Dow added 235 (closing at the highs), advancers over decliners more than 3-1 & NAZ gained 63. The MLP index rose a fraction to the 318s & the REIT index gained 3+ to the 362s, a new record. Junk bond funds edged higher & Treasuries declined. Oil sank to the 48s & gold was off a tad (see below).
Mark Carney signaled the Bank of England could cut interest rates
within months as the central bank tries to shield an economy rattled by
the shock of Brexit & the chaos engulfing Britain's political
classes. In his 2nd televised address since the
country voted to leave the EU, the governor said
that officials won't hesitate to act when it comes to safeguarding the
economy or the resilience of the financial system. The BOE will also
continue its liquidity auctions for banks on a weekly, rather than
monthly, basis & consider a “host of other measures.” The £
slumped as investors increased bets on a rate cut by Aug. “It now seems plausible that uncertainty could remain elevated for some
time,” Carney said. “The economic outlook has deteriorated and some
monetary policy easing will likely be needed over the summer.” The comments capped a day full of political shocks. Boris Johnson
pulled out of the race to be the next British prime minister after a
savage attack from former Brexit ally Michael Gove, who will now compete
for the job with Home Secretary Theresa May. That creates more
uncertainty at a time when the opposition Labour party is already in
disarray & the UK remains in limbo regarding its trading
relationship with its biggest market.
UK consumer confidence dropped this week after the country voted to leave the EU. YouGov & the Centre for Economics & Business Research said their daily
tracker of sentiment has dropped to the lowest in more than 2 years.
From a level of 111.9 earlier in the month, it has since slumped to
104.3. Also, a separate report from GfK showed that
households faith in the economic outlook was shaky even before the
Brexit referendum. The vote has created uncertainty about the
possible future relationship of the UK & the EU, further complicated
by Prime Minister David Cameron's decision to resign & leave his
successor to start formal exit negotiations. That’s increased tensions
with other European leaders, who excluded Cameron from a meeting in
Brussels & want the process to start soon. “Consumer
confidence has collapsed since the vote,” YouGov Reports said. “Four days of uncertainty has wiped
out the gains made over the last three years. It has not yet reached
the depths of the financial crisis in 2008 but we expect it to decline
further as some of the consequences of Brexit kick in.” GfK’s
survey, conducted in the 2 weeks thru Jun 15, suggests sentiment
was already becoming gloomier before the outcome. Its headline consumer
index remained at minus 1 this month, but the measure of how consumers
view the 12-month economic outlook slipped to minus 14 from minus 13,
down 18 points from a year earlier. “One trend that continued in
the run up to the referendum is a deepening pessimism over the general
economic situation,” GfK said. “In these extraordinary
consumer circumstances, all bets are off until we all know more. We can
expect plenty of volatility in consumer confidence at least until Brexit
negotiations are under way.” GfK questioned 2K for its survey & YouGov’s index is based on 7K online interviews per month.
Standard & Poor's Global Ratings cut its
long-term credit rating on the EU to 'AA' from 'AA+' after
the UK voted to leave the bloc. "After the decision by the UK electorate to leave the EU...we
have reassessed our opinion of cohesion within the EU, which we now
consider to be a neutral rather than positive rating factor," the agency
said.
Prices at the gas pump are expected to reach an 11-year low on the
Fourth of July, just as a record number of Americans prepare to hit the
road during the holiday weekend. The national average is expected to fall
50¢ from last year’s Independence Day mark to $2.27 a gallon, the
cheapest since 2005. Just 2 years ago, the average price of
regular gasoline was much higher at $3.66 a gallon. However, there is one wrinkle to price forecasts this weekend:
gas taxes. Coinciding with the start of a new fiscal year, several
states are hiking or cutting their excise taxes on gasoline starting tomorrow. As a result, regional gas prices could fluctuate to kick off
Independence Day weekend. Tax increases are in the pipeline for Maryland & Washington. Maryland will add 0.9¢ to its rate, increasing gas taxes in the
state to 33.5¢ a gallon. Washington State's gas tax will climb to
49.4¢ a gallon, up 4.9¢. NJ could become the 3rd
state to raise gas taxes this year. A bill making its way thru the
legislature includes a 23¢ hike that would take the gas tax
from 14.5¢ to 37.5¢ a gallon.
