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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.
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.
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.
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.
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.
...0.91 
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