Thursday, April 6, 2017

Markets little changed ahead of Trump-Xi meeting

Dow climbed 32, advancers over decliners better than 3-2 & NAZ gained 3.  The MLP index went up 2 to the 324s & the REIT index crawled up a fraction to the 346s.  Junk bond funds were a little higher & Treasuries did not budge.  Oil was higher & gold also rose, going over 1250.

Dow Jones Industrials

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Federal Reserve Bank of San Francisco pres John Williams said it may take the central bank around 5 years to shrink its balance sheet to a more normal size once that process gets underway.  He said it made sense to begin the roll-off toward the end of 2017 & the length of time it takes would depend on how far officials want to trim a balance sheet swollen to $4.5T by 3 rounds of asset purchases designed to protect the US economy from the financial crisis.  “The number of years we’re thinking about just based on the arithmetic is something like 5 years,” said Williams, who is not a voting member of the FOMC this year.  He also repeated his view that a total of 3 rate increases was his base case for the year, while 4 may be needed in total if inflation improved.  The Fed has already raised rates once in 2017 at its Mar meeting.  Minutes of that gathering released on showed most officials backed beginning to shrink the balance sheet later this year.  Asked if he thought the Fed should pause interest-rate hikes as it began balance-sheet adjustment, Williams said officials would probably go slower on both tracks than would be the case if it was just moving on rates or reducing the size of its asset holdings.  The minutes also showed that many officials had observed a rise in equity prices in recent months as contributing to an easing in financial conditions.

Fed's Williams Sees Balance-Sheet Shrinking Taking Five Years

Filings for US unemployment benefits declined to a 5-week low, highlighting a resilient job market, a Labor Department report showed. Jobless claims slumped 25K to 234K (forecast was 250K) & the weekly decline was biggest in 2 years.  The number of people continuing to receive jobless benefits dropped 24K to 2.03M.  Claims are hovering near the lowest level since the early 1970s, indicating employers remain reluctant to reduce staff amid steady demand & a shortage of workers with relevant skills and experience.  Weekly filings below 300K is considered  consistent with a healthy labor market.  The data, which have been volatile lately, come a day before the monthly payrolls report that is projected to show the addition of 180K workers in Mar following a 235K advance the prior month.  The 4-week average of initial claims, a less-volatile measure than the weekly figure, fell to 250K from 254K in the prior week.  The unemployment rate among people eligible for benefits held at 1.5%.

U.S. Jobless Claims Decline to a Five-Week Low of 234,000

German factory orders rebounded from their steepest decline in 8 years in a sign the recovery in Europe's largest economy remains intact. Orders, adjusted for seasonal swings & inflation, rose 3.4% in Feb, after slumping a revised 6.8% in Jan, data from the Economy Ministry.  The typically volatile reading compares with an estimate for a 4% gain.  Orders were up 4.6% from a year earlier, when adjusted for working days.  Germany's economy expanded at the fastest pace in 5 years in 2016 & recent data show that trend is set to continue with private-sector output accelerating, unemployment falling to a record low & business confidence at the highest since 2011.  Even so, risks including Sep's federal elections, Brexit & uncertainty over US trade policies continue to hang over the outlook for spending & investment.  The rebound was led by an 8.1% jump in domestic demand, while export orders were unchanged from Janu.  Intermediate-goods orders surged 8.5%, while demand for investment goods rose 0.3% & consumer goods increased 2.7%.  “Manufacturing orders recovered after a sharp decline at the start of the year,” the ministry said.  “Order intake was lower than in the very strong fourth quarter, which was characterized by bulk orders. However, the volume of orders as well as the business climate in the manufacturing sector rose” & “a slight upturn in manufacturing is to be expected,” the ministry added.

German Factory Orders Recover as Economic Momentum Strong

Tomorrow is the big jobs report for Mar & is expected to be favorable after the ADP report yesterday.  Xi is coming & there may be a press event giving clues about what the 2 leaders wall have to say.  Trade between the nations is enormous & North Korea (backed by China) is been flexing its military muscles.  Today should be a quiet day in the story market as traders wait for tomorrow.

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