Wednesday, November 30, 2016

Dow rises to a record on news from OPEC meeting

Dow gained 51 to a new record, decliners over advancers almost 5-4 & NAZ fell 21.  The MLP index jumped up 9+ to the 302 on the OPEC news & the REIT index dropped 4+ to the 327s.  Junk bond funds were a little higher & Treasuries were sold.  Oil soared to the 48s on the OPEC news (more below) & gold dropped to 1175.

Dow Jones Industrials

Crude Oil Jan 17

Gold Futures,Feb-2017

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OPEC clinched a deal to curtail oil supply, confounding skeptics as the need to clear a record global crude glut, & prove the group's credibility, brought about its first cuts in 8 years.  The group will reduce production by 1.2M barrels a day to 32.5M a day, according to leakers.  Benchmark Brent crude rose 8% to over $50 a barrel.  After weeks of often tense negotiations, OPEC's 3 biggest producers (Saudi Arabia, Iraq & Iran) resolved differences over sharing the burden of cuts.  It appears the Saudis accepted that Iran, as a special case, can raise production to 3.9M barrels a day.  The agreement is also likely to include an additional reduction of about 600K barrels a day by non-OPEC countries.  The deal promises to revive the tattered finances of countries from Venezuela to Libya & restore flagging confidence in the producer bloc that controls 40% of the world’s oil.  But the consequences will reverberate far beyond OPEC, giving a boost to US shale drillers crippled by a 2-year price rout.  Russia, the biggest producer outside the bloc, has said if OPEC agrees on individual country quotas it's ready to participate, including possibly reducing its output (a reversal of its previous position).

OPEC Agrees to Cut Production in Drive to End Record Glut

Personal spending increased at a more moderate pace in Oct after the biggest gain in 5 months, while faster income growth signaled demand will be sustained.  Purchases rose 0.3% after a 0.7% Sep advance that was stronger than first estimated, Commerce Dept figures showed.  The forecast called for a 0.5% advance in Oct.  Incomes jumped 0.6%, the most since Apr.  Consistent job growth, projected to be reinforced with the Fri report on Nov payrolls & a firming up of wages are allowing households to spend a little bit more freely.  The report also showed the Fed's preferred inflation gauge climbed to the highest since Oct 2014.  Wages rose 0.5% in Oct for a 2nd month, exceeding the 0.4% forecast.  The gain in worker pay helped propel income growth after a 0.4% increase in Sep that was more than previously reported.  The personal spending report showed the price index tied to consumer purchases increased 0.2% for a 3rd month in Oct.  It rose 1.4% from a year earlier.  This inflation gauge (preferred by Fed policy makers) while making progress, hasn't met the 2% goal since Apr 2012.  Disposable income, or the money remaining after taxes, rose 0.4% from the prior month after adjusting for inflation, the strongest advance this year.  The saving rate increased to 6% from 5.7% in Sep.

Companies in Nov added the most workers to US payrolls since Jun, data from the ADP Research showed.  Private payrolls climbed 216K (forecast was 170K) after a 119K gain in Oct that was revised down from 147K.  Goods-producing industries, which include manufacturers & builders, reduced headcounts by 11K after a 20K decrease.  Service providers boosted payrolls by 228K after a 138K increase.  Hiring managers’ need for more workers is helping to sustain the job-market progress that Federal Reserve officials have noted ahead of their Dec meeting, when they're expected to raise interest rates.  The ADP report may also help bolster forecasts for private payrolls before the Fri release of Nov employment data.  “There is little evidence that the uncertainty surrounding the presidential election dampened hiring,” Mark Zandi, chief economist at Moody's Analytics said in a statement (Moody's produces the figures with ADP).

ADP Says Companies in U.S. Added 216,000 Employees in November

The big picture is a little fuzzy.  Dow wants to set a new record but market breadth is negative & techs are being sold.  It looks all countries still need to sign the production agreement.  That could become tricky given OPEC's record of a lack of cooperation by its members.  Stock purchases coming from gut reactions has proven to give false signals in the past.

Dow Jones Industrials

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