Monday, April 17, 2017

Markets rise on strong Chinese economy growth

Dow jumped up 97, advancers over decliners 5-2 & NAZ gained 34.  The MLP index was fractionally lower in the 319s & the REIT index funds rose 2 to the 353s.  Junk bond were little changed & Treasuries crawled higher.  Oil dipped lower (more below) & gold edged higher to 1290 on growing intl tensions.

AMJ (Alerian MLP Index tracking fund)

Crude Oil May 17

Gold Futures,Jun-2017

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China's economy stormed back in Q1, clocking its first back-to-back acceleration in 7 years & bolstering the global growth outlook just as signs of subdued consumer spending have surfaced in the US.  Its economy accelerated to a better-than-expected 6.9%, powered by strength in housing, infrastructure investment, exports & retail sales.  And it looks to have done so without worsening credit risks, a welcome development for those worried about the nation's towering debt burden.  The robust economic showing is an auspicious start to a politically eventful year for Pre Xi Jinping & Premier Li Keqiang, whose gov has set a growth target of 6.5% or above.  Policymakers are bent on steady growth to ensure a smooth leadership reshuffle expected later this year.  The Chinese economy is in the midst of a major structural shift away from its past reliance on heavy manufacturing & export-led growth toward services & consumer demand.  Officials are also trying to avert a trade war with the US, manage capital outflows amid depreciation pressure on the yuan, & slow the growth of household, corp & gov debt.  For the world economy, the Chinese rebound may deliver positive 2nd-round effects.  China's imports from the Association of Southeast Nations surged 22.7% in Mar from a year earlier while those from Singapore were up 41.5%.  From commodities exporter Australia, imports jumped almost 75%.

China Roars Back to Lift Global Outlook

Crude oil slid lower on signs that the US is continuing to add output, largely counteracting strong economic growth in China & OPEC efforts to cut production.  West Texas Intermediate (WTI) crude futures were down 46¢ at $52.72 a barrel, after rising 7¢ to $53.18 on Thurs.  The benchmark had risen last week for a 3rd consecutive week, up 1.8%.  While trading was subdued, the focus was on indications that shale oil output in the US was pressing higher.  Although the failure of a ballistic missile launch in North Korea brought some respite, markets were braced for further tensions in the region.  In Libya, fighting between rival factions has cut oil output, but state oil company NOC was able to reopen at least one field & was pushing to reopen another.  US drillers last week added rigs for a 13th straight week, a sign output gains there will continue.  Energy services firm Baker Hughes said drillers added 11 oil rigs in last week, bringing the count up to 683, highest in about 2 years.  Increasing US output is undermining attempts by OPEC & other major oil producers to curb output & sustain a rally in prices in a market that has been oversupplied since mid-2014.  US crude oil production has climbed to 9.24M barrels per day (bpd), according to the latest Energy Information Administration data, making it the world's 3rd-largest producer after Russia & Saudi Arabia.  The increasing production largely counteracted figures showing Q1 economic growth of 6.9% in China.  Forecast-beating Mar investment, retail sales & exports all suggested China's economy may carry solid momentum into spring.  Additionally, Iran added fuel to hopes that OPEC & non-OPEC oil producers could extend their output cuts beyond the initial 6-month agreement. Any cut extension could help underpin prices.

Oil Slides as U.S. Pumps More

China, which produces ½ of the world's steel, churned out a record quantity in Mar as mills benefited from healthy margins, setting the scene for a subsequent decline in prices.  Production of crude steel expanded 1.8% from a year earlier to 72M metric tons, according to the National Statistics Bureau.  That implies an average daily run-rate of 2.323M tons, beating the previous monthly record in Jun.  Output for the first 3 months was 201M tons, up 4.6% from a year earlier.  Steelmakers profited from a surge in prices thru mid-Mar as infrastructure spending & real-estate construction boosted demand.  But the rally has faded. Reinforcement bar used in construction slumped in the past month, along with iron ore, as buyers worked through bloated stockpiles.  Steel output has risen much faster than end-user demand, leading to increased inventories.

China's Steel Output Surges to Record, Spurring Price Slide

Growth data from China begins the week on a positive tone for the stock market.  Earnings season is in full force & expectations are high with recent indications that consumer sentiment & corp execs confidence are running very high.  However, tensions with Russia & North Korea have to be watched & that is encouraging buying in gold..

Dow Jones Industrials

stock chart  

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