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Tuesday, June 7, 2016
Higher markets as oil tops $50
Dow went up 59, advancers over decliners almost 2-1 & NAZ gave up 4. The MLP index gained 2+ to the 319s & the REIT index went up 1+ to 344. Junk bond funds rose & Treasuries went up a little, bringing lower yields on Treasuries. Oil is bow above 50 (see below) & gold slid lower.
Jun is out. Jul might be too soon. The Federal Reserve's next
interest-rate increase is coming, but even Sep isn’t a sure bet. That’s
the message investors and economists are taking from Chair Janet
Yellen’s remarks Monday. Her comments were the last the public will hear
from a Fed official before the Fed meeting
next week. Yellen was clear that she's fairly sure
the economy will improve enough to warrant another interest-rate
increase & also has lingering uncertainties that may take several
months to resolve. Her sense is that the economy still has forward
thrust & that consumers were in a position to provide a “significant”
step up in spending this quarter to propel overall growth. But she was
silent on when another rate increase would be needed, playing down a
Jun move & raising doubts about Jul. “I see good reasons to
expect that the positive forces supporting employment growth & higher
inflation will continue to outweigh the negative ones,” she said. “I continue to think
that the federal funds rate will probably need to rise gradually over
time to ensure price stability and maximum sustainable employment in the
longer run,” she added.
The
questions she raised about the disappointing May jobs report, the weak
pattern of investment spending, intl risks, & sagging
inflation expectations could take months, not weeks, to resolve,
making a rate hike when the policy committee meets next week less
likely, economists said.
Oil prices hit their highest in 8 months, buoyed by
the $ nearing one-month lows & by falling Nigerian oil output
after a spate of attacks on infrastructure. US crude oil gained 32¢ to go over $50, after touching a fresh 2016 peak of $50.37 (highest since
Oct last year). The price of oil has nearly doubled since Jan, when it hit
its lowest since late 2003, boosted largely by a spate of unplanned
outages that have eroded production in Canada, Venezuela, Libya &
Nigeria, along with a steady decline in higher-cost US shale output. Yet the rally may entice some shale production back
online, potentially damaging the prospects for a more sustained price
rise.
The jobs report last Fri fell well
below expectations. The 38K net new jobs added to the
economy combined with the global uncertainty from the UK's potential exit from the EU may influence the Fed's
Jun rate hike decision next week. Atlanta Federal Reserve pres Dennis Lockhart said the weak jobs report & current Brexit
(an abbreviation of "British exit”) situation tilts the scale towards
patience when considering a Jun rate hike. “That global risk associated with Brexit will be clarified. Now,
if they vote to leave, there will be uncertainty as to how it’s going to
unfold. It’s a multi-year process, but at least the immediate decision
will be clarified,” he said. When it comes to a decision based on the US economy, Lockhart
said more will be known about its strength after the Fri jobs report is
further analyzed to determine if it was an anomaly. He doesn't interpret the job report as a signal of a slowdown of the US economy. “I’m still believing that the economy is chugging along, using round numbers, about 2% annualize GDP growth rate,” he added. Lockhart explained the impact a 1% move higher in the GDP growth rate can have on the economy. “The difference between 2% and 3% growth could be very very significant
for many things we care about in our society for infrastructure, for
entitlements that’s going to take care of me and others as we get older,
for education. We have a lot of serious problems that 3% growth can
help solve,” he said.
Comments from Janet were her usual, she can always find some excuse to avoid raising interest rates. The markets are counting on her words, although Lockhart's comments brought a ray of sobering reality. One number for one month does not explain everything. However, the rate hike for Jun has all but ruled out & Janet can be counted on to find more excuses to delay in future months. The stock market is taking this with a sense of calm, only a mild increase today (before trading in the PM).
....0.34 
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