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.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,N

Gold Dec 16

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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.

China Growing at 6.7% Opens Window to Deliver Debt-Curb Vow

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.

Dollar Falls a Third Day as Fed Seen Taking Gradual Rate Path

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.

US home construction fell 9 percent in September

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.

Dow Jones Industrials


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