Wednesday, January 4, 2017

Higher markets on record auto sales

Dow rose 60, advancers over decliners an impressive 5-1 & NAZ went up 47.  The MLP index added 2+ to 321 & the REIT index gained 4+ to 346.  Junk bond funds had modest gains & Treasuries were flattish.  Oil climbed to more than 54 & gold had a slight advance.

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Fed officials focused on the impact of potential fiscal stimulus during their Dec meeting, with many starting to worry that the central bank might eventually be forced to quicken the pace of interest-rate increases to head off higher inflation.  Almost all the participants “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years,” read the minutes of the Dec meeting.  Despite growing attention to the risks of fiscal policy spurring faster growth than currently forecast, most on the committee reiterated that a “gradual” pace of rate hikes over the coming years would likely remain appropriate.  The minutes showed that uncertainties over future fiscal policies weighed heavily in their discussion of the economy & the future path of monetary policy.  Pres-elect Trump promised higher spending on infrastructure, tax cuts & regulatory reform during his campaign, but has offered few new details of his policy goals.  “Participants emphasized their considerable uncertainty about the timing, size and composition of any future fiscal and other economic policy initiatives as well as about how those policies might affect aggregate demand and supply,” the minutes said.  The committee was divided on how far the unemployment rate was likely to fall & over the consequences for inflation if it fell significantly below the Fed goal.  “Many participants” judged the risks of a sizable undershoot on unemployment had increased somewhat, according to the minutes.  Still, “most participants” expected the jobless rate would fall only “modestly below their estimates of the longer-run normal rate.”  The minutes showed that “about half” of the committee members had begun to incorporate assumptions about expansionary fiscal policy into their forecasts.  Among officials still emphasizing the downside risks to the economy, some mentioned repeatedly the headwind created by an appreciating $.  The US currency has surged since the election, partly in anticipation of fiscal policies under the incoming Trump administration.  A stronger $ hurts growth by making exports less competitive & slows inflation by making imports cheaper.  Officials raised the number of ¼-point rate hikes they foresee in 2017, to 3 from 2, while signaling growing confidence in the economy.  Unemployment declined to 4.6 % in Nov, its lowest level in more than 9 years & close to most estimates for the its lowest sustainable level.  The Fed's preferred measure of price inflation was 1.6% in the 12 months thru Nov after excluding food & energy components.  Policy makers expect that to rise this year toward their 2% goal.

Fed Officials Endorse Gradual Rate Hikes

The euro-area economy finished 2016 with the strongest momentum in more than 5½ years, bolstering the region as it heads into a year of political uncertainty.  A composite Purchasing Managers' Index climbed to 54.4 in Dec from 53.9 in Nov, IHS Markit said, the highest in 67 months & above a Dec 15 estimate.  Strength in both the manufacturing & service sectors was due in part to a weaker €.  Economic expansion was signaled across the “big-four” nations, with Spain leading the way, followed closely by Germany.  Signs of faster growth could provide solid ground to the 19-nation economy as it heads into another year of potentially tumultuous politics.  The ECB decided in Dec to prolong its asset-purchase program thru the end of 2017 amid lackluster underlying inflation & uncertainty from looming national elections & beginning negotiations on the terms of the UK's exit from the EU.  Since that decision, price pressures have risen alongside a surge in the cost of energy.  Germany reported an inflation rate of 1.7% for Dec, above estimates & close to the ECB's target.  Markit said input costs for the euro-area surged last month to the highest level since mid-2011.

Euro-Area Economy Ended Year With Fastest Growth Since 2011

US auto sales soared to another record high in 2016, primarily driven by General Motors & Ford as they closed the year with a strong Dec.  Analysts expected holiday promotions to propel auto sales in the final month of the year, but the final outcome for 2016 was unclear.  Kelley Blue Book had said Dec would prove to be the best month of the year, although full-year sales were on pace to fall just shy of 2015's record of 17.47M vehicles sold.  Dec sales ultimately outpaced expectations, cementing the sales record.  US light-vehicle sales totaled 17.54M vehicles, according to data compiled by Automotive News.  In Dec, sales easily beat forecasts with a seasonally adjusted annual rate of 18.4M vehicles, the 5th-best mark in the history.  The holiday season helped fire up sales in Dec.  Automakers took part in the deal frenzy & by Ford's estimation, brands spent $530 per unit more in incentives.  Even though discounts continued to rise, average transaction prices reached an all-time high of $35.3K, according to Kelley Blue Book.  GM stood out with a 10% gain in Dec sales volume compared to the same month in 2015, largely due to demand for Chevrolets, posting a 12.8% sales increase.  GMC, Buick & Cadillac also recorded monthly sales growth.  For the full year, GM sales slipped 1.3% to 3.04M, as the company pursued a strategy of cutting fleet sales by 18%.  The nation's top seller of new vehicles said its retail sales, deliveries to individual customers, climbed nearly 2% year-over-year.  GM's market share & transaction prices also improved.
Ticker Security Last Change %Chg
FFORD MOTOR COMPANY13.17+0.58+4.61%

TOYOTA MOTOR CO121.10+2.55+2.15%

HONDA MOTOR30.59+0.98+3.31%
Ford’s 2016 sales edged 0.1% higher to 2.61M units, while Dec sales were up 0.3% on strong SUV & truck demand.  Ford was lifted by sales growth at Lincoln, which overshadowed slight declines for the namesake brand in Dec & the full year.  Fiat Chrysler said Dec sales dropped 10% amid lost momentum for the Jeep brand & 2016 sales were down 0.4%.  Toyota's monthly sales increased 2%.  Honda booked a 6.4% gain, & combined Honda & Acura sales in 2016 set a company record in America.  Nissan's Dec sales jumped 9.7%.

Automakers Topple Sales Record After Big December

Buyers return in the PM, taking stocks higher.  The good news on auto sales brought cheers.  It looks like thoughts of a faster growing economy is now more important to investors than the threat of interest rate hikes.  Dow is just 58 under 20K.

Dow Jones Industrials

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