Thursday, August 4, 2016

Markets drift lower after factory orders report

Dow fell 4, advancers over decliners 4-3 & NAZ gained 8.  The MLP index was off 6+ to 310 & the REIT index lost 1 to the 368s.  Junk bond funds were a little higher & Treasuries rose.  Oil was a little lower & gold was bid higher

AMJ (Alerian MLP Index tracking fund)

Crude Oil Sep 16

Gold Futures,Dec-2016

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Mark Carney unleashed a package of stimulus, including the Bank of England's first interest-rate cut in 7 years, & said more easing could come as Britain feels the effects of its decision to leave the EU.  Officials voted unanimously to reduce the benchmark by 25 basis points to a record-low 0.25%.  They split over other elements of the plan that will expand the central bank’s balance sheet by as much as £170M ($223M) via purchases of gilts & corp bonds & a lending program for banks.  “We took these steps because the economic outlook has changed markedly,” Carney said.  “Indicators have all fallen sharply, in most cases to levels last seen in the financial crisis, and in some cases to all-time lows.”   Policy makers slashed growth forecasts by the most ever & Carney declared that all elements of the stimulus can be taken further, including another rate cut.  The Monetary Policy Committee's measures include a plan to buy £60B of gov bonds over 6 months, as much as £10B of corp bonds in the next 18 months & a potential £100B loan program for banks.  Should their outlook for the economy prove correct, “a majority of members expect to support a further cut in bank rate to its effective lower bound” later this year, they said.  Carney said multiple times that this doesn’t mean rates will be negative.  “The MPC is very clear that we see effective lower bound as a positive number, close to zero, but a positive number,” he added.  “I’m not a fan of negative interest rates,” he said, noting that they had produced “negative consequences” elsewhere.

Carney Ready to Cut Rate Again After BOE Eases on Brexit Fallout

The number of Americans filing applications for unemployment benefits rose last week to a level that still underscores health in the labor market.  Jobless claims rose 3K to 269K in the latest week, according to the Labor Dept.  The forecast called for 265K.  Continuing claims decreased.  A limited number of layoffs indicates companies are retaining employees at a time when skilled & experienced workers are in greater demand.  Further improvement in the job market will be critical in helping drive consumer spending, the biggest part of the economy, during H2.  For 74 consecutive weeks, claims have been below the 300K, a level that is consistent with an improving job market (the longest stretch since 1973).  The 4-week moving average increased to 260K last week after falling to 256K in the previous period (the 2nd-lowest level since 1973).
The number continuing to receive jobless benefits dropped 6K to 2.14M & the unemployment rate among people eligible for benefits held at 1.6%.

Jobless Claims Signal Firings in U.S. Remain Historically Low

New orders for US factory goods fell for a 2nd straight month in Jun on weak demand for transportation equipment & capital goods, but signs of stabilization in business spending offered some hope for struggling industries.  The Commerce Dept said that new orders for manufactured goods declined 1.5% after a downwardly revised 1.2% decrease in May.  The forecast for factory orders called for the figure to drop 1.8% after a previously reported 1.0% decline in May.  Core capital goods shipments, which are used to calculate business equipment spending in the GDP report, fell 0.2% in Jun.  Manufacturing, which accounts for about 12% of the economy, has been pressured by the residual effects of a strong $ & a weak global demand, which have undermined exports of factory goods.  Production has also been hurt by businesses placing fewer orders as they try to clear an inventory glut.  The sector has also been hurt by spending cuts by energy firms as they adjust to reduced profits from cheaper oil.  An outright drop in inventories & sustained weakness in business spending weighed on economic growth in Q2, with GDP rising at a tepid 1.2% annualized rate.  In Jun, orders for transportation equipment tumbled 10.5%, the biggest drop since Aug 2014.  That largely reflected weak orders for aircraft.  Orders for motor vehicles & parts increased 3.2%, the largest gain since July 2015.  Orders for machinery, which have been hurt by weak demand in the energy & agricultural sectors, rose 0.2%.  Orders for electrical equipment, appliances & components gained 0.3%.  Orders for computers & electronic products slumped 1.9%, the largest drop in more than a year.  Inventories of factory goods dipped 0.1%.  Inventories have declined in 13 of the last 14 months.  Shipments increased 0.7%, lowering the inventories-to-shipments ratio to 1.35 from 1.36 in May.  Unfilled orders at factories decreased 0.8% after 3 straight months of increases.

U.S. Factory Orders Fall, Business Spending Shows Signs of Stabilizing

Stocks are not doing very much as traders wait for the Jul jobs report tomorrow.  Dow is down slightly in Aug & still looks like it will be heading lower this month without positive news to bring out buyers.

Dow Jones Industrials

3 stock chart 

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