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Tuesday, September 13, 2016
Markets fall on forecast for lower global oil demand
Dow sank 205, decliners over advancers almost 6-1 & NAZ retreated 50. The MLP index lost 6+ to the 303s & the REIT index gave up 6 to the 348s. Junk bond funds were weak & Treasuries were little changed. Oil fell (see below) & gold was flattish.
The surplus in global oil markets will last for longer than previously
thought, persisting into late 2017 as demand growth slumps & supply
proves resilient, the International Energy Agency said. World oil stockpiles will continue to accumulate through 2017, a 4th consecutive year of oversupply. Consumption
growth sagged to a 2-year low in Q3 as demand faltered
in China & India, while record output from OPEC's Gulf members is
compounding the glut. Just last month the agency predicted the
market would return to equilibrium this year.
“Supply
will continue to outpace demand at least through the first half of next
year,” the Paris-based adviser said. “As for the
market’s return to balance -- it looks like we may have to wait a while
longer.” Oil extended losses after the report was published, with
West Texas Intermediate crude falling as much as $1.25 (2.7%),
to $45.04 a barrel.
China’s economy strengthened after the hiccup in Jul as factory output,
investment & retail sales exceeded estimates, amid a
boost from property that’s added to concern that price gains may prove unsustainable. Industrial
production rose 6.3% from a year earlier Aug, compared
with an estimate of 6.2%. Retail sales climbed 10.6% last month, from 10.2% on Jul. Fixed-asset investment increased 8.1% in first 8 months.
The
reports add to other recent data that have helped shore up confidence
in the economy, including better-than-expected trade & the official factory gauge unexpectedly rising to the highest level in almost 2 years. One challenge is that the
property market, which has underpinned the recovery, may face headwinds
as the gov signals that real estate price increases may be
unsustainably high.
Small-business owners' confidence about their economic situation
unexpectedly declined in Aug as
expectations that the economy will improve weighed on sentiment. The National Federation of Independent Business's (NFIB) small-business
optimism index fell to 94.4 last month from 94.6 in Jul (best level
of the year). Economists expected
the gauge to increase to 94.7. The NFIB survey, based on 730 respondents in Aug, is a
monthly snapshot of America's small-business sector, which is home to
most American jobs & accounts for roughly ½ of economic output.
Many look to the report for clues for hiring & wage trends
in the broader economy & for a read on domestic demand. The small-business report comes after a jobs report earlier this
month that showed employers added 151K jobs in Aug, neither
strong enough nor weak enough to settle the Fed's
long-running dilemma about whether the economy can easily withstand
another interest-rate increase. 5 of the 10 components posted
a gain, 4 declined & one was unchanged. The overall
decrease was hurt by falling expectations that the economy would improve
as well as plans to increase employment. Expectations for higher retail
sales & earnings trends also fell. Meanwhile, 5 other subindices increased. The gauges measuring
current inventories, plans to increase inventories, capital outlays,
current job openings & whether now is a good time to expand increased
from the prior month. Expected credit conditions was flat.
Stocks are having another bad day as the Dow is at its 2 month low. Economic news has provided little to cheer about & that is starting to sink in with traders. The negative forecast on oil makes matters worse, sending signals that next will be another drab year for global economic growth (following this year's lackluster results). Holding the Dow above the 18K support level looks to be critical for the bulls. It's only 120- above that level presently.
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