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Wednesday, October 19, 2016
Mixed markets on Fed outlook & earnings
Dow gained 27, advancers over decliners about 3-2 & NAZ lost 5. The MLP index added 1 to the 314s & the REIT index was off 1+ to 342. Junk bond funds were a little higher & Treasuries were flattish (more below). Oil jumped up, going over 51, & gold rose.
China’s economic growth remained stable in Q3, all but
ensuring the gov's full-year growth target is met & opening a
window for policy makers to deliver on vows to rein in excessive credit & surging property prices. GDP rose 6.7% from a year earlier, matching the
projection & in the middle
of the gov 2016 goal of 6.5-7% growth.
Services industries paced the expansion in the first 9 months of the
year, expanding 7.6%.
Stabilizing growth gives room for policies aimed at containing swelling leverage & curbing excessive financial risks, with IMF nresearchers among those calling for such efforts. The gov released guidelines last week for reducing debt, yet past pledges have often been ignored
as rampant credit growth fuels surging house prices in its
biggest cities. Releases
for Sep showed the continuing shift in China's economy toward
consumer spending, with retail sales gains outpacing the rise in
industrial production. Investment spending continues to be led by the
public sector, with subdued private business
spending highlighting the problem of high levels of debt.
The $ fell for a 3rd day after a core US
inflation gauge rose less than forecast in Sep suggesting the
pace of interest-rate increases by the Fed will be gradual. The currency dropped as the chances of a Fed rate hike by Dec, according to fed
fund futures pricing, receded amid mixed signals from the economy.
Traders see about a 64%
probability the central bank will raise rates by Dec, down from 66% at the end of last week. The calculations assume that the
effective fed funds rate will average 0.625% after the next
increase. The ECB is due to announce its decision on monetary
policy tomorrow. Economists expect
that officials will keep the deposit rate at a record-low minus 0.4%. There has been speculation that the ECB will began to reduce
its bond purchases next year, following a report earlier this
month that policy makers led by pres Mario Draghi had discussed
tapering.
Homebuilders pulled back on construction for a 2nd straight month
in Sep, with a plunge in apartments offsetting gains in
single-family homes. Building activity was weak in all parts of the
country except the Midwest. The Commerce Dept says construction tumbled 9% in
Sep to a seasonally adjusted annual rate of 1.05M units, the slowest pace in 18 months. Construction had fallen 5.6%
in Aug. The weakness last month reflected a 38% drop in
construction of apartments, which overshadowed an 8.1% rise in
single-family construction. Despite the 2 months of declines, home construction has been
one of the bright spots in the economy this year with builders
scrambling to keep up with rising demand, reflecting continued strong
job gains.
On mixed messages, stocks are looking for direction. In the Sep-Oct period, Dow has had a flat performance. Buyers have been encouraged by what they see as prospects of postponing the next rates hike at the Fed while economic data is inconsistent & drab.
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