Tuesday, December 6, 2016

Markets waver as Trump rally stalls

Dow slid back 10, advancers over decliners about 3-2 & NAZ added 3.  The MLP index lost 1+ to the 296s & the REIT index rose 2 to 330.  Junk bond funds hardly budged & Treasuries fluctuated.  Oil fell 1 to the 51s (more below) & gold was a little lower.

AMJ (Alerian MLP Index tracking fund)

Crude Oil Feb 17
Gold Feb 17

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Oil retreated from a 16-month high after OPEC pumped a record amount of crude in Nov.   Futures slid as much almost 3% after rising 15% over the previous 4 sessions.  OPEC boosted production to 34.16M barrels a day last month, with Angola, Libya & Nigeria leading the gains.  Attention is shifting to which non-OPEC producers will join Russia in reducing output when they meet on Sat.  OPEC is hoping they will cut a further 300K barrels a day.  Oil topped $50 a barrel after OPEC agreed  to trim the output by 1.2M barrels a day from Jan to stem a supply glut & buoy prices.  Russia, which isn't in the bloc, has also pledged a reduction of as much as 300K barrels.  West Texas Intermediate for Jan delivery dropped $1.44 (2.8%) to $50.35.  The contract rose 0.2% to $51.79 yesterday, the highest close since Jul 2015, & total volume traded was 35% above the 100-day average.

German factory orders surged in Oct, suggesting growth in Europe's largest economy will accelerate at the end of the year.  Orders, adjusted for seasonal swings & inflation, jumped 4.9% from Sep, when they fell a revised 0.3%, data from the Economy Ministry showed.  The increase was the biggest since Jul 2014 & compared with an estimate of 0.6%.  Orders gained 6.3% from a year earlier.  The report adds to signs that Germany's economy is gathering pace after a slowdown in Q3.  Business sentiment held at the highest level in more than 2 years in Nov, while unemployment remained at a record low.  The Bundesbank predicts growth will accelerate “considerably” in Q4.

German Factory Orders Surge on Demand for Investment Goods

The US trade deficit widened to a 4-month high in Oct as overseas sales weakened & American companies imported more equipment & consumer goods.  The gap grew to $42.6B from the prior month's revised $36.2B, according to the Commerce Dept.  The 17.8% increase from Sep was the largest since Mar 2015.  The forecast called for a $42B shortfall.  Stronger demand for imported merchandise indicates trade will add less to US growth after net exports in Q3 contributed the most since the end of 2013.  The latest rally in the $ could squelch prospects for a pickup in exports as American-made goods become more expensive overseas.  Exports decreased 1.8%, the most since Jan, to $186.4B in Oct on slower sales of foods, consumer goods & industrial supplies.  At the same time, exports of services were a record.  Imports rose 1.3% to $229B, reflecting the largest inflow of merchandise since Sep of last year.  The value of telecommunications gear, pharmaceuticals & mobile phones entering the US in Oct increased.  After eliminating the influence of prices, which renders the numbers used to calculate GDP, the trade deficit widened to $60.3B, the highest in 4 months, from $54.2B in the prior month.  Trade contributed 0.87 percentage point to US economic growth in Q3, the most since Q4-2013.  A jump in soybean shipments to overseas customers that boosted exports in Q3 is in the process of reversing.  Trade & inventories are 2 of the most volatile components in GDP calculations.  The trade gap with China narrowed to $31.1B from $32.5B as exports to the nation were the strongest since Dec 2013.

Trade Deficit in U.S. Widened to a Four-Month High in October

The stock market has a stellar rise in the last month.  Traders are assessing the 1K rise in the Dow to new record levels while they get ready for a rate hike next week.  This has been well advertised, so it should not come as a shock to a market which is addicted to low interest rates.  Lower oil prices is also hurting sentiment in the stock market.  If buyers return in the PM, they will take the Dow to another record.  But markets are meant to go straight up without a significant rest along the way.

Dow Jones Industrials

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