Friday, December 16, 2016

Higher markets on optimism about the outlook for growth

Dow climbed 63, advancers over decliners 5-2 & NAZ went up 8.  The MLP index added 2+ to the 304s & the REIT index rose 3+ to the 334s.  Junk bond funds inched higher. & Treasuries remained weak, with yield on the 10 year Treasury up to 2.6%.  Oil rose to the 52s & gold inched higher.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,F

Gold Feb 17

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Oil headed for a weekly loss as OPEC member Libya prepared to raise supply, fanning doubts over how far the organization can implement production cuts announced last week.  Futures rose 0.4%, poised for a weekly decline of 0.8%.  Libya reopened one of its biggest oil fields & was preparing the first crude shipment in 2 years from its largest export terminal, Es Sider.  The $ is headed for its biggest weekly gain in almost a month against major peers after the Fed raised interest rates.  Oil has traded near $50 since OPECes agreed Nov 30 to trim output for the first time in 8 years. A broader deal reached last weekend with 11 non-members including Russia encompasses countries that produce about 60% of the world's crude.  A significant increase in Libya, which is exempt from cuts, could mean other nations have to make bigger reductions to achieve OPEC's targeted production level of 32.5M barrels a day.  West Texas Intermediate for Jan delivery gained 22¢ to $51.12 a barrel.  The contract fell 14¢ to close at $50.90 yesterday. Prices closed at the highest since Jul 2015 on Tues.

New-home construction in the US fell more than forecast in Nov after surging a month earlier to a 9-year high, indicating fitful progress in residential real estate.  Residential starts slumped 18.7 percent to a 1.09M annualized rate last month after rising to a 1.34M pace, Commerce Dept data showed.  The projection called for a 1.23M pace in Nov.  Ground-breaking jumped 27.4% in Oct, the most since 1982.  Permits, a proxy for future construction, also fell last month on fewer applications to build apartments.  Even with the decline, homebuilding so far this qtr is running at a faster pace on average than it was in the previous 3 months & permits for single-family properties rose.  While challenged by a recent increase in mortgage rates, limited numbers of skilled workers & shortages of available lots, builder sentiment surged in Dec on optimism that Trump will ease regulatory burdens.  The starts data, while very volatile from month to month, follow other figures indicating steady improvement in residential real estate, including a surge in homebuilder sentiment to the highest since Jul 2005, according to National Association of Home Builders/Wells Fargo.  Permits dropped 4.7% to a 1.2M annualized rate, reflecting a 13% slide in applications for multifamily dwellings.  Permits for one-family homes climbed 0.5%, the 4th straight gain.  Construction of single-family houses dropped 4.1% to an 828K rate from 863K in Oct.  Groundbreaking on multifamily home decreased 45.1% to an annual rate of 262K after a 76% surge in Oct.

U.S. Home Starts Slumped in November After Outsize Advance

Mario Draghi warned European leaders that the combination of rising global interest rates & explosive politics could expose the euro area's underlying weaknesses, even as he painted an upbeat picture of the region's recovery.  The ECB president highlighted the votes next year, a slowdown in reforms & some countries' lack of compliance with budget rules as factors that could threaten the return of conditions reminiscent of the turbulent years from 2010.  Draghi briefed EU leaders about the economy at a meeting of heads of state & gov & argued higher rates could leave countries that have failed to trim deficits with more to pay.  On the broader outlook, he said conditions have improved everywhere in the region compared to the beginning of 2016, with a pick-up in investment U& consumption supported by the ECB's monetary policy.  Draghi said 2017 was fraught with risk as the full impact of Brexit & Trump's election is yet to show.  A rise in interest rates could put renewed pressure on countries with high debt that have failed to consolidate their budgets, he added.  This stress could spread to the whole region as economic differences across countries have increased and structural reforms have ground to a halt.  While noting that price growth will accelerate significantly in coming months on the back of higher oil prices, Draghi stressed that underlying inflation still isn't accelerating, prompting the ECB to prolong its stimulus while reducing the pace of monthly asset purchases to €60B ($63B).

Draghi Said to Warn EU Rising Global Rates Pose Crisis Risk

Stocks are closing the week on a strong note.  This may be a version of the classic year-end rally.  Dow needs less than another 100 to climb over 20K, something which would make the bulls happy.  Another way to look at the Dow is its up a startling 1.6K since the election while nothing has been accomplished by the new administration.  Buyers beware.

Dow Jones Industrials

stock chart  

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