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.

AMJ (Alerian MLP Index tracking fund)

Crude Oil Jan 17

Gold Futures,Feb-2017

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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.

Iran Says It Won’t Cut Oil Production

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.

U.S. Third-Quarter Growth Revised Upward on Consumer Spending

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.

German Inflation Fails to Pick Up as ECB Weighs Adding Stimulus

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.

Dow Jones Industrials

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