Friday, September 30, 2016

Markets rally on hopes for a delay in an interest rate hike

Dow soared 208, advancers over decliners almost 3-1& NAZ added 52.  The MLP index went up 2 to the 315s & the REIT index was off a fraction to the 355s. Junk bond funds rose with stocks & Treasuries did little. Oil gained (see below) & gold pulled back.

Dow Jones Industrials

3 Stocks You Should Own Right Now - Click Here!

Light Sweet Crude Oil Futures,N

Deutsche Bank is nearing an agreement with US officials to pay $5.4B to settle charges related to its sale of toxic mortgage bonds before the financial crisis, a news agency is reporting.  Germany's largest lender said about 2 weeks ago it would fight a $14B demand from the Dept of Justice to settle claims it missold the securities.  An agreement could be announced in the next couple of days, according to a leaker.  The final amount of the settlement could be slightly different.  The stock jumped up 1.71 (15%).  If you would like to learn more about DB, click on this link:

Deutsche Bank (DB)

Oil prices had  their largest weekly advance in more than a month, supported by planned OPEC output cuts, but profit-taking after a 2-day rally kept benchmark crude contracts below the key $50-per-barrel mark.  Brent & US crude West Texas Intermediate (WTI) futures showed gains of 7%+ on the week after OPEC surprised traders & investors on Wed with a preliminary agreement to remove 700K barrels per day (bpd) from the market.  WTI's front-month rose 24¢ today (0.5%), to $48.07 per barrel & it gained 8% on the week (the most in 6 weeks).  While profit-taking had weighed on oil on Fri, the market's downside was also limited by a rise in US stocks & a drop in the $.  OPEC said it has achieved agreement in principle to cut output to 32.5-33.0M bpd from about 33.5M.  Production quotas for each member & other details will be finalized at the group's policy meeting in Nov, OPEC officials said.  A persistent oil supply glut has caused a sharp drop in crude prices from mid-2014 highs above $100, forcing OPEC into the cuts.  Russia, not an OPEC member but a large producer pumping crude at record highs, said it would find a way to freeze production if it manages to reach a deal with OPEC.

US consumer spending fell in Aug for the first time in 7 months while inflation showed signs of accelerating, mixed signals that could keep the Fed cautious about raising interest rates.  The Commerce Dept said that consumer spending, which accounts for more than 2/3 of economic activity, fell 0.1% last month after accounting for inflation.  Analysts had expected a 0.1% gain.  Janet Yellen said last week she expected the central bank would raise rates once later this year to keep the economy from eventually overheating.  Prices for fed funds futures suggest investors see almost no chance of a hike at the Fed's next policy meeting in early Nov & roughly even odds of an increase at its mid-Dec meeting.  Consumer spending, which has been robust in recent months, partially offset the drag from weak business investment & falling inventories in Q2 when the economy expanded at a lackluster 1.4% annual rate.  It is believed that overall economic growth could still accelerate in Q3 even with slight decline in consumer spending in Aug.  The Atlanta Fed said growth appeared on track to accelerate to a 2.4% annual rate in Q3, according to its closely watched GDPNow forecasting model.  It had forecast growth of 2.8% for the period earlier this week.  A tightening labor market appears to be pushing up wages & could fuel higher levels of spending in the future.  Personal income rose 0.2%, in line with expectations.  Consumer prices also rose about as much expected, with the price index excluding food & energy increasing 0.2% from the prior month.  That left inflation excluding food & energy at 1.7% in the 12 months thru Aug, up a tenth of a percentage point from the prior month & closer to the Fed's 2% inflation target.

Drop in U.S. consumer spending clouds Fed rate hike outlook

Stocks had a good week which brought the Dow back to near breakeven on the month.  Longer term,it extended sideways trading zone.  The thought that the fortunes of DB settling its mess with the DOJ is very disturbing.  But traders are always anxious to see a hint that Janet is ready to postpone a rate hike (not that she needed much encouragement).  The bulls are heartened to see the Dow is within striking distance of a new record. 

Dow Jones Industrials


Higher markets as Deutsche Bank rebounds

Dow climbed 105, advancers over decliners 2-1 & NAZ & added 23.  The MLP index was fractionally lower in the 313s & the REIT index was down a fraction in the 356s.  Junk bond funds slid lower & Treasuries were about even.  Oil went up to the 48s & gold was pennies lower.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,N

Gold Dec 16

3 Stocks You Should Own Right Now - Click Here!

Federal Reserve Chair Janet Yellen's defense of the central bank as non-partisan came under attack, as a Rep congressman cornered her on whether a key policy maker would have a conflict of interest in discussing a post in the next pres's administration.  Fed Governor Lael Brainard has donated to Clinton's campaign & is widely viewed as a potential Clinton pick for Treasury secretary.  Yellen hesitated & then demurred when Rep Scott Garrett (NJ) asked whether Brainard would have a conflict of interest if she were indeed in talks with Hillary Clinton's campaign about a position.  “I would have to consult my counsel, I’m not aware that that’s a conflict,” Yellen said in testimony to the House Financial Services Committee, while rejecting Garrett's suggestion that the central bank has a political bias.  A Fed spokeswoman later said that Brainard hasn't been in conversations with either political campaign.  The heated exchange followed Donald Trump's comment, heard by tens of millions of Americans debate, that the Fed is keeping rates low to make Obama look good.  Merited or not, the persistent questioning of Fed objectivity, & Yellen's inability to deflect that skepticism, could provide more of an opening for congressional efforts to reshape the Fed's governance or how it sets monetary policy.

Fed Politics in Spotlight as Yellen Cornered by Lawmaker

Consumer confidence rose in Sep for the first time in 4 months as Americans grew more upbeat about the prospects for incomes & persistent low inflation.  The Univ of Michigan said that its final index of sentiment rose to 91.2 from 89.8 in Aug.  The projection called for 90, little changed from the 89.8 preliminary Sep reading.  Relatively subdued gasoline & grocery costs & moderate wage increases are keeping Americans optimistic that their incomes will stretch further.  At the same time, consumers' assessments of current economic conditions were the weakest in almost a year, which may keep spending moderate after an Aug slowdown.  “Low inflation continues to be a source of strength that has offset meager, although improved, income increases and boosted real income expectations,” Richard Curtin, director of the consumer survey, said.  “The slightly improved outlook for the economy came despite unchanged jobs prospects and the expectation of rising interest rates.”  The figure compares with an average consumer sentiment reading of 92.9 in 2015 and 91.5 in the first 8 months of this year.  The gauge of expectations six months from now increased to 82.7, the highest since May, from 78.7 in Aug.  Respondents said they anticipated income gains of 1.7% in the year ahead, the biggest since Feb, after 1.2% in Aug.  The current conditions index, which measures Americans’ perceptions of their personal finances, declined this month to 104.2, the lowest since Oct, from 107.

U.S. Consumer Sentiment Climbs for First Time in Four Months

The Institute for Supply Management gauge of factory activity in the Midwest region rose to 54.2 in Sep from 51.5 the month prior. The forecast was for a small rise to a reading of 52.0.  Readings above 50 point to expansion, while those below indicate contraction

Midwest Manufacturing Expanded in September

The nervous stock market sees Deutsche Bank go up 82¢ & that is bringing out buyers.  Oil is back in the 48s helps.  These are fluid situations & Dow remains in its sideways trading zone where  it has been for several months.  That's called meandering.  The stock market needs direction & Q3 earnings will begin in a week.

Dow Jones Industrials