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Monday, October 31, 2016
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.
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.
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.
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.
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.
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