were helping the economy recover, fresh risks are lining up for the weekend.  Failure to reach an agreement in Doha threatens to destabilize oil prices that have rebounded amid prospects for an easing in a global surplus.  Finance ministers from the G-20 & central bank officials are gathering alongside the spring meetings of the IMF & World Bank.  At least 18 nations will attend the Doha talks.  While an agreement to freeze production would help to support oil prices, further gains would be limited as such an outcome is already reflected in the market.

Oil Falls Before OPEC Meeting

US manufacturing output unexpectedly declined in Mar by the most since Feb 2015, indicating factories remain scarred by global challenges that are slow to dissipate.  The 0.3% drop, which make up 75% of production, followed a revised 0.1% decrease the prior month, according to the Federal Reserve.  The forecast called for a 0.1% advance.  Total industrial production, including mines & utilities, slumped by a weaker-than-estimated 0.6% for a 2nd month.  Manufacturers are still under pressure from tepid overseas markets while last year's surge in the $ & plunge in commodities prices continue to make an impact.  Another possible emerging soft spot is sluggish American household demand as the report showed a 2nd month of declining consumer goods production.  For total industrial production, the forecast was for a 0.1% decline, after a previously reported 0.5% decrease in Feb.  Utility output decreased 1.2% after a 3.6 % slump the previous month.  Demand for heating remained limited as warm weather continued last month.  Mining production, which includes oil drilling, decreased 2.9%.  Weaker prices for oil & other commodities will continue to weigh on mining for some time.  Capacity utilization fell to 74.8% from 75.3% in the prior month.  At manufacturers, capacity dropped to 75.1% in Mar, the weakest reading since Apr 2014.  Most major market groups recorded declining production last month with the output of consumer goods decreasing 0.4% after a 0.8% slide a month earlier.  Production of business equipment was down 0.4%, the most in 3 months, & output of construction supplies slumped 1.2%.  The output of motor vehicles & parts decreased 1.6%, the most since Nov.  Excluding autos & parts, manufacturing fell 0.1% after a 0.2% decrease.

Manufacturing Output in U.S. Falls by Most Since February 2015

Consumer confidence unexpectedly fell in Apr to the weakest level in 7 months as Americans were rattled by unsatisfying wage growth & concern over how the upcoming presidential election would impact the economy.  The University of Michigan's preliminary sentiment index to 89.7, the lowest since Sep, from 91 in Mar.  The projection called for 92.  The gauge averaged 92.9 last year, the best annual performance since 2004.  Steady employment gains haven't yet translated into robust pay increases, leaving Americans impatient as they continue to mend balance sheets.  About 1/5 mentioned the election or gov policy as likely to have negative implications for future economic growth, almost twice as many as in Mar.  "None of these declines indicate an impending recession, although concerns have risen about the resilience of consumers in the months ahead," Richard Curtin, director of the University of Michigan consumer survey said.  The current conditions index, which measures Americans’ perception of their personal finances, declined to 105.4 from the prior month's 105.6 & the gauge of expectations 6 months from now dropped to 79.6 from 81.5.  Respondents expected the inflation rate in the next year will be 2.7%, the same as in Mar. Over the next 5-10 years, they project a 2.5% rate of price growth, down from 2.7% in the prior month, matching record lows that was last equaled in Feb.  The contentious presidential primaries are having an impact.  While the survey doesn't typically ask about politics until later in an election year, 19% “spontaneously” said news about the vote & gov policy made them more negative toward the outlook.  The one-year outlook index for those participants was 28 points lower than for the rest, while the five-year view was 39 points weaker.

Consumer Sentiment Falls on Concerns Over U.S. Wages, Elections

Reality is sinking in that the outlook for the big meeting to limit oil production is glum.  The standard used is Jan levels which are record highs.  As said before, the group is not united & different agendas will make it difficult to agree on much.  Economic data is drab & earnings reports next week can not be counted on to help the stock market.

Dow Jones Industrials


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