Gold closed out the month lower today, but still gained nearly 25% YTD, as investors continue to navigate financial volatility sparked
by the UK's decision to leave the EU. Aug gold fell $6.30 (0.5%), for the session to settle at $1320, pulling back after finishing at a nearly 2-year high a day
earlier. Futures prices were up about 6.9% for Q2 &
have climbed roughly 24.6% YTD.
There is an old adage that chaos can bring opportunity. That is in play in the stock market. Maybe, maybe not. The exit for UK, a major country in the EU, brings uncertainty, but caution has been thrown to the wind by stock traders. In 3 days Dow has recouped about all of its 1K loss from the prior 2 days. That's high volatility at a time when gold (a bet against higher stock prices) is rising. Playing with fire can be dangerous!
Dow added 79, advancers over decliners 3-2 & NAZ went up 16. The MLP index lost 2 to the 315s & the REIT index was up 4+ to 359 (record territory). Junk bond funds were mixed & Treasuries were lower again. Oil fell to the 48s & gold also slipped back.
The number of Americans who applied last week for unemployment
benefits rose to a level that's still consistent with steady improvement
in the labor market. Jobless claims increased 10K to
268K, according to the Labor Dept. The forecast
called for 267K. Continuing claims decreased for the 3rd week in
the last 4. Companies are reluctant to layoff workers as skilled & experienced employees become difficult to attract in a tighter labor
market. Dismissals that are still hovering near 4-decade lows signal
a recent slowdown in payrolls may be short-lived as household spending
continues to fuel the economy. For 69
consecutive weeks, claims have been below the 300K level, consistent with an improving job market.
That's the longest stretch since 1973. The 4-week moving average held at 266K. The
number continuing to receive jobless benefits fell 20K
to 2.12M & the 4-week average
declined to 2.13M, the lowest since 2000.
The
unemployment rate among people eligible for benefits declined to 1.5% from 1.6%.
Oil is heading for the biggest quarterly advance in 7 years as falling
US supply added to speculation the global surplus is easing as futures fell 2.6%. Still, oil
is headed for its best quarterly gain since Jun 2009. US crude
supplies declined a 6th week & output slipped to the lowest since
Sep 2014. Markets have whipsawed
after the UK vote to leave the EU.
Supply disruptions (such as in Nigeria) & falling US output have
helped cut a global surplus, sparking a rally of more than 85%
since prices hit a 12-year low in Feb. The International
Energy Agency & OPEC forecast this month that the market is heading toward balance as demand growth outpaces supply. US crude
inventories dropped to 526.6M barrels, the lowest since Mar, the Energy Information Administration said. Supplies
climbed to an 87-year high of 543.4M barrels in the last week of
Apr. Production slipped 55K barrels a day to 8.62M last
week, the EIA said.
Puerto Rico's fiscal crisis is reaching a turning point as pres Obama plans to sign bipartisan legislation that would allow the
island to escape from debts once viewed as ironclad. The
Senate yesterday, passed a bill that protects the
island from creditors as it veers toward its largest default yet. The
legislation creates a financial control board to help restructure Puerto
Rico's $70B in debt & oversee the island's finances, marking
the largest federal intervention ever into the US municipal bond
market. Obama is likely to sign the measure today, one day
before Puerto Rico Governor Alejandro Garcia Padilla has said the island
will default on more than $1B on general-obligation debt. “It
is a critical first step toward economic recovery and restored hope for
millions of Americans who call Puerto Rico home,” Obama said. “I look forward to signing the bill into law.” The
territory had continued to pay the securities even as it rapidly went
broke. The bill passed by the Senate doesn't provide any additional
funding, but it allows Puerto Rico to turn to federal court to cut its
obligations & protects the gov from creditor lawsuits by
putting them on hold. In return, Puerto Rico is being forced to
accept strict oversight by a control board that will have significant
power over its day-to-day affairs. The legislation also does
little to alleviate the underlying economic conditions on the island
that led to its vast accumulation of debt.
Hard to believe that the stock market is trying to extend its bounce back to 3 days. No problems have been solved relating to Britain leaving the EU. But there are plenty of unhappy euro bureaucrats in Belgium who will make the exit difficult. Stock market optimism is not well founded with gold just below its recent highs. Even oil lost ground today.
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.5794019278901885)
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