Monday, January 30, 2017

Markets pull back over confusion at US airports

Dow sank 169, decliners over advancers almost 5-1 & AZ retreated 77.  The MLP index gave back 4+ to the 331s the REIT index fell 2 to the 337s.  Junk bond funds.retreated following recent gains & Treasuries were weak.  Oil was lower in the 52s (more below) & gold rose.

AMJ (Alerian MLP Index tracking fund)

Crude Oil Mar 17

Gold Futures,Apr-2017

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OPEC appears to have persuaded investors that it's making good on promised production cuts.  Money managers are the most optimistic on West Texas Intermediate oil prices in at least a decade as OPEC & other producers reduce crude output.  Saudi Arabia said more than 80% of the targeted reduction of 1.8M barrels a day has been implemented.  Oil shipments from OPEC are plunging this month.  OPEC will reduce supply 900K barrels a day in January, the first month of the accord's implementation, about 75% of the cut that the producer group agreed to make.  11 non-members led by Russia are to curb their output in support.  Hedge funds boosted their net-long position, or the difference between bets on a price increase & wagers on a decline, by 6.1% in the latest week.  WTI rose 1.3% to $53.18 a barrel in the report week.  The US benchmark slipped 0.3% to $53.01 today.  OPEC members Saudi Arabia, Kuwait and Algeria have said they've cut output this month by even more than was required, while Russia said it’s also curbing production faster than was agreed.  Saudi Energy Minister Khalid Al-Falih said that adherence has been so good that OPEC probably won't need to extend the accord when it expires in the middle of the year.  The OPEC-engineered price rally has spurred a surge in drilling in the US shale patch.  Rigs targeting crude in the US rose 15 to 566 last week, the highest since Nov 2015.

OPEC Convinces Investors That Its Oil Output Cuts Are Real

US consumer purchases climbed in Dec by the most in 3 months as incomes picked up, signaling a strong hand-off into 2017.  The 0.5% advance in consumption, which accounts for about 70% of the economy, followed a 0.2% advance in the prior month, a Commerce Dept report showed, matching the forecast.  Incomes rose 0.3%, less than projected.  Americans stepped up purchases during the holiday season & sales of automobiles stayed strong, capping a record year for the car industry.  Solid hiring, rising wages & low borrowing costs have increased the wherewithal to spend, while rising sentiment & expectations of lower taxes under Trump are potential tailwinds.  “The consumer has almost everything going for it,” Ryan Sweet, a senior economist at Moody’s Analytics said before the report.  “As the consumer goes, so goes our economy. We’re setting up for another decent year in 2017.”  Adjusting the figures for inflation, consumer spending increased 0.3% in Dec, also the most in 3 months.  The latest advance was led by a jump in outlays for durable goods, including motor vehicles.  In 2016, real household outlays climbed 2.7%, the least in 3 years.  Consumers flocked to auto dealerships last month to top off a record year for the industry.  For all of last year, incomes rose 3.5%, the smallest advance since 2013.

Greek stocks & bonds fell after the gov failed to bridge differences with European creditors over the conditions attached to the country's latest bailout review & the IMF warned that its debt is on an unsustainable path.  Almost 2/3 of the actions creditors have demanded for the disbursement of the next tranche of emergency loans have yet to be completed, the gov conceded in a memo discussed between Finance Minister Euclid Tsakalotos & bailout auditors last week.  Even though the memo laid out a series of commitments to ensure the work will be completed, creditors said the proposals weren't good enough, a separate official said.  Europe's most indebted state is locked in talks with officials over the terms attached to the loans keeping it afloat since 2010.  Greek stocks fell 3.7% to their lowest since Dec 15, while yields on 10 year-notes jumped up 30 basis points to 7.48%, amid renewed doubts about the prospects for completing the review before national elections in the Netherlands, France & Germany later this year.  IMF staff said in a draft report that the current structure of Greek public finances is “fundamentally inefficient, unfair, and ultimately socially unsustainable,” adding to doubts about whether the Fund will eventually re-join the Greek bailout.  Euro area govs, notably Germany, have said failure to get the IMF on board would require a new agreement, which needs to be approved by national parliaments.  In addition to asking for a lower income tax threshold and pension cuts for current retirees, a demand the Greek gov doesn't accept so far, the IMF is also pushing for the European creditors to off more debt-relief measures. “We believe that Greece’s debt burden can be manageable if the agreed reforms are fully implemented,” a spokesman for the euro crisis fund said yesterday.

Greek Markets Tumble as EU Holds Up Payment Amid IMF Doubts

This could be the end of the Trump rally.  Market breadth sends a very negative signal.  The Greek debt mess is a major dark cloud threatening the stock market rally.  Confusion at US airports is not playing well & is making investors nervous about other initiatives proposed by Trump.  Dow remains close to its record highs reached last week, but optimism about the stock market is fading even though the Dow is up about 10% since the election.. 

Dow Jones Industrials


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