Tuesday, November 15, 2016

Lower Dow after 6 days of gains

Dow fell 34, advancers over decliners almost 2-1 & NAZ recovered 38.  The MLP index shot up 4+ to the 303s & the REIT index added 1+ to the 328s.  Junk bond funds finally found buyers & Treasuries are now only about even (more below).  Oil was up to the 45s & gold edged higher.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,J

Gold Feb 17

The fallout from Trump's election eased off in financial markets with Treasuries & emerging markets halting their routs. Oil surged.  Treasury 10-year note yields fell from this year's high & Italian bonds led gains in the euro area, outperforming German bunds, which investors tend to favor in times of turmoil.  Shares in developing nations advanced after the biggest slide since Aug, while US stocks fluctuated.  The $ erased losses after data showed US retail sales beat estimates.  Crude jumped as OPEC nations were said to be making a final diplomatic effort toward securing a deal to curb production and stabilize prices. Copper tumbled.
Trump's victory, which came with pledges to cut taxes, spend more than $500B on infrastructure & restrict imports, triggered a record selloff in global bonds as traders assessed the implication for inflation & interest rates.  Some have already expressed skepticism that Trump's proposals will be fully backed by Congress.  The yield on benchmark Treasury 10-year notes dropped 3 basis points to 2.23%.  The 41 basis-point jump over the last 3 trading sessions marked the steepest climb in more than 7 years & the 14-day relative strength index for the securities indicated they were the most oversold since 1990, a potential signal that they may be set for a reversal.

Bonds Rise With Emerging Markets After Trump Selloff; Oil Surges

German economic growth slowed to the weakest pace in a year last qtr, a reminder of the fragility of the euro area's recovery in a time of rising uncertainty.  The slowdown in Germany to 0.2%, along with a resumption of growth in Italy & France, left expansion in currency region at 0.3%, in line with an initial estimate & matching the pace of Q2.
Germany's fortunes are key to the recovery of the euro region, where the economy’s expansion is stuck at mediocre levels. That backdrop will color the ECB's review of its stimulus program in less than 4 weeks, when it will also have to factor in a global outlook characterized by the rise of populists critical of international trade deals.  Economists forecast that the euro area will maintain its current pace of growth thru H1-2017, then see a slight pickup to 0.4%.  Germany’s growth in Q3 marked a slowdown from 0.4% & fell short of the forecast.  Italy’s economy (euro region's 3rd largest) grew 0.3%, resuming expansion after stagnation in Q2.  In the Netherlands, growth was unchanged from the previous qtr at 0.7%.  Previously published figures put French growth at 0.2%.  In Germany, domestic demand drove growth in Q3 as both gov & private consumption spending rose.  The global economy dragged on growth, with exports contracting slightly. Investment in equipment also slipped while construction climbed.

German Cooling, Italy Rebound Keep Euro-Area Growth at 0.3%

Sales at US retailers rose more than forecast last month in a broad advance after an even stronger Sep than initially estimated, showing consumers continue to pump up the economy.  A 0.8% rise in Oct followed an upwardly revised 1% jump in the prior month, marking the biggest back-to-back increase since March-April 2014, according to the Commerce Dept.  The forecast called for a 0.6% gain.  Over the last 12 months, retail sales were up the most in almost 2 years.  Healthy hiring, wage growth & limited inflation are giving Americans the wherewithal to spend at stores, malls & online merchants.  Momentum at the start of the qtr bodes well for household purchases during the approaching holiday-shopping season.  Retail receipts increased 4.3% from Oct 2015, the biggest advance since Nov 2014.

Sales improved in 11 of 13 major categories for a 2nd straight month.  That included the biggest advance in 5 months at internet retailers & the strongest month for apparel chains since Feb.  Furniture outlets & restaurants were the only major categories registering a decline in Oct sales.  Auto purchases remained robust, climbing 1.1% after a 1.9% increase.  Retail sales excluding automobiles & service stations increased 0.6% after a 0.5% gain a month earlier.  The figures used to calculate GDP, which exclude categories such as food services, auto dealers, home-improvement stores & service stations, climbed 0.8%.  The increase in the retail control group was the largest since Apr & followed a 0.3% Sep gain that was stronger than first reported.

Retail Sales in U.S. Jump More Than Forecast in Broad Advance

The spectacular advance for the Dow has finally ended, but the markets remain in a state of turmoil.  Treasury bonds are trying to find a floor after their decline.  Junk bond funds are doing better.  Oil is up on hopes for an agreement on production cuts.  Money is finally buying tech stocks.  These are volatile times which will not end soon.

Dow Jones Industrials


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