Wednesday, April 6, 2016

Weak markets in spite of higher oil prices

Dow dropped 44, decliners just ahead of advancers & NAZ added 8.  The MLP index gained 4+ to 260 & the REIT index slid back 1 to the 337s.  Junk bond funds had small gains & Treasuries traded lower.  Oil recovered for a 2nd day (see below) & gold retreated.

AMJ (Alerian MLP Index tracking fund)

CL.NYM....Light Sweet Crude Oil Futures,M...36.74 Up ...0.85 (2.4%)

GC.CMX...Gold Apr 16..............................1,222.10 Down ...6.30  (0.5%)

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Oil rose after Kuwait said a deal to freeze output can be reached without Iran & US industry data showed crude stockpiles declined.  Major producers have no option but to reach an agreement to cap production when they meet Apr 17 & this may set a price floor, Nawal al-Fezaia, Kuwait’s governor to OPEC said.  US crude supplies fell 4.3M barrels last week, the American Petroleum Institute reported.  Oil has swung between gains and losses since Fri amid speculation about whether an agreement can be reached at the meeting in Doha.  Saudie Arabia will only cap production if it's joined by other major producers including Iran.  Investors are betting a decline in US oil production will help ease a glut & boost prices.  Crude stockpiles at Cushing, the nation's biggest oil-storage hub, may have increased 620K barrels last week.  Rising Iranian oil production won't hinder any agreement in Doha as the country will find it difficult to sell its crude in an oversupplied market, Kuwait’s al-Fezaia said.

Oil Extends Gain Amid Freeze-Pact Hope, Declining U.S. Supplies

Pfizer (PFE), a Dow stock, & Ireland-based Allergan (AGN) formally announced the scrapping of their $160M merger, a big win for Obama who has been pushing to curb tax-slashing "inversion" deals.  PFE went up 70¢ & AGN rose 5.45 after it recent decline on the threat if this happening.

Pfizer Terminates Proposed Allergan Takeover

Germany's 2-year note sale provided more evidence that an increasingly gloomy economic outlook in the euro zone keeps driving investors to buy negative-yielding securities in return for their safety, & potential capital gains.  The country's bonds, which have returned 4.4% this year, fell as Europe's largest economy allotted €3.24B ($3.7B) of securities maturing in 2018 in an auction, with an average yield of minus 0.48%.  10-year bunds declined, pushing yields up from the lowest in almost a year.

Gains in 2016 had pushed the 2-year note yield down to a record-low minus 0.586% on Mar 4, 6 days before the ECB cut its main interest rates & increased the monthly size of its asset purchases by 1/3.  Its actions gave fresh support to debt that now yields less than zero for as long as 9 years.  Negative yields have proved to be no major deterrent in auctions.  The previous sale of 2-year on Mar 9 debt attracted bids equivalent to more than 2X the amount sold, even as investors settled for an average yield of minus 0.55%. Germany's industrial production fell in Feb from Jan, providing another reminder of the economic challenges facing the region.

Germany's Auction of Negative-Yielding Notes Highlights Gloom

Little is happening in the stock market.  The big meeting by oil producers next week prompts buy or selling in oil, depending on weekly data & thoughts that are leaked.  Q1 earnings reports are coming next week.  Now there is a new wrinkle with the Obama administration looking to make life tough for big companies.  That's a serious negative for the stock market going forward.

Dow Jones Industrials

stock chart 


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