Thursday, September 29, 2016

Lower markets after yesterday's advance

Dow slid back 12, decliners over advancers 5-4 & NAZ declined 20.  The MLP index was fractionally higher to the 316s & the REIT index gave back 1+ to 360.  Junk bond funds pulled back & Treasuries were sold.  Oil inched higher & gold was off pennies.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,N

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OPEC agreed to the outline of a deal that will cut production for the first time in 8 years, surprising traders who had expected a continuation of the pump-at-will policy the group adopted in 2014 at the instigation of Saudi Arabia.  The agreement was possible because Iran will be exempt from capping production, a major concession by Saudi Arabia, the group's dominant producer.  Still, many of the details remain to be worked out & the group won't decide on targets for each country until its next meeting at the end of Nov.  The lower end of the production target equates to a nearly 750K barrel-a-day drop from what OPEC said it pumped in Aug, more than ½ the forecast increase in global oil demand this year.  The agreement also signals a new phase in relations between Saudi Arabia & Iran, which have clashed on oil policy since 2014 & are backing opposite sides in civil wars in Syria & Yemen.  The deal indicates that Riyadh & Tehran, with the mediation of Russia, Algeria & Qatar, were able to overcome the differences that sunk another proposal to cap production earlier this year.

“We decided the range of production for OPEC of 32.5 to 33 million barrels a day should be divided between OPEC member countries,” Iranian minister Bijan Namdar Zanganeh said after the meeting.

OPEC Agrees to First Oil Output Cut in Eight Years

The US economy expanded more in Q2 than previously estimated, reflecting a smaller drag from business spending on structures & equipment.  GDP rose at a 1.4% annualized rate, compared with a prior estimate of 1.1%, according to the Commerce Dept.  Gross domestic income, which reflects all the money earned by consumers, businesses & gov agencies, was revised to show a 0.2% drop rather than a gain.  Households are doing the heavy lifting for the economy, making up for tepid business investment & lackluster demand from overseas.  On the heels of robust hiring & nascent wage gains, consumer spending is projected again to drive growth in Q3.

The upward revision to GDP also reflected a smaller drag from inventories & higher exports.  The forecast called for a 1.3% gain in GDP.   The latest estimate is the last of 3 for the qtr before annual revisions next year.  The economy grew at a 0.8% pace in Q1.

The number of applications to collect jobless benefits rose less than forecast last week, indicating employers are leery of dismissing workers as the labor market tightens.  Jobless claims rose 3K to 254K from a 5-month low in the previous week, according to the Labor Dept.  The forecast was for 260K.  The number already on benefit rolls declined to the lowest level since 2000.  Dismissals have been hovering just above the lowest level since the 1970s as employers compete for experienced workers amid a record number of job openings.  In Apr, claims dropped to 248K, the fewest since 1973.  Applications filed with state employment agencies have been below 300,000 for 82 straight weeks, the longest streak since 1970 & a level typical for a vibrant labor market.  The less-volatile 4-week average of claims dropped to 256,K, the lowest since Apr, from 258K in the prior week.  The number continuing to receive jobless benefits declined 46K to 2.06M, the fewest since 2000, & the unemployment rate among people eligible for benefits held at 1.5%.

Not much going ion in the stock market.  The agreement to limit oil production (relative to record production) is sort of official today.  It's not quite final & members have been know to hceat in the past, so it's usefulness is unclear.  Economic data continues to come in mixed as it looks like the growth rate for GDP for this year will below 2%.  The high value for stocks indicates the markets don't care, as long as interest rates remain low.

Dow Jones Industrials


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