Thursday, December 8, 2016

Markets waver after ECB adds more stimulus

Dow rose all of 2 to a new record, decliners a tad higher than advancers & NAZ went up 12.  The MLP index was off pennies in the 299s & the REIT index slid back fractionally in the 336s.  Junk bond funds were slightly lower & Treasuries were sold.  Oil added almost 1, taking it into the 51s, & gold drifted lower.

AMJ (Alerian MLP Index tracking fund)

Crude Oil Jan 17

Gold Dec 16

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Mario Draghi warned that the ECB's newest stimulus push might not be the last as it strives to reach its inflation goal.  “The intention of the monetary-policy decisions is to maintain the extraordinary degree of accommodation in place,” he said after the Governing Council agreed to add €540B ($576B) to its bond-buying program & extend it until the end of next year.  If “the outlook becomes less favorable or financial conditions become inconsistent with further inflation progress, the Governing Council intends to increase the program in size or duration.”  The ECB’s fresh action comes amid concern that the euro area's gradual economic recovery risks being derailed as political uncertainties cloud the outlook.  Draghi & his colleagues have frequently stressed that the upturn is largely reliant on continued monetary easing as govs fail to play their part with economic reforms.  While he unveiled new staff economic projections showing euro-area inflation averaging 1.7% in 2019, he also said that figure is “not really” close to the central bank’s goal of just under 2% & reiterated the ECB's line that the baseline scenario is subject to downside risks.  That suggests the Governing Council might be ready to keep stimulus running for longer than currently scheduled.  Draghi said officials didn't discuss tapering of purchases to zero.  The fresh stimulus will take holdings to at least €2.3T (twice as much as was initially envisaged when broad-based QE started in early 2015).  The decision to extend QE had “very broad consensus” & the risk of deflation has largely disappeared, Draghi added.

Draghi Says ECB Can Do More as QE Heads for $2.4 Trillion

China posted a 26th consecutive annual auto sales record with a month to spare, fueled by a cut in levy covering a large swathe of the industry.  The lurking concern is that the streak may end if the tax break isn't extended.  With 3 weeks left until the tax break expires, the gov has yet to indicate whether it will extend the incentive.  Consumers bought 21.1M passenger vehicles in the first 11 months, more than the 20.6M units for the whole of last year, according to the China Passenger Car Association.  The last time the Chinese car market shrank was in 1990.  The health of China’s auto market, now the biggest for companies has taken on added importance in the wake of the election of Donald Trump.  He promised to toughen America's trade stance with Mexico & Japan & has been critical of China's currency policies and military build-up.  Retail auto sales in China surged 20% to 2.42M units in Nov, led by demand for sport utility vehicles, according to PCA data.  The sustained demand for small-engine cars has helped clear inventory at dealerships.

China's Car Sales Have Been on a 26-Year Record Streak

Fewer Americans filed applications for unemployment benefits last week, reinforcing the picture of a healthy job market.  Jobless claims declined 10K to 258K according to the Labor Dept.  The forecast called for 255K & continuing claims decreased to a 3-week low.  A tighter labor market has put a premium on skilled & experienced workers, helping explain why companies are retaining existing employees.  This data are also consistent with the latest payrolls report, which showed steady & strong hiring in Nov.  Claims have stayed below the 300K level for 92 consecutive weeks, the longest stretch since 1970 & consistent with an improving job market.  Applications figures around the year-end holidays typically experience big swings because of the difficulty in adjusting the raw data.  The seasonally adjusted 4-week moving average rose to 252K last week from 251K.  The number continuing to receive jobless benefits dropped 79K to 2.01M & the unemployment rate among people eligible for benefits declined to 1.4% from 1.5%.

Applications for Jobless Benefits in U.S. Fell in Latest Week

This is another sleepy day in the stock market.  The increase in stimulus by the ECB is being evaluated on the sidelines while the rate increase by the Fed is haunting the stock market.  But the market continues to trend higher on hopes the Trump economy will help just about all companies.  Meanwhile the post election advance is far overbought & a correction could be painful.

Dow Jones Industrials

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