Wednesday, January 18, 2017

Markets fluctuate after CPI rises again

Dow was off 33, advancers slightly more than decliners & NAZ went up 12.  The MLP index gave back 2+ to 320 (still going sideways for months) & the REIT index was fractionally higher to the 34s.  Junk bond funds did little & Treasuries retreated.  Oil dropped 1 to the 52s (more below) & gold edged higher (above 1200).

AMJ (Alerian MLP Index tracking fund)

Crude Oil Mar 17

Gold Futures,Apr-2017

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The cost of living in the US climbed for a 5th month on the back of shelter & fuel prices, pushing inflation closer to the Fed's goal.  The consumer-price index rose 0.3% in Dec, matching the projection, after a 0.2% gain the previous month, Labor Dept figures showed.  Prices were up 2.1% from a year earlier, the most since Jun 2014.  Excluding volatile food & fuel, the core measure rose 0.2% from Nov.  With energy moving higher & rents & medical costs continuing to firm up, price pressures are gaining traction.  Steady demand would allow companies to regain pricing power, further boosting inflation & strengthening the case for the Fed to keep raising interest rates this year.  The year-over-year rise in the consumer price gauge followed a 1.7% advance the prior month.  The core CPI measure increased 2.2% from Dec 2015, after rising 2.1% in the prior 12-month period.  Both the monthly & year-over-year gain matched the forecasts.  The Fed's preferred gauge of inflation, the Commerce Dept personal consumption expenditures price measure, rose 1.4% in Nov from a year earlier; it hasn’t matched the central bank's 2% goal since Apr 2012.  Policy makers meet on Jan 31-Feb. 1.  Energy costs increased 1.5% from a month earlier, as gasoline rose 3%.  Food prices were unchanged for a 6th month.  Expenses for shelter climbed 0.3%, reflecting a similar gain in owners-equivalent rent, one of the categories designed to track rental prices.  Airfares increased 1.9%, the most since Jun 2015.  Americans paid 0.1% more for new automobiles, while used-car prices rose 0.5%, the biggest jump since Apr 2015.  Clothing prices declined 0.7%, the 2nd straight drop.

US industrial production rebounded in Dec due to the biggest jump in utilities since 1989 as temperatures cooled across the country.  The Federal Reserve said industrial output rose 0.8% last month after a downwardly revised 0.7% decline in Nov.  The forecast called for industrial production to rise 0.6%.  The central bank's measure of the industrial sector comprises manufacturing, mining, & electric & gas utilities.  Overall industrial production, however, fell at an annual rate of 0.6% in Q4.  The bulk of the Dec increase was due to the 6.6% rise in the utilities index, which had been hampered the previous month by unseasonably warm weather.  Manufacturing output edged up 0.2% & mining production was unchanged.  Overall manufacturing output rose at an annual rate of 0.7% in Q4 while the index for mining surged 11.9%.  With overall output increasing in Dec, the percentage of industrial capacity in use rose 0.6 percentage point in Dec to 75.5%, from a slightly downwardly revised 74.9% in Nov.  Fed officials look to capacity use as a signal for how much further the economy can accelerate before sparking higher inflation.

U.S. industrial output rises 0.8 percent as utilities surge

Interest rate hikes by the Fed may be influencing traders again.  Rising CPI is something the FOMC watches closely.  New data shows it around the 2% Fed target & that could give ammunition for more rate hikes.  After the increase last month, chances are great the rates will be left alone in 2 weeks.  But there will be more meetings this year & the guidance from the Fed could suggest more hikes are coming.  Meanwhile earnings season is beginning & there is a lot of nervousness from traders.  Dow is more than 200 away from the 20K target & prospects for setting new records are dimming.

Dow Jones Industrials

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