Monday, November 20, 2017

Markets edge higher as they begin a holiday week

Dow went up 84, advnacers over decliners 4-3 & NAZ added 7.  The MLP index sold off 3+ to the 256s & the REIT index lost 1+ to the 358s.  Junk bond funds fluctuated & Treasuries were little changed.  Oil slid lower in the 55s  & gold dropped 11 to 1285. 

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil56.11

GC=FGold   1,286.30

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The $ gained & US stocks rose after 2 down weeks as Congress takes a holiday break from tax talks & the closely watched Alabama senate election nears. The S&P 500 opened slightly higher at the start of a truncated Thanksgiving week as investors gauge whether there are sufficient drivers to continue the march to historic highs.  Strong earnings & solid global growth are balanced against lofty valuations in some markets, as well as the negative signal from the US yield curve.  European investors are watching political news as the week begins.  A month of exploratory coalition talks in Germany ended in a dramatic collapse on a dispute over migration policy.  The upshot is that Europe's dominant country remains hamstrung on the global stage, potentially affecting everything from policy toward the EU, Turkey & Russia to gov spending.  Nevertheless, the Stoxx Europe 600 Index advanced & Germany’s DAX rebounded from a 7-week low, with investors judging the failure of coalition talks won't threaten the region's economy.  Sterling strengthened after reports the UK may make concessions to smooth Brexit negotiations.  West Texas intermediate crude retreated after surging the most in 2 weeks in the previous trading session, though it’s mostly held above $56 a barrel.  Gold declined & Treasuries edged lower.  The £ & gilts traders will focus on a potential downgrade to the UK growth outlook this week & gov efforts toward agreeing a Brexit divorce bill.  Sterling was boosted today by reports that the UK was preparing to make an enhanced divorce bill offer to the EU ahead of crucial talks starting next month.

Stocks Rebound in Short Week for U.S. Exchanges: Markets Wrap

Germany's economy is probably strong enough to shrug off the country's dive into political uncertainty for now.  The collapse of coalition talks has cast a shadow over Chancellor Angela Merkel's ability to provide stable leadership for Europe's most-powerful nation, just as the region seeks stronger integration.  Yet the turmoil in the capital of Berlin is doing little to worry economists watching the country as a whole benefit from record-low joblessness & booming output.  Germany's unemployment rate was 5.6% last month, the lowest since reunification a qtr of a century ago.  Economic growth of 0.8% last qtr beat estimates & was led by exports & investment, supporting solid domestic consumption & showing that the expansion is resilient. The Ifo institute's gauge of business confidence is at a record high.

German Economy Seen Coasting Even as Coalition Talks Crumble

Oil held near $56 a barrel after surging the most in almost 2 weeks as Saudi Arabia's energy minister said OPEC should announce an extension to supply cuts when it meets at the end of the month.  Futures slipped 0.7% after rising 2.6% on Fri.  Oil inventories are unlikely to drain to average levels by the time the OPEC agreement expires at the end of Mar, Saudi Arabia's Khalid Al-Falih said.  The US drilling-rig count was unchanged at 738 at the end of last week.  Oil dipped slightly last week on a weaker demand outlook while Russa cast doubts on the timing of a decision to extend supply cuts led by OPEC.  West Texas Intermediate for Dec, which expires today, slipped 39¢ to $56.16 a barrel.  Brent for Jan settlement lost 86¢ to $61.86 a barrel, after dropping 1.3% last week.  The global benchmark crude traded at a premium of $5.61 to Jan WTI.  Saudi Arabia has had extensive consultations with Russia, according to Al-Falih, who said he’s convinced that the country will be “fully on board” when a resolution is made.  OPEC will ensure that its exit strategy from the current accord will be a gradual adjustment that prevents the return of any glut, he added.

This is traditionally a sleepy week for the stock market, with many traders away on a long holiday.  Or course, these days nothing is routine especially with the unpredictable goings on in DC.  Tax reform remains center stage & nobody knows how that will turn out.  However the bulls remain optimistic & are keeping the averages near record highs.

Dow Jones Industrials


Friday, November 17, 2017

Markets decline on tax plan worries

Dow dropped 100, advancers over decliners about 2-1 & NAZ lost 10.  The MLP index crawled up to 260 & the REIT index fell 1+ to the 359s.  Junk bond funds were higher & Treasuries moved up slightly.  Oil jumped up to the 56s & gold soared 17 to 1295 (it's highest in more than a month).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Unemployment rates fell to record lows in Idaho & Tennessee in Sep & dropped in 9 other states.  The Labor Dept report on state unemployment also showed the extent of Hurricane Irma's damage in Florida, which lost 127K jobs that month (about 1.5% of the state's total jobs).  Most of those losses were likely temporary.  The jobless rate dropped to 2.8% in Idaho from 2.9% in the previous month.  Tennessee's rate fell sharply, to 3.3% to 3% . Both figures are the lowest on records dating back to 1976.  Employers added jobs in 5 states in Sep & cut them in 6.  The biggest gains were in California, which added 52K jobs, followed by Washington state, with 13K & Indiana which gained 11K. After Florida, the states with the biggest job losses were NY, which shed 34K, followed by Missouri, with 10K.  Texas, which was slammed by Hurricane Harvey in late Aug, shed 7K jobs.

