Friday, April 28, 2017

Markets dip lower on weaker economic data

Dow fell 41, decliners over advancers about 3-2 & NAZ lost 1 from its record close yesterday.  The MLP index slid fractionally lower in the 316s & the REIT index dropped 3+ to the 345s.  Junk bond funds gained & Treasuries were little changed.  Oil had a slight advance (off session highs) & gold crawled higher (more on both below).

Dow Jones Industrials

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Congress gave itself one more week to agree on a spending bill to fund the gov thru Sep.  The 382-30 House vote was followed quickly by unanimous Senate passage of the stopgap spending bill hours before the shutdown deadline.  The measure goes to Trump for his signature.  "We feel very good" that lawmakers will be able to pass a full spending bill next week, White House Press Secretary Sean Spicer said.  Leaders of both parties say they’re close to agreement on a broader spending plan after Reps signaled they would accept Dem demands that the Trump administration promise to continue paying Obamacare subsidies & drop its bid for immediate funds for a wall on the Mexican border. The short-term fix to ward off a gov shutdown, on a deadline set months ago, shows the stubborn dysfunction of Congress.  Congress will have just 5 days starting Mon to finance the gov until the end of the fiscal year on Sep 30.  House leaders plan to release a bill on Mon after negotiations over the weekend.

Congress Does Bare Minimum to Keep Government Open Next Week

US business developers operating near El Paso, Texas & southern New Mexico said they were relieved to hear Pres Trump agreed this week to renegotiate the North American Free Trade Agreement (NAFTA) with the leaders of Mexico & Canada, rather than scrapping it, as originally planned.  Trump said  that he was days away from terminating the deal, but changed his mind after the heads of both countries called & asked him to renegotiate.  Trump made a campaign promise to repeal NAFTA if it could not be renegotiated.  He again said this week that Canada & Mexico benefit disproportionately from the deal.  “NAFTA’s been a horrible deal for the United States. It’s been very good for Canada, it’s been really good for Mexico, but it’s been horrible for the United States,” Trump said about the 23-year-old trade agreement.  But some business leaders from Texas & New Mexico credit NAFTA as a top economic driver of their local economies.

Trump Saves NAFTA for Now, U.S. Borderland Cheers

Gold climbed, raising their monthly gain to about 1.3%, as weaker-than-expected US economic growth weighed on the $.  Prices, however, ended the week about 1.6% lower as a rise in global equities from last Fri helped to dull safe-haven investment demand for the metal.  Jun gold rose $2.40 (0.2%) to settle at $1268 an ounce.

Gold Prices Gain For The Month, But Fall For The Week

Baker Hughes reported that the number of active US rigs drilling for oil rose by 9 to 697 rigs this week, marking the 15th weekly climb in a row. Total active US rig count, which includes oil & natural-gas rigs, also climbed by 13 to 870.  Jun West Texas Intermediate crude was up 18¢ (0.4%) at $49.15 a barrel.

Baker Hughes Data Show U.S. Oil-rig Count Up a 15th Week In a Row

Trump signed an exec order to extend offshore oil & gas drilling to areas that have been off limits, in a move to boost domestic production just as industry demand for the acreage nears the lowest in years.  The order could lead to a reversal of bans on drilling across swathes of the Atlantic, Pacific & Arctic oceans & the Gulf of Mexico that Obama had sought to protect from development.  "We're opening it up ... Today we're unleashing American energy and clearing the way for thousands and thousands of high-paying American energy jobs," Trump said.  The order, called the America-First Offshore Energy Strategy, directs the Dept of Interior to review & replace the Obama administration's most recent 5-year oil & gas development plan for the outer continental shelf, which includes federal waters off all US coasts.  But the exec order comes as low oil prices & soaring onshore production have pushed industry demand for offshore leases near its lowest since 2012, raising questions over its impact.  The amount of money that oil companies spent in the central Gulf of Mexico's annual lease sale dropped more than 75% between 2012 & 2017.  $s bid per acre & the percentage of acreage receiving bids both declined more than 50%.

Trump Aims to Expand US Offshore Drilling, Despite Low Industry Demand

Stocks closed the month on a down note.  Earnings are less encouraging & dysfunctional DC is weighing on the markets.  Trumps keeps cutting back on gov regulations, a plus.  But the inability to bring out a new healthcare bill & many unknowns about the tax changes proposed are  not encouraging for the bulls.  Dow rose less than 300 in Apr, good but not good enough to set new records.  Meanwhile tech stocks have been taking NAZ to new records above 6K as some of the biggest & sexiest tech stocks are reporting good earnings.  Congress will be getting more attention in May & that looks to be a negative for stocks.

Dow Jones Industrials

Markets drift lower after weak GDP report

Dow lost 29, decliners over advancers better than 3-2 & NAZ gave back 3.  The MLP index added 1+ to the 318s & the REIT index dropped 3+ to the 345s.  Junk bond funds were little changed & Treasury prices hardly budged.  Oil climbed higher from recent lows (more below) & gold inched higher to 1267.

