Wednesday, June 15, 2016

Higher markets on hopes for no change in interest rates

Dow added 65, advancers over decliners 5-2 & NAZ rose 14.  The MLP index lost 3+ to 300 as oil drops further & the REIT index went up 2+ to the 345s.  Junk bond funds crawled higher & Treasuries fluctuated.  Oil continued sliding lower & gold was down chump change.

AMJ (Alerian MLP Index tracking fund)

Crude Oil   47.76   -0.73 (-1.51%)

Gold      1,285.40   -2.70 (-0.21%)

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The rebound in fuel costs pushed up US wholesale prices in May for a 2nd month, overshadowing a drop in pricing power more broadly that signals inflation will take time to move toward the Fed's goal.  The producer-price index gained 0.4%, more than forecast, after a 0.2% increase the prior month, a Labor Dept report showed.  Excluding volatile components such as food, energy & trade services, prices declined for the first time in 7 months.  The lingering effect of the prior drop in energy & the stronger $ means price pressures in the production pipeline may be slow to pick up.  This is the last bit of inflation data Fed policy makers will see as they wrap up a meeting to discuss the outlook for interest rates.  The forecast called for a 0.3%.  Costs declined 0.1% over the past 12 months after being little changed.  Food prices rose 0.3% & energy expenses climbed 2.8%, the most since May 2015.  Excluding food & energy, wholesale prices rose 0.3% following a 0.1% advance in the prior month.  Those costs were up 1.2% from May 2015.  Also eliminating trade services, the producer costs gauge fell 0.1%, the first decline since Oct, following a 0.3% advance the previous month.  The Fed's preferred gauge of inflation, the Commerce Dept personal consumption expenditures measure, hasn't reached the central bank's 2% goal since Apr 2012.  Some of the health-care components from the PPI index that feed into the Fed's preferred gauge, including physician & hospice care, declined last month, signaling the central bank’s measure will remain muted.

Rising Fuel Pushes Up U.S. Producer Prices for Second Month

Factory production fell more than forecast in May, reflecting declining output of vehicles & business equipment that show US manufacturing is still hobbled by weak global demand.  The 0.4% decrease in output followed a revised 0.2% advance in Apr, data from the Federal Reserve showed.  Total industrial production also fell 0.4%.  American producers are still battling the fallout from the plunge in energy prices that has sapped the appetite for investment, while a strong $ & lackluster global growth have weighed on exports.  Manufacturers could find some relief as companies have trimmed stockpiles, leaving them with fewer goods on hand should consumer spending continue to climb.  Manufacturing output, 12% of the economy, was projected to fall 0.1% last month after a previously reported 0.3% advance.  Total industrial production was forecast to drop 0.2%.  Factory production of motor vehicles & parts decreased 4.2%, the most since Jan 2014.  Excluding autos & parts, manufacturing output declined 0.1%.  Capacity utilization fell to 74.9% from 75.3% the prior month.  At factories alone, the operating rate dropped to 74.8%, the lowest since Feb 2014.  Manufacturing capacity is 3.7 percentage points below its long-run average.   Utility output declined 1% after a 6.1% surge in Apr.  Temperatures for the contiguous US hovered around the average.  Mining production, including oil drilling, rose 0.2% in May, the first increase since Aug, after a 2.6% decrease.  Drilling & servicing at wells dropped another 7.9%.  Consumer-goods output declined 0.7% on declining production of automobile products, clothing, home electronics & appliances.  Business equipment production dropped 0.7% following a 1.2% increase.

U.S. Factory Production Falls More Than Forecast on Auto Output

Manufacturing activity across NY state regained momentum in Jun, reversing last month's decline, the latest evidence of the sector's shaky recovery.  The Empire State's business conditions index jumped to 6.0 from -9.0 last month, when it snapped 2 months of improvement after 7 straight months of contraction.  The rise back into positive territory wasn't expected.  Economists projected the index to register at -5.0.  The NY area report is the first in a string of manufacturing surveys conducted by regional Federal Reserve Banks, looked for clues about the health of the national economy.  Factories across the country has been hurt by slowing demand as economies around the world struggle & a stronger $ has hurt exporters while lower energy prices have bit into many capital budgets.  While those headwinds haven't altogether disappeared, a break in the climb for the $ & improvement in the price of oil had relieved some pressure from American producers.   Demand picked up & factory owners turned more optimistic about future prospects.  A gauge of new orders surged 16 points to 10.9 & the survey's shipments index in turn climbed 11 points to 9.3.  A measure of inventories, meanwhile, dropped further into negative territory, suggesting manufacturers may need to replenish stocks as demand improves.  Looking ahead, producers' outlook rose to the best level this year.  Expected business conditions 6 months out gained 10 points to 34.8 as demand & shipment projections jumped.  After a sharp decline last month, the survey's capital expenditures index rose 8 points to 11.2.   Despite the broad improvement, factory owners continued to express reluctance over hiring.  Last month, the manufacturing sector shed 10K positions.  Factories continue to look for signs that the recovery is sticking, & some have reported difficulties in finding qualified workers as the labor market tightens.

Empire State Manufacturing Jumps in June

Muddy kind of data is just what Janet wants to see.  That gives her an excuse to do nothing with interest rates, only give vague words about possible hikes in the future.  Stocks are already anticipating this response from the Fed.  The decline in oil prices, a big driver for stocks, may be worrisome going forward.

Dow Jones Industrials


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