Unemployment hits record lows in two states, falls in 9

US GDP grew at rates of 3.1%-3.0% in Q2 & Q3 of this year, respectively.  Despite steady growth, inflation has yet to reach the Fed target of 2%, though Dallas Fed Pres Robert Kaplan says he is actively considering another interest rate increase.  According to Kaplan, the Dallas Fed's GDP forecast for the year is 2.5%, “sluggish by historical standards but certainly enough to continue to take slack out of the labor market.”  Kaplan said , “The reason I’ve said I’m actively considering next steps is we are at or near full employment and my own projection, our projection at the Dallas Fed is we’re likely to overshoot maximum, sustainable employment.”  Though inflation is falling short of the Fed target, Kaplan sees the overshoot in employment as a factor that needs to be considered.  Kaplan then explained that technology is a key headwind to the rise in inflation.  “Part of what’s going on is because we’re taking slack out of the labor market, we’re getting toward full employment, you do have cyclical pressures. We haven’t seen it show up in wages or prices in my opinion because we’ve got a very strong structural headwind and that’s primarily what I call ‘technology enabled destruction,’ to some extent globalization, but mainly disruption.”  He then explained that technology is a key headwind to the rise in inflation.  “Part of what’s going on is because we’re taking slack out of the labor market, we’re getting toward full employment, you do have cyclical pressures. We haven’t seen it show up in wages or prices in my opinion because we’ve got a very strong structural headwind and that’s primarily what I call ‘technology enabled destruction,’ to some extent globalization, but mainly disruption.”

Fed’s Kaplan: Full employment, healthy economy may trigger another rate hike

The number of rigs exploring for oil & natural gas in the US increased by eight this week to 915.  That's up from the 588 rigs that were active a year ago.  Baker Hughes said that 738 rigs sought oil & 177 explored for natural gas this week.  Among major oil- & gas-producing states, Texas gained 7 rigs, Louisiana added 4 & Ohio & Utah were up 1 apiece.  Alaska, Colorado, New Mexico, North Dakota, Oklahoma & Wyoming declined by one each.  The US rig count peaked at 4530 in 1981 & bottomed out in May of 2016 at 404.

US rig count up by 8 this week to 915; Texas up 7

A German auto parts manufacturer will build a new plant in Alabama & hire 300 workers to supply parts for regional automobile manufacturers.  Officials announced BOCAR's $115M investment.  BOCAR CFO Gerd Dressler said the company chose Huntsville as the plant site from among more than 40 options in the US, citing the area's workforce, infrastructure & universities as factors.  Huntsville Mayor Tommy Battle, whom Limestone County Commission Chairman Mark Yarbrough credited as the leader of the regional recruiting team, says the 300 jobs will pay "great wages."

German auto parts manufacturer to build new Alabama plant

China's central bank issued sweeping guidelines to tighten rules on asset management business, the latest step by Beijing to fend off systemic risks in the country's rampantly growing shadow banking sector. The guidelines unified rules covering asset management products issued by banks, trust firms, insurance asset management companies, securities firms, funds & futures companies, the People's Bank of China (PBOC) said.  At the end of 2016, the collective outstanding volume of their asset management business was 102T yuan ($15.38T), including 29T yuan of bank wealth management products & 17.5T  yuan in trust products, according to the PBOC.  The new rules aim to close loopholes that allow regulatory arbitrage, reduce leverage levels to curb asset price bubbles & rein in shadow banking activity.  The new rules will set leverage limits for asset management products.  They will cap the total assets to net assets ratio at 140% for open mutual funds & 200% for private funds.  Investors will be prohibited from pledging their shares in asset management products as collateral to obtain financing, a practice that would increase leverage.  The central bank also said financial institutions must break the practice of providing investors with implicit guarantees against investment losses.  Financial institutions will also be forbidden from creating a "capital pool" to manage funds raised thru asset management products.  The practice allows banks to roll over the products constantly.  The investment losses will be implicitly covered by the new product issuance. The draft guidelines are the latest & most comprehensive set of rules proposed by financial regulators to fend off shadow banking risks that could spread across different asset classes.

China sets sweeping new rules to regulate $15 trillion asset management products

The long stock market rally is stumbling.  The stock market had its first 2 week losing streak in 3 months.  The tax plan is in the Senate where it looks to be going nowhere fast.  Economic statistics continue fairly good, but do not count for much.  Now is the time when deals are made to make legislation happen.  But there are a lot of egos & getting 50 out of 52 to cooperate will be one tough task.  It must happen by next week.  The Dow closed t the lows.

Dow Jones Industrials