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Friday, June 17, 2016
Mixed markets, cautious about Brexit vote
Dow retreated 63, advancers over decliners almost 2-1 & NAZ gave up 36. The MLP index rose 1 to the 307s & the REIT index fell 1+ to the 346s. Junk bond funds were a little higher & Treasuries slid lower. Oil rebounded after recent selling & gold pulled back, now below 1300.
St. Louis Federal Reserve pres James Bullard is the missing dot. When
the Fed released its economic projections on Wed,
one of the official didn't put forth an
estimate for a long-run interest rate projection, displayed in the Fed's “dot plot.” Bullard made it clear
that it was his, the St. Louis Fed is switching to a new forecasting
style that doesn’t incorporate a long-run estimate. “The forecast
simply stops at 2.5 years,” Bullard said. He expects trimmed-mean inflation of 2%,
unemployment of 4.7% & output growth at 2% over the 2.5
year horizon. He sees 63 basis points as the appropriate rate policy
path over the forecast horizon, indicating that the lone official
projecting one increase this year & none for 2017 & 2018 was also
him. Individual
projections give hint at how quickly officials expect to raise interest rates & how far
they'll ultimately climb.
The
Fed has consistently revised both its near-term and its longer-run
projections downward, & this month the projection declined to 3% from 3.25% in Mar. In a footnote the Fed noted that
“one participant did not submit longer-run projections” without saying
who it was.
IMF Managing Director Christine Lagarde
warned the UK of the risks of leaving the EU & said
there was a clear economic argument for remaining part of the bloc. EU
membership has brought jobs & income gains to Britain & helped make
the country a “dynamic and vibrant economy,” Lagarde said. European integration has
lifted trade and investment and raised productivity & incomes, she added. “We have already been on record that the economic risks of leaving
are firmly to the downside,” Lagarde said. “There is, in my view, a
clear case as to how the U.K. has benefited -- and will continue to
benefit -- from its membership in the European Union.” In
the UK, referendum campaigns were suspended for a 2nd day after the killing of Labour lawmaker Jo Cox, an advocate for
“Remain.” “As I speak, my thoughts,
and I’m sure our thoughts, are with the family members, the friends and
those whose life was touched by Jo Cox,” she added. She
said most economists had concluded that a “withdrawal of a member”
would have negative effects & that was “compelling, even if you
discount them for sometimes having the wrong forecasts.”
US housing starts slipped in May as the construction of
multi-family housing units dropped, but further gains in building
permits suggested a rebound that would continue to support economic
growth in Q2. Groundbreaking fell 0.3% to a seasonally adjusted annual
pace of 1.16M units, according to the Commerce Dept.
Starts in Apr were little changed at a 1.17M-unit pace. Economists had forecast housing starts falling to a 1.15M. Housing remains a pillar of strength for the economy. Residential construction added almost a six-tenths of a
percentage point to Q1 GDP, the biggest
contribution in more than 3 years. Groundbreaking on single-family homes, the largest segment of the
market, rose 0.3% to a 764K-unit pace last month. Further gains in single-family starts are likely after a survey yesterday showed confidence among home builders rose to a 5-month
high in Jun amid optimism over sales & buyer traffic. But
single-family home construction continues to run ahead of permits, which
could limit gains in the near term. Housing starts for the volatile multi-family segment fell 1.2% to a 400K-unit pace. The drop followed an 11.9% jump
in Apr. Multi-family home construction is also being aided by rising
household formation as a fairly strong labor market increases employment
opportunities for young adults. Building permits rose 0.7% to a 1.14M-unit rate
last month. Permits for the construction of single-family homes fell 2.0% last month to a 726K-unit rate, while multi-family building
permits increased 5.9% to a 412K-unit pace.
Today is turning into another quiet day in the stock markets. The future of the Brexit vote & its outcome are up in the air. Oil's recovery means little after 6 straight days of declines. And the thought of more rate hikes is in the minds of everybody. As it has for months, Dow continues to look up at 18K.
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