Thursday, March 9, 2017

Markets waver ahead of the February jobs report

Dow inched up 2, decliners over advancers more than 2-1 & NAZ rose 1.  The MLP index was off 2+ to 32 (down 20 since the end of Jan) & the REIT index gave back 4+ to the 335s.  Junk bond funds remained weak & Treasuries declined taking the yield on the 10 year Treasury up to 2.6%.  Oil dropped below 50 & gold lost 7 to 1202, barely hanging in above the important 1200 support level.

AMJ (Alerian MLP Index tracking fund)

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Household wealth in the US continued to increase in Q4 as financial assets & real-estate values appreciated, from the Federal Reserve's financial accounts reports.  Net worth for households & non-profit groups rose by $2.04T (2.3%) to a record $92.8T from the prior 3 months.  The value of financial assets, including stocks & pension-fund holdings, rose $1.6T.  Household real-estate assets climbed by $499B & owner's equity as a share of total real-estate holdings increased to 57.8% from 57.1%.  Household finances are the strongest they’ve been in years, helped by a surge in the stock market, including a 3.3% advance in the S&P 500 last qtr, & rising house prices.  At the same time, household debt continued to grow at a pace similar to the prior qtr.  The report showed companies had $2.08T in liquid assets, which signals they have the means to spend more on capital equipment, raise divs & boost stock buybacks.  Household debt increased at a 3.8% annual rate in Q4 after a 3.9% pace in Q3. 

U.S. Household Wealth Rose $2.04 Trillion in Fourth Quarter

The ECB kept its quantitative-easing program unchanged as policy makers gauge whether a recent jump in inflation will endure.  The Governing Council reaffirmed its decision that monthly asset purchases will be reduced to €60B ($63B) from Apr, compared with €80B currently.  They also left the main refinancing rate at zero & the deposit rate at minus 0.4%, as predicted.  The ECB also said rates will stay at present or lower levels for an extended period, well past the horizon of net asset purchases.  Exactly 2 years after the ECB started buying euro-area gov bonds, inflation is above its goal & calls to reduce the stimulus are mounting.  Draghi has sought to defuse the pressure by pointing out that price acceleration is largely driven by energy costs & that political risks including national elections have the potential to knock the recovery off course.  The Governing Council’s decision sticks to a line set back in Dec, when it announced that bond purchases will be extended until at least the end of 2017.  That will take total assets bought during the program to €2.28T, equivalent to ¼ the size of the entire euro-area economy.

ECB Keeps Bond-Buying, Rates Unchanged Amid Inflation Flare-Up

US import price increases slowed in Feb on cheap fuel, but there were signs of a pickup in underlying imported inflation.  The Labor Dept said import prices rose 0.2% after an upwardly revised 0.6% increase in Jan.  It was the 3rd straight monthly increase.  In the 12 months thru Feb, import prices accelerated 4.6%, the largest gain since Feb 2012, after rising 3.8% in Jan.  The forecast was for import prices ticking up 0.1% last month after a previously reported 0.4% increase in Jan.  Last month's moderation in import prices is likely to be temporary amid strengthening global demand that is lifting prices for oil and other commodities.  Prices for imported fuels fell 0.7% last month after surging 7.2% in Jan.  Import prices excluding fuels rose 0.3%, the first increase since Jul & followed a 0.% dip the prior month.  The cost of imported food jumped 1.0% last month.  Prices for imported capital goods were unchanged after slipping 0.1% in Jan.  Imported consumer goods prices excluding automobiles increased 0.2% last month after a similar gain in Jan.  The report also showed export prices increased 0.3% after gaining 0.2% in the prior month.  Export prices were up 3.1% from a year ago.  That was the biggest increase since Dec 2011 & followed a 2.4% rise in Jan.

Import Prices Moderate on Cheap Fuel

China stocks closed at 2-week lows, as energy shares tumbled on diving oil prices while global investors turned cautious ahead of a widely expected hike in US interest rates next week.  Renewed weakness in the yuan currency also dampened confidence, though China's state banks stepped into the market to keep the currency from falling too fast.  The blue-chip CSI300 index fell 0.6%, to 3426, while the Shanghai Composite lost 0.7% to 3216.  Shares fell across the board, with the energy sector leading the decline after crude prices plunged over 5% overnight on a spike in US oil stockpiles.  Weaker-than-expected consumer inflation data out of China also added to the nervous mood, though producer price inflation raced to a near 9-year high, suggesting higher profits for firms ranging from miners & steel mills to oil refiners.  China's producer price index (PPP) unexpectedly jumped 7.8% in Feb from a year earlier, while consumer inflation slowed to 0.8% due to lower food prices, marking its slowest pace since Jan 2015.

China Stocks Close at 2-Week Lows on Slumping Oil Prices

Stocks are wavering again.  The goings on in DC, highlighted by the uncertainty surrounding changes coming for ObamaCare (which will affect all companies & consumers) are making traders nervous.  Then there is the jobs report tomorrow which should not bring great surprises.  Next week Janet will talk about the future for rate increases.   An overbought market has the right to be uneasy.  This is also the 8th anniversary of the low for the Dow.  Since then it has more than tripled to record highs, an outstanding run with only minor setbacks along the way.

Dow Jones Industrials

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