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.

AMJ(Alerian MLP Index tracking fund)

Crude Oil Sep 16

Gold Futures,Dec-2016

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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.

Oil Extends Gains Amid Speculation of OPEC Production Freeze

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.

Empire State Manufacturing Contracts in August

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.

Dow Jones Industrials


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