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Tuesday, November 29, 2016
Markets fluctuate after oil falls below $46 ahead of OPEC meeting
Dow rose 16, advancers ahead of decliners 5-4 & NAZ added 20. The MLP index dropped 4+ to 291 & the REIT index added 2+ to the 331s. Junk bond funds were a little lower & Treasuries were also lower. Oil sank to the low 45s (more below) & gold was sold.
Iran, OPEC's 3rd-largest oil producer, said it won't cut output as
members of the group met in Vienna before a crucial summit on
Wed. The country isn't prepared to reduce supply, Oil
Minister Bijan Namdar Zanganeh said. Saudi
Arabia is insisting that Iran & its neighbor Iraq participate in a
production deal. Benchmark Brent crude dropped more than 4%. Iran has suggested a deal whereby it freezes production at
3.975M barrels a day (about 200K barrels a day above
current output. Saudi Arabia countered
with a proposal for Iran to cap output at 3.707M barrels a day. Algeria,
acting as a go-between, offered an alternative that would see Iran
freezing at 3.795M barrels a day, according to leakers. An OPEC
proposal initially agreed in Sep would see producers
trim output by about 1.2M barrels a day from Oct levels . Iran
has sought special treatment since it's ramping up output following
years of sanctions.
The US economy expanded more than previously reported in Q3
on a sunnier picture of household spending, the primary growth engine. GDP rose at a 3.2% annualized rate, the fastest in 2 years, compared with an
initial estimate of 2.9%, according to the Commerce Dept. The forecast called for a 3% gain. While business investment remains a weak spot, solid
labor-market progress & steady household purchases kept growth on
track ahead of the holiday shopping season. The figures are likely to
reinforce projections for the FMOC to raise the
benchmark interest rate in Dec for the first time this year, with
inflation getting closer to the central bank's goal.
GDP represents the value of all goods &
services produced in the economy. Projections for Q4
growth figure are 2.8-3.3%. This is the 2nd
of 3 estimates for the qtr. The
revised growth figure mainly reflected changes to the pace of consumer
spending and residential investment. Household purchases, accounting
for almost 70% of the economy, grew at a 2.8% annualized
rate, stronger than the 2.1% pace initially estimated. Consumers also
had more spending power in the qtr period than previously
thought. Wages & salaries were up $110.2B from Q2, after an initial estimate of a $56B gain. Residential
investment was less of a drag, falling at a 4.4% pace, after an
initial reading of a 6.2% drop, reflecting upward revisions to
single-family housing & to data on dealers of building materials &
garden supplies. The upward revisions to growth were partly offset
by a downward adjustment to nonresidential fixed investment.
German inflation unexpectedly remained unchanged in Nov,
suggesting the ECB may need to do more to meet its
goal for price growth in euro area. Consumer prices
rose 0.7% from a year ago, the Federal Statistics Office said. That’s below the 0.8% rate forecast. Prices were unchanged from Oct. Stubbornly low inflation in Europe’s largest economy might concern
ECB policy makers as they assess risks to the region’s outlook. At the
next meeting on Dec 8, they will debate whether €1.7T
($1.8T) of asset purchases will be enough to return euro-area
inflation to below but close to 2%, a level not reached in more
than 3 years, or if more stimulus is needed. A national measure of inflation remained at 0.8%. Recent
data on business confidence & output suggest that German economic
momentum remains robust. The Bundesbank said last week that growth will
likely pick up considerably in Q4, after
a temporary slowdown in Q3. The fortunes of
Germany are key to the recovery of the euro area, where economic
expansion is stuck at mediocre levels & risks remain on the downside.
The region's inflation rate rose to 0.6% in Nov from 0.5% the previous month. ECB pres
Mario Draghi said that the
Governing Council will preserve the high level of monetary accommodation
necessary to reach its inflation target. Policy makers have warned repeatedly that
they're lacking convincing signs of an upward trend in underlying price
pressures.
Once again, this tired rally is resting. Chaos ahead of OPEC's meeting is not calming nerves of traders. The Dow is above 19.1K, making the bulls happy. The well advertised rate hike in 2 weeks should not be a factor in the stock market, although what Janet has to say about future increases will be watched closely.
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