Monday, December 12, 2016

Mixed markets as oil soars on more production cuts by oil producers

Dow rose 43 to another record. but decliners ahead of advancers 5-4 & NAZ fell 16.  The MLP index shot up 4+ to the 306s on higher oil prices & the REIT index was up fractionally in the 338s.  Junk bond funds were mixed & Treasuries continued weak, taking the yield on the 10 year Treasury to 2.5%.  Oil gained 2+ to the 54s (more below) & gold was a tad lower.

AMJ (Alerian MLP Index tracking fund)

Light Sweet Crude Oil Futures,F

Gold Dec 16

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Oil jumped to the highest since Jul 2015 after Saudi Arabia signaled it’s ready to cut output more than earlier agreed & non-OPEC countries including Russia pledged to pump less next year.  The most important business stories of the day.  Futures rose almost 6%.  Saudi Energy Minister Khalid Al-Falih said Sat the biggest crude exporter will “cut substantially to be below” the target agreed on last month with members of OPEC.  His comments followed a deal by 11 non OPEC countries to join forces with the group & trim output by 558K barrels a day next year, the first pact between the rivals in 15 years.  US oil futures have gained about 20% since OPEC agreed on Nov 30 to cut output for the first time in 8 years.  Saudi Arabia, which initiated OPEC's decision in 2014 to pump without limits, is leading efforts to take back control of the market.  The OPEC & non-OPEC plan encompasses countries that supply 60% of the world's crude, but excludes major producers such as the US, China, Canada & Brazil.  West Texas Intermediate for Jan rose $3 to $54.51 a barrel, the highest level since Jul 2015.  Prices gained 3.5% over the previous 2 sessions to close at $51.50 a barrel on Fri.

Oil Surges as Saudis Eye Deeper Cuts While Non-OPEC Joins Deal

The Federal Reserve inaugurates the Trump era this week with a near-certain interest rate increase & new economic forecasts providing a first glimpse into whether the US election has reshaped the central bank's growth & inflation outlook.  Fed fund futures show a 97% probability that the Fed will lift rates by a qtr of a percentage point on Wed.  Economists expect a rate hike in the wake of a string of solid US economic reports.  More telling will be whether the stock market rally & jump in bond yields triggered by Trump's victory will push the Fed to an inflection point of its own & a higher projected pace of rate increases for 2017 & beyond.  Trump is inheriting a good economy, one that grew by 3.2% in Q3, the fastest pace in 2 years.  There are, however, concerns that his plan to reduce taxes, cut regulation & increase infrastructure spending could not just boost the economy but also fuel higher inflation.

Fed Rate Hike Nearly in the Bag

Retail job gains in Oct & Nov totaled 521K, 14% fewer than the 604K retail jobs added during the period last year, according to Challenger, Gray & Christmas.  In Nov alone, retail employment grew by 371K but was 9.3% below last year, the lowest Nov increase since 2010.  "As more and more shoppers move online, there is less need for extra workers in the brick-and-mortar stores," said John Challenger, CEO of Challenger, Gray & Christmas.  In Sep, the group anticipated a shift towards hiring focused on e-commerce operations.  Since then, retailers have said the holiday hiring will have a focus on online sales.

Retail Hiring Falls 14% In October And November

The prospect of more production cuts by big oil producers sounds good for the stock market, but longer term effects still have to be thought thru.  Dow is doing well while the rest of the market, measured by market breadth & NAZ, isn't so sure about the future.  The Big Fed meeting at mid-week is making traders nervous because they don't know if there will signals about more increases next year.. 

Dow Jones Industrials

stock chart  

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