Wednesday, December 14, 2016

Markets drift lower on weak retail sales and factory production data

Dow fell 36, decliners over advancers almost 2-1 & NAZ lost chump change.  The MLP index gave back 2+ to the 301s & the REIT index was down 2+ to the 338s.  Junk bond funds were flattish & Treasuries found buyers once again.  Oil retreated 1 to 53 (more below) & gold was a little higher.

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US factory output dropped in Nov, the first time in 3 months, showing an anemic recovery in manufacturing after an extended slowdown.  Production at factories, which make up 75% of all output, fell 0.1%, a Federal Reserve report showed.  The forecast called for a 0.2% drop.  Total industrial output, which includes mines & utilities, decreased 0.4%, the biggest decline since Mar, as utility use slowed with warmer-than-usual temperatures.  American manufacturing is barely expanding as global demand and domestic business investment remain uninspiring.  While factory customers have made progress trimming bloated inventories & consumer spending is holding up, a recent spike in the $ represents a new challenge for producers.  Capacity utilization, which measures the amount of a plant that is in use, eased to 75%, the weakest since Mar, from 75.4% the prior month.  Utility output decreased 4.4% after the Oct 2.8% decline.  Mining production, including oil drilling, climbed 1.1% after a 1.9% increase.  Drilling of oil & gas wells rose 5.3%.  The US rotary rig count has been steadily rising for 6 months after a relentless slide that started at the end of 2014.  Rebounding energy prices are giving a lift to the count.  The number of rigs increased to 624 in the latest week from 597 in the prior period.  Consumer durable goods output dropped 1.6% after a 0.8% gain in Oct.  Business equipment production was down 0.3% following a 0.1% increase.

U.S. Factory Production Drops for First Time in Three Months

Sales at US retailers rose less than forecast in Nov, representing a pause in spending after robust gains in the previous 2 months.  The 0.1% advance followed a revised 0.6% increase in the prior month that was smaller than initially reported, Commerce Dept data showed.  The forecast called for a 0.3% gain.  The figures interrupt a trend of solid spending by consumers, who remain a mainstay of the economy in the wake of 2M hires this year & gradual wage gains.  Recent data showing Americans more upbeat about their finances than at any time in 11 years & prevalent discounting may also benefit retailers this holiday-shopping season.

Retail Sales in U.S. Increased Less Than Forecast in November

Oil dropped from the highest close since Jul 2015 as focus shifted to expanding US crude inventories after OPEC & other producing nations agreed to cut output.  Crude fell 2% after climbing the previous 4 sessions.  US stockpiles rose 4.68M barrels last week, the American Petroleum Institute was said to report.  Oil markets will swing into deficit in H1-2017, sooner than previously forecast, as producers curb supply, according to the International Energy Agency.  OPEC said its demand won't exceed supply until H2-2017.   Caution pervaded markets before the Federal Reserve's expected interest-rate hike in the PM.  West Texas Intermediate for Jan delivery dropped 75¢ (1.4%) to $52.23.  Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI, rose 632K barrels, the API reported.  The API was said to report that gasoline stockpiles increased by 3.91M barrels last week.

The economic data was not encouraging.  Of course, the markets are vastly over bought & a tiny correction means nothing.  In the PM Janet will speak & everybody will listen closely.  With the rate hike fully baked in & the likelihood of hints about more rate hikes next year, the market can be expected to sell off.. 

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