Thursday, September 8, 2016

Markets drift lower after ECB leaves rates unchanged

Dow lost 40, decliners over advancers 4-3 & NAZ gave back 22.  The MLP index went up 2 to the 318s & the REIT index added 5 to the 366s,  Junk bond funds were about even & Treasuries headed lower.  Oil rose (see below) & gold fluctuated.

AMJ (Alerian MLP Index tracking fund)

Crude Oil Nov 16

Gold 100 oz. Dec 16

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The ECB kept its stimulus program unchanged in a sign that policy makers don't see an immediate danger to the euro-area recovery from risks including Britain's decision to leave the EU.  The Governing Council left the main refinancing rate at zero, the deposit rate at minus 0.4% & asset purchases at €80B ($90B) a month.  “The Governing Council continues to expect the key ECB interest rates to remain at present or lower levels for an extended period of time, & well past the horizon of the net asset purchases.”  “The monthly asset purchases of 80 billion euros are intended to run until the end of March 2017, or beyond, if necessary, and in any case until it sees a sustained adjustment in the path of inflation consistent with its inflation aim.”  The focus now turns to whether Draghi will announce any technical adjustments to the quantitative-easing program, which could indicate policy makers are preparing to prolong the plan past the current end-date.  While many predict an extension will be announced before the end of the year, officials first need to decide how to prevent the €1.7T plan from running into scarcity problems.  The ECB’s position is that the QE program has the flexibility to be adjusted.  Officials have previously made technical changes including raising the proportion of each bond issue they can buy, & adding asset classes such as regional & corp debt.

European Central Bank Leaves All Three Rates Unchanged

Filings for US unemployment benefits unexpectedly dropped to the lowest level in 7 weeks, showing employers have little appetite to dismiss workers.  Jobless claims fell 4K to 259K, according to the Labor Dept.  The estimate called for 265K.  With the unemployment rate holding below 5% & job openings reaching a record high in Jul, managers are focused on retaining & attracting employees.  Filings for benefits near 4-decade lows should signal a boost in wages, which would encourage Federal Reserve officials looking to raise the benchmark interest rate before the end of 2016.

The 4-week average of claims, a less-volatile measure than the weekly figure, declined to 261K from 263K in the prior week.  Filings have been below 300K for 79 straight weeks, the longest stretch since 1970 & a level consistent with a healthy labor market.  The number continuing to receive jobless benefits dropped 7K to 2.14M & the unemployment rate among people eligible for benefits was 1.6% for a 7th week.

Oil prices rose after US industry data showed a large drawdown in crude stocks, reflecting the impact of an Atlantic storm.  US crude stocks fell by 12.1M barrels last week, data from the American Petroleum Institute, which compares with expectations for an increase of about 200K barrels.  US light crude was up 75¢ at $46.25, having ended the previous session up 67¢. Stocks of  crude have been at record highs in the past 2 years, thanks partly to an output-boosting shale oil boom.  But Tropical Storm Hermine, which threatened the Gulf Coast refining region last week before moving to the East Coast, led to the loss of US oil production & limited imports.  The US gov said that 11.5% of Gulf of Mexico output was shut in as a precautionary measure.  Oil was also buoyed by robust trade data from China, which showed its crude imports in Aug surged by nearly 25% from a year ago to the 2nd-highest amount ever, driven by independent refiners rushing to cash in on low oil prices before import quotas expire in Dec.  Oil hit a one-week high on Mon after Russia & Saudi Arabia agreed to cooperate on stabilizing the oil market.  Prices have since fallen because of uncertainty over the chances of an output freeze being agreed by producer nations, particularly after an Apr meeting in Doha failed to reach an agreement.  OPEC & non-OPEC producers such as Russia are expected to discuss the issue at informal talks in Algeria on Sep 26-28.  Oil prices may decline ahead of the OPEC meeting because they see world markets as well supplied.

Oil Gains After Huge Supply Drawdown

Stocks continue to meander, looking for direction.  Oil is a key driver but those prices are bouncing around on inventory data & rumors about the upcoming meeting.  Dow has been going nowhere for a couple of months.  It looks like it needs a major shock, one way or the other, to break out of the trading range.

Dow Jones Industrials

stock chart 


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