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Monday, August 15, 2016
Higher markets on hopes for cuts in oil production
Dow gained 72, advancers over decliners 3-1 & NAZ went up 26. The MLP index rose 1+ to the 316s & the REIT index added 2 to the 368s. Junk bond funds were a little higher & Treasuries pulled back. Oil jumped up to the 45s on hopes of production cuts (see below) & gold inched higher.
Oil extended gains iafter closing at the highest level in 3 weeks amid speculation that crude producers will revive talks to
stabilize prices. Futures gained as much as 1.5% after prices
climbed 6.4% last week as Saudi Arabia signaled it's prepared to
discuss stabilizing markets at informal OPEC discussions next month.
Russia is open to talks for a joint output freeze “if necessary,” Energy
Minister Alexander Novak said.
Oil
has rebounded more than 10% since closing below $40 a barrel &
tumbling into a bear market earlier this month. Saudi Arabian Energy
Minister Khalid Al-Falih said last week that talks with OPEC & other
producers may result in action to stabilize the market. West
Texas Intermediate for Sep rose as much as 66¢ to
$45.15, the highest since
Jul 21. US producers added rigs for a 7th week, the longest run since 2014. Rigs targeting crude in the US increased 15 to 396, the highest level since Feb. Explorers have now added
66 rigs since Jun 24, led by rising activity in the Permian Basin.
Chinese stocks climbed to a 7-month high on surging turnover as
takeover speculation buoyed property developers & shares in Shenzhen
rallied after a report said details of an exchange link with Hong Kong
will be announced shortly. The Shanghai Composite Index gained 2.4%, with about 90 stocks rising for each that fell. A
gauge of real estate companies capped its steepest 2-day rally in
almost a year after stake purchases by China Evergrande fueled
optimism of more mergers. Chinese stocks in Hong Kong rose for an 8th day. The China Securities Regulatory Commission is pushing ahead with
preparations for the link between Hong Kong & Shenzhen, which expands
on an existing connect with Shanghai, & the program will start this
year when appropriate.
The
aggregate quota for the Hong Kong-Shanghai link will be abolished,
while only daily caps will be imposed on the Shenzhen program. Gains came as China’s broadest measure of new
credit rose the least in 2 years. Aggregate financing was 487B yuan ($73B) in Jul, compared with the estimate
of 1T yuan. The
Shanghai Composite Index rose to 3125, sending the measure above
its 200-day moving average for the first time in a year. Trading volumes
on the gauge surged 63% above the 30-day average, while turnover
was the highest in 4 months.
Factory activity across NY fell in Aug & producers
signaled layoffs in the months ahead, the latest sign that many US
manufacturers are still facing weaker customer demand amid economic &
political uncertainty. The Empire State's business conditions index declined to -4.2
from 0.6 in Jul. The gauge has been swinging around the zero mark,
which separates expansion from contraction, in recent months. Economists expected the index to edge up to 2.5. While conditions across the country have improved in recent
months, producers are still contending with softer demand from overseas,
exacerbated by the strong $ effect on pricing, & with a sharp
drop off in business investment. According to the most recent report on
GDP, businesses still aren't spending on capital
investments. Nonresidential fixed investment fell at a 2.2% pace in the
qtr, & equipment spending dropped for the 4th time in 5
qtrs. Many firms have expressed caution ahead of the presidential
election & Brexit's effect on exports, in addition to lingering
economic headwinds. In the report, firms said new orders rose slightly from
Jul & shipments hit a 12 month high. But manufacturers reduced head
counts, a trend they signaled would accelerate, & inventories
continued to contract. Looking ahead 6 months, factories across the state expressed
ongoing optimism that conditions would pick up, but sentiment was more
cautious than in recent months. A gauge of overall expectations slipped
to 23.7 from 29.2 as firms pulled in demand expectations. Meanwhile,
an index of future hiring slid 7 points to -6.19, & producers
reported sharp reductions in capital spending & technology investment
plans.
The stock market is rising on expectations that prayers will bring better times. The popular averages are at record highs & even the stock market in China is doing well. However the data from NY is one more reminder that all is not well. The US is the strongest major economy although popular forecasts are for GDP growth around 2%. That's nothing to write home about & inline with growth data since the recession. The disconnect between economic data & rising stock prices is disturbing & there may be a day of reckoning. Maybe not, as long as Janet keeps interest rates at slightly above zero.
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