Thursday, December 1, 2016

Mixed markets as oil rises over $51 a barrel

Dow jumped up 73, decliners over advancers 5-4 & NAZ dropped a very large 63.  The MLP index was fractionally higher to the 303s & the REIT index lost 2+ to the 324s.  Junk bond funds were mixed & Treasuries were sold again, taking the yield on the 10 Year Treasury to 2.45%.  Oil shot up to go over 51 (more below) & gold 1163

AMJ (Alerian MLP Index tracking fund)

Crude Oil Feb 17

Gold Futures,Dec-2016

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The most Americans since Jun filed for unemployment benefits last week, reflecting volatility in the data that typically occurs around the year-end holidays.  Jobless claims increased 17K to 268K in the week that that included Thanksgiving, according to the Labor Dept.  The forecast called for 253K.  The 4-week average was little changed at 251K.   With the Thanksgiving holiday resulting in a shortened workweek, unadjusted claims were down about 37K, less than factored in for seasonal effects.  Even with the latest rise, seasonally adjusted filings are still close to the 2016 average of about 263K.  Jobless claims have been below 300K for 91 straight weeks, the longest streak since 1970 & a level typical for a healthy labor market.  At the same time, other factors that have pushed claims down in recent years, including cuts in the duration of benefits & changes to claim-filing technology.  The number  continuing to receive jobless benefits increased 38K to 2.08M & the unemployment rate among people eligible for benefits held at 1.5.

Oil surged above $50 & crude producers rose after OPEC approved its first supply cuts in 8 years, with the focus now shifting to how strictly the group will implement the deal.  Futures advanced more than 3% after surging 9.3% yesterday (the biggest gain since Feb on record volume).  OPEC agreed to reduce collective output 1.2M barrels a day to 32.5M & Russia pledged a cut of 300K, prompting predictions of a possible crude rally.  OPEC's 3 largest producers (Saudi Arabia, Iraq & Iran) overcame disagreements to reach a deal in a bid to drain record global stockpiles & boost crude prices.  Russia committed to cooperate with the group by curbing production next year.  After hailing the accord, analysts highlighted the need for producers to comply with their pledges.  West Texas Intermediate for Jan delivery rose $1.35 (2.7%) to $50.79 a barrel

Oil Trades Above $50 After OPEC Deal as Focus Moves to Execution

China's official factory gauge matched a post-2012 high as a credit-fueled recovery of smokestack industries gained momentum & signaled a pickup in inflation expectations.  Manufacturing purchasing managers index rose to 51.7 in Nov, compared with an estimate of 51 & 51.2 in the prior month.  Non-manufacturing PMI climbed to 54.7 from 54 in Oct (numbers above 50 indicate improving conditions).  Steel industry PMI increased to 51.0 from 50.7.  The report added to evidence that the old growth drivers are picking up, fueled by inexpensive credit & showed that large companies, which tend to be state owned, are faring better than smaller enterprises.  Input prices jumped to the strongest reading in 5 years, signaling that inflationary pressures may be building after China recently snapped 4 years of factory gate deflation.   New orders strengthened to 53.2 from 52.8 the prior month & new export orders rose to 50.3 from 49.2.  Business activity expectations fell to 55.5, the weakest reading since Jul from 58.5. Small enterprises had the weakest level by size at 47.4, trailing medium-sized companies at 50.1 & large firms, which often are state-owned, at 53.4.

China Factory Gauge Matches Post-2012 High as Large Firms Lead

Even though Dow is climbing to new record highs, all is not well in the stock market.  Market breadth is negative & techs are weak (shown by the decline in NAZ), not good signs.  Interest rates are rising which will raise for costs of borrowing for all, including mortgage rates.  Additionally, the stock market is very overbought.  Higher oil prices may not last, as producing countries have been known to cheat on their quotes.  As I have said, a correction is needed before the stock market can make a meaningful advance.

Dow Jones Industrials

stock chart  

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