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The US economy expanded at the slowest pace in 3 years as weak auto sales & lower home-heating bills dragged down consumer spending, offsetting a pickup in investment led by housing & oil drilling.  GDP, the value of all goods & services produced, rose at a 0.7% annualized rate after advancing at a 2.1% rate in the prior qtr, Commerce Dept data showed.  The forecast called for a 1%  gain.  Consumer spending, the biggest part of the economy, rose 0.3%, the worst performance since 2009.  The GDP slowdown owes partly to transitory forces such as warm weather & volatility in inventories, which supports forecasts for a rebound as high confidence among companies & consumers & a solid job market underpin growth.  Even so, the weakness at car dealers could weigh on expansion & further gains in business investment could depend on the extent of policy support such as tax cuts.  The data are unlikely to dissuade Fed from raising interest rates in the coming months.  Economists were largely expecting a weak growth figure, calling it a blip & not a sign of stagnation.  Though the Q! figure isn't a verdict onTrump's policies, economists are generally skeptical that growth will reach his goal of 3-4%  on a sustained basis.  Their estimates indicate just 2.2 -2.3% annual growth thru 2019, a tad above the average pace during the almost 8-year expansion.  During Q1, a chief driver of growth was private, fixed nonresidential investment, which contributed 1.12 percentage point to expansion, led by a record increase in mining exploration, shafts & wells, a category that includes oil structures.  Residential investment added 0.5 point to growth.  The change in inventories, one of the most volatile parts of the GDP calculation, subtracted 0.93 percentage point from growth, following a 1.01% gain.  Trade, also volatile, contributed 0.07 point after a 1.82 point drag in the previous period.  The 0.3% growth in household consumption, which accounts for about 70% of the economy, followed a 3.5% jump from Oct to Dec.  The forecast called for 0.9% & purchases added 0.23 percentage point to Q1 growth.  While some of the slowdown may be temporary, inflation is eating into consumers’ wallets.  Real disposable personal income rose at a 1% pace, the weakest since Q4-2013.  Even though hiring has been humming along & the jobless rate of 4.5% is the lowest in almost a decade, a sustained pickup in wage growth would help boost consumers' ability to spend.

U.S. Economy Grew 0.7% in First Quarter, Slowest in Three Years

Household sentiment was little changed in Apr from the previous month, holding at an elevated level on optimism about personal finances, Univ of Michsurvey data showed.  Final Apr index of sentiment stood at 97 (forecast was 98), after 96.9 in Mar & down from a preliminary reading of 98.  Current conditions gauge, which measures Americans' perceptions of their personal finances, eased to 112.7 from 113.2 the prior month.  The preliminary Apr reading was 115.2.  Expectations measure crept up to a 3-month high of 87 from a Mar reading of 86.5 & an Apr preliminary index reading of 86.9.  An improved financial situation was reported by 50% of all respondents in both the Mar & Apr surveys, the most in more than 15 years.  Americans continue to feel optimistic about a solid job market, with expectations of falling unemployment the most favorable since 1984, & the prospects of growth-boosting legislation.  The expectations measure remained divided along party lines, as 66% of Reps expected the economy to improve, compared with only 18% among Dems.  “Consumer sentiment continued to travel on the positive plateau established following Trump’s election,” Richard Curtin, director of the consumer survey, said.  “There remains widespread agreement among consumers on their very positive assessments of the current state of the economy as well as widespread disagreement on future economic prospects based on partisanship.”  Higher home values were cited by 62% of homeowners, the largest share since 2006.

Consumer Sentiment in U.S. Was Little Changed in April

Oil prices rose after a slide to a one-month low the previous day prompted investors to buy at cheaper levels ahead of an OPEC meeting next month at which producers could prolong output curbs.  Most analysts polled expect the deal between OPEC & non-OPEC producers struck in Dec 2016 to be extended to the end of this year.  Compliance with the output deal is still a major price driver & comments from Russia that it would meet its end-Apr target of cutting output by 300K barrels per day (bpd) also supported prices today.  Non-OPEC member Russia said it would define its position on whether to support an extension of the output deal by May 24, a day before the official OPEC meeting in Vienna.  US light crude fetched $49.53 a barrel, up 56¢.  Despite Friday's gains were set for their 2nd straight weekly & monthly losses after yesterday's price drop, which was driven by news of oilfields in Libya resuming production.  An uptick in prices since the output deal has already increased profits at some major oil companies whose investments in new projects will also affect supply & demand balances.

Oil Rises from One-Month Low on Hopes of Output Deal Extension

This is turning out to be another lackluster day for stocks.  The GDP & consumer confidence data was pretty much expected.  However the goings on in DC continue to get most of the attention.  An effort to revive the new healthcare plans is on hold & the future of the tax plan proposal is unclear.  Meanwhile, Congress will probably allow the Treasury to borrow more money for another week, whatever, to keep the federal gov running for awhile.  As has been the case for several years, bitter partisan fighting means legislative action is stuck in the mud, something the stock market does not like to see.

Dow Jones Industrials