Monday, October 31, 2016

Markets waver amid new Clinton probe by the FBI

Dow lost 18, advancers a little ahead of decliners & NAZ was off pocket change.  The MLP index dropped 3+ to the 299s (5 month low) & the REIT index gained 4+ to the 355s.  Junk bond funds remained weak & Treasuries went a little higher.  Oil sank to the 46s & gold inched higher (essentially even).

AMJ (Alerian MLP Index tracking fund)

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Live 24 hours gold chart [Kitco Inc.]

Oil prices dropped more than 3% to touch a 1-month low on doubts about OPEC's ability to implement its planned production cut, even as cartel officials approved a document outlining their long-term strategy.  Officials from OPEC approved the document today in a sign its members are achieving a consensus on managing production.  But OPEC has so far achieved little otherwise.  When cartel representatives met weekend, they did not reach any specific terms & Iran has been reluctant to even freeze its output.  West Texas Intermediate (WTI) futures were trading down $1.55 ($47.15)) a barrel after falling to $46.94, the lowest since Sep 29.  Reservations over OPEC's output cut prompted analysts to leave their price outlooks broadly unchanged.  Compounding the bearish sentiment was data from energy monitoring service Genscape which showed a build of 585K barrels of crude at the storage hub & delivery point in Cushing, Oklahoma last week.  Non-member Russia had agreed to cooperate, but a draft federal budget showed it expects to increase its output by 0.7% next year & 0.9% in 2018.  Russia gave the green light today to a new oilfield expected to produce 90K bpd of crude in 2017.

Cardinal Health reported fiscal Q1 EPS that fell to 96¢, from $1.15 a share in the same period a year ago.  Excluding non-recurring items, adjusted EPS came to $1.24, above the estimate of $1.21.  Revenue increased 14% to $32B from $28.1B, above the consensus of $31.1B.  Pharmaceutical revenue of $28.8B beat the forecast of $28.1B & medical revenue of $3.3B topped expectations of $3.2B.  Based on Q1 results & current Q2 expectations, the health care services company cut its adjusted EPS outlook to $5.40-5.60 from $5.48-5.73.  Pharmaceutical revenue is expected to decline in the mid-to-high single-digit percentage range from a year ago, while the consensus implies growth of 7.5%.  "While short-term headwinds, particularly around pharmaceuticals, are quite challenging, our Medical segment had an excellent quarter building on the momentum coming out of fiscal year 2016," said CEO George Barrett.  The stock rose 1.19.  If you would like to learn more about CAH, click on this link:

Cardinal Health Beats Profit Expectations But Cuts Outlook

Cardinal Health (CAH)

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Bank of England Governor Mark Carney said he has decided to stay in charge of the central bank for an extra year until the end of Jun 2019 to help smooth Britain's departure from the EU.  Carney had the option of staying at the BoE until 2021.  Earlier, Prime Minister Theresa May backed him to extend his term as she sought to dampen political pressure on the central bank chief.  "I would be honored to extend my time of service as Governor for an additional year to the end of June 2019," Carney said in a letter to finance minister Philip Hammond.  "By taking my term in office beyond the expected period of the Article 50 process (for Britain to leave the EU), this should help contribute to securing an orderly transition to the UK's new relationship with Europe," he added.

Bank of England's Carney says to extend stay at BoE by one year

Stock traders have a lot to be nervous about.  Oil pulled back from interim highs, giving evidence that it is unable to break thru the 50 ceiling in a meaningful manner.  Earnings are less than stellar.  The new FBI proble on Clinton e-mails is adding confusion to what has already been a difficult election to figure out.  In the last 4 months, the Dow has reached a new record then settled back going sideways a little under that level.  It is still looking for direction & earnings from retailers, which will be reported in the next couple of weeks, can not be counted on to bring out buyers.

Dow Jones Industrials

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Markerts little changed as oil plunges below 48

Dow was off 2, advancers a little ahead of decliners & NAZ gained 5.  The MLP index lost 2 to 301 & the REIT index rose 2+ to the 333s.  Junk bond funds slid lower & Treasuries finally advanced.  Oil tumbled to under 48 on doubts about OPEC production cuts (more below). & gold was also lower.

Dow Jones Industrials

Crude Oil Dec 16

Gold Futures,Dec-2016

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OPEC's internal disagreements over how to implement oil-supply cuts agreed to last month prevented a deal to secure the cooperation of other major suppliers.  More than 18 hours of talks over 2 days in Vienna yielded little more than a promise that the world's largest oil producers would keep on talking.  Discussions will continue in late Nov, just days before OPEC is supposed to finalize the accord that lifted oil prices to one-year highs.  Non-OPEC nations ended talks with the group without making any supply commitments, Brazil’s Oil & Gas Secretary Marcio Felix said after the meeting.  Brazil won't restrict its oil production, though it’s willing as early as next year to host future OPEC conferences with the world's biggest producers.  Azerbaijan's Energy Minister Natiq Aliyev said the outcome of the process hinges on Iran & Iraq, 2 nations that are more interested in increasing production than reducing it.  While the meeting was a successful “first step,” oil-producing nations need to continue dialog and “come up with real numbers” before cuts can begin, Kazakhstan’s Deputy Energy Minister Magzum Mirzagaliyev said.  A deal wasn't possible because internal OPEC talks reached an impasse over the role of Iran & Iraq, both of which want to be exempt from any cuts.  While non-member Oman said it was willing to cooperate in a supply deal, it couldn't commit to a specific output cut until OPEC had its own agreement.

OPEC Splits Prevent Deal With Other Producers to Curb Supply

Consumer purchases climbed in Sep by the most in 3 months as incomes grew, signaling momentum in the biggest part of the US economy.  The 0.5% advance in spending, which accounts for about 70% of the economy, followed a 0.1% decline the prior month that was revised lower, according to the Commerce Dept.  The forecast called for a 0.4% gain.  While the results indicate a solid handoff into Q4, disposable income, or the inflation-adjusted money left over after taxes, was little changed for a 2nd month, indicating wages will need to pick up to boost spending even more.  Such support is needed to drive faster economic growth, which picked up last qtr despite softer household purchases.  Nominal incomes rose 0.3% after a 0.2% gain.  Rising inflation, however, is taking a bigger toll.  Disposable incomes were up 2.1% from a year earlier, the weakest advance since Jan 2014.

Inflation-adjusted spending rose 0.3% after a 0.2% decline.  The advance in purchases included a 1.8% jump in durable goods.

Consumer Spending in U.S. Climbs by Most in Three Months

The Institute for Supply Management’s gauge of factory activity in the Midwest region fell to 50.6 in Oct from 54.2 the month prior.  The projection expected a smaller decline to a reading of 54.0.  This is the lowest reading since May.  Readings above 50 point to expansion, while those below indicate contraction.

Midwest Manufacturing Hits Five Month Low

No great surprise on the outcome of the OPEC meeting.  This group of countries has a track record of on agreeing to very little.  Each country has a different agenda.  The consumer spending data is encouraging, but on the other hand it might give the FOMC courage for a rate hike soon.  Dow keep sloshing around above 18K as it has been doing for months.

Dow Jones Industrials