Market averages climb to records on optimism by small business

Dow rose 68, advancers over decliners 5-2 & NAZ gained went up 22.  The MLP index jumped up 7 to the 321s & the REIT index declined 2+ to 367.  Junk bond funds were higher & Treasuries pulled back.  Oil rebounded from recent lows (see below) & gold declined as stocks rose.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil Aug 16

46.02

1.26

2.82%

GC=F

Gold Futures,Aug-2016

1,345.10

-11.50

-0.85%

Mark Carney denied that the Bank of England undermined its independence in the run-up to the UK vote its EU membership by highlighting the risks of a decision to leave.  “It’s extraordinary, in all senses of the word,” the BOE governor said.  “That’s not the way the committee works. The chair doesn’t guide conclusions.”   Before Jun 23, the BOE warned repeatedly that a decision to leave the EU would create uncertainty that could weaken the £, deter investment & lead to a recession.  Those comments were condemned at the time by supporters of the “Leave” campaign, though Carney has since pointed out that the risks identified have started to manifest.  Sterling is trading around $1.31, near a 31-year low & down from $1.50 just before it became clear that the “Leave” campaign had won.  By Jul 7, 7 property funds with about £18B ($24B) of assets had frozen withdrawals as investors sought redemptions amid concerns that intl companies might scale back or shut London operations.

Carney declined to be drawn on the likelihood of monetary action, citing the BOE’s quiet period before the next decision on Thurs.  While the 9-member Monetary Policy Committee won't have substantial data on the economic fallout from Brexit, officials may choose to act pre-emptively.  38 of 54 economists predict the benchmark interest rate will be lowered on Jul 14, with a majority of those seeing a 25 basis-point reduction to 0.25%.

• Carney Defends BOE Against ‘Extraordinary’ Brexit Charge

Small-business confidence rose in Jun for the 3rd straight month as sales trends improved, though growing difficulties in finding qualified workers & trepidation over the economy & US presidential election continued to keep a lid on sentiment.  The National Federation of Independent Business' (NFIB) small-business optimism index edged up to 94.5 last month from 93.8 in May.  The modest improvement was unexpected; economists expected the gauge to hold steady.  The Jun reading is the best since Nov.  In Jun, 4 of the 10 components rose from a month earlier, paced by continued improvement in business owners' outlook going 6 months out.  Rising sales helped boost optimism, as a qtr of all respondents said they sold more during the month than in May.  About a 1/3 said they expected sales to head higher in the months ahead, thought that share slipped from the prior month.  As sales picked up, 56% of small-business owners said they hired or tried to hire last month.  But 86% reported few or no qualified workers for the positions they were trying to fill.  That translates to 29% of all owners with job openings they deem hard to fill, up from May & marking the highest level of the 7-year economic expansion.  A little over a 1/5 of business owners increased compensation last month.  The survey doesn't differentiate between wages & benefits such as health care expenses.  That share was down several points from May, the 2nd-highest level of this expansion, but still reflects a relatively high level, according to the NFIB.  The portion of owners planning to raise compensation in the coming months held relatively steady at 14%.  More small businesses also said they plan to spend more on capital investments, with more than ¼ signaling so, though more than ½ continued to say it wasn't a good time to expand.  Of that share, 47% cited the economy & 30% cited the political climate.  Though the Jun result marked the first time it logged 3 consecutive monthly gains since the end of 2014,  the NFIB said that it remains short of the long-term average of 98.0.  "Small-business owners appear to be on the same track they have followed for the past few years -- maintenance mode, but not much growth, " it said, calling prospects "cloudy at best."

Small-Business Confidence Continues to Improve in June

Crude bounced back from 2-month lows, helped by a weaker $, but an oil inventory glut & a drop in bullish bets by investors weighed on prices.  West Texas Intermediate crude was up 1.10 at 45.86.  OPEC cut its forecast for world economic growth this year citing increased uncertainty following Britain's vote to leave the EU & in its first 2017 forecast said the pace of oil demand growth would slip.  OPEC lowered its 2016 global economic growth forecast to 3.0% from 3.1%.  Saudi Energy Minister Khalid al-Falih said the oil industry needed a price above $50 per barrel to sustain investment but added that downward pressure would prevail because of an inventory glut.  "We need a price higher than $50 to achieve balance in oil markets in the long term," Falih said.  "But there are still excess stocks on the market - hundreds of millions of barrels of surplus oil. It will take a long time to reduce this inventory overhang," he added.  OPEC was upbeat about 2017 being the year when excess oil inventories will fall.  "Market conditions will help remove overall excess oil stocks in 2017."

Oil Bounces Back From Two-Month Lows

The popular averages are hitting new records & NAZ is back above 5K, close to its record.  But all is not well.  The euro area remains a mess with a high degree of uncertainty about the British exit from EU.  The outlook for the US economy is hazy, to say the least.  And today's rise in oil prices is suspicious.  As a result demand for gold & Treasuries continues to be solid.

Dow Jones Industrials