Wednesday, July 6, 2016

Markets advance, trying to shake off Brexit blues

Dow went up 78, advancers over decliners 3-2 & NAZ gained 36.  The MLP index fell a fraction to the 312s & the REIT index went up 2+ to the 364s (in record territory).  Junk bond funds edged higher & Treasuries were weak, with yields remain near record lows.  Oil bounced back to the 47s (see below) & gold continued climbing.

AMJ (Alerian MLP Index tracking fund)

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Crude Oil Aug 16....47.28  ....0.68 (1.5%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve officials left interest rates on hold last month as heightened uncertainties about the US labor market & financial stability threatened their outlook, according to minutes of their meeting the week before the UK voted to leave the EU.  The minutes show that the FOMC saw it prudent to wait for the result of Britain's referendum, at the time was still too close to call.  The committee also weighed the health of the US economy & the long-run trajectory for rate increases.  A slowdown in hiring was among their chief concerns & another reason for caution.  While “participants generally agreed that it was advisable to avoid overreacting to one or two labor-market reports,” the implications of recent employment data were viewed as “uncertain.”  Most officials judged that they needed more information on jobs, production & spending.

“Most participants judged that, in the absence of significant economic or financial shocks, raising the target range for the federal funds rate would be appropriate if incoming information confirmed that economic growth had picked up,” job gains were sufficient to achieve full employment & inflation was moving up toward their 2% goal in the medium term.  Many Fed officials thought job gains in May probably understated the true underlying pace because of transitory factors including a telecommunications strike & statistical noise.  At the same time, some noted that the lower rate of payroll gains could “be indicative of a broader slowdown in growth of economic activity.”  That pessimistic sentiment was echoed elsewhere in the minutes: in discussing business investment, some participants thought that sluggishness “could portend a broader economic slowdown.”

Fed Officials Held Rates in June on Uncertain Job Market

Verizon, a Dow stock, is raising monthly prices for its wireless service, a sign aggressive discounting by smaller rivals hasn't dented the ability of the biggest US players to keep customers & lift monthly bills.  Subscribers will increase prices by $5 or $10 a month, depending on plan size.  The higher prices come with larger monthly data allowances.  Customers also will be able to carry over unused data to the following month & pay $5 for a feature called Safety Mode, which avoids overage charges by slowing data speeds after an account exceeds its monthly cap.  The stock rose 29¢.  If you would like to learn more about VZ, click on this link:

Verizon to Raise Cost of Monthly Wireless Plans

Verizon (VZ)

Oil prices recovered 1% as robust US economic data helped lift crude futures from 2 days of declines, although analysts cautioned of more pressure from a gasoline glut & Britain's exit from the EU.  The pace of growth in the US service sector was the fastest in 7 months in Jun.  The data alleviated some concerns over the Brexit impact on global growth, boosting crude futures that have lost about 5% in the past 2 sessions.  Oil prices also rose in anticipation that the US gov will report tomorrow a 7th straight weekly drop in crude stockpiles.  Crude inventories are expected to decline 2.3M barrels for the latest week.  The American Petroleum Institute (API) will issue its own report on domestic oil stockpiles after the close today.  The profit for turning US crude into gasoline, known as the gasoline "crack," hit a Feb low under $13 a barrel, amid the motor fuel's glut & despite record number of motorists expected to have hit the roads during the Jul 4 holiday weekend.  Gasoline stocks in the East Coast, home to the NY Harbor which serves as delivery point for the motor fuel, hit a record high of 72.5M barrels for the latest week.  Vessels carrying gasoline-making components could not unload at NY Harbor this week due to lack of space.  Jitters over Brexit had also weighed on oil as the £ hit 31-year lows after 3 British property funds were suspended amid a rush of redemptions by investors.

Oil Rebounds from 2-Day Drop; Caution Still Over Gasoline, Brexit

Bargain hunting brought buyers back today, but the gloom over a messy exit by Britain from the EU is on the minds of most traders.  The FOMC welcomes this news because it gives them an excuse to delay the next rate hike for months, probably well into next year before they need another excuse to delay the next increase.  Dow failed to crack thru the 18K but is not far away if the bulls get brave.  But that is not likely in the near future.  Treasury yields at record lows are very scary for the stock market.

Dow Jones Industrials


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