Wednesday, May 31, 2017

Markets drift lower but close the month with gains

Dow fell back 20, decliners slightly ahead of advancers & NAZ was off 4.  The MLP index lost 1+ to the 299s in what has been a dreary month & the REIT index was flattish in the 345s.  Junk bond funds were mixed & Treasuries rose.  Oil slumped to the low 48s & gold added 7 to 1273.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The US economy continued to grow “modestly” or “moderately” in nearly all regions in recent weeks, though new signs appeared that optimism has waned in some districts, a Federal Reserve survey showed.  The Beige Book economic report, based on anecdotal information collected by the 12 regional Fed banks thru May 22, said several sectors from manufacturing to housing continued to expand slowly.  Consumer spending softened, however, with many districts reporting little or no change in non-auto retail sales.  “A majority of districts reported that firms expressed positive near-term outlooks; however, optimism waned somewhat in a few districts,” according to the report.  While policy makers are expected to raise interest rates in Jun, the survey's findings underlined the growing tension in the US economy, & among Fed officials, over seemingly contradictory signals from inflation & the labor market.  Unemployment hit 4.4% in Apr, its lowest in a decade.  Despite that, the Fed's preferred gauge of inflation, after stripping out food & energy, rose just 1.5% in the 12 months thru Apr, the 3rd straight month it has slowed. “Labor markets continued to tighten, with most districts citing shortages across a broadening range of occupations and regions,” the report said.  Still, “most firms across the districts noted little change to the recent trend of modest to moderate wage growth.”  Many firms reported offering higher wages to attract workers “where shortages were most severe.”  While costs for some commodities rose, prices, overall, “were little changed from the prior report, with most districts reporting modest increases,” the Beige Book said.  Projections from Fed officials published in Mar put the FOMC on a course for 2 additional rate increases this year, following a hike that month.  Minutes from the FOMC May 2-3 meeting did nothing to alter that outlook & showed officials expect to raise rates again “soon.”

Fed Survey Shows Modest Growth With Tight Labor and Tame Prices

Greece's prime minister said he will only accept a deal to restart loan payments from intl bailout lenders if it soothes edgy investors enough for the debt-heavy country to "swiftly" tap markets with trial bond issues.  Alexis Tsipras said Greece will work hard over the next 2 weeks with its European partners & the IMF to reach a "clear" solution by the next meeting of eurozone finance ministers on Jun 15.  "A clear solution for the Greek side will not create, or intensify, insecurity for investors," he added.  "(That would be) a solution that secures stability, guarantees a dynamic for economic recovery and opens the way for Greece to tap money markets — initially, and swiftly, through trial issues," that will allow the country to cover its borrowing needs from markets after its bailout program ends in Sep 2018, Tsipras said.  "That is the measure of success," he continued.  Earlier today, the EU finance commissioner urged rescue lenders to "act responsibly" & reach an agreement with Greece.  Pierre Moscovici said Athens had "delivered on its commitments" on reforms & budget cuts.  Greece is racing to conclude the deal ahead of a Jul spike in loan repayments & earlier this month agreed to another round of austerity cuts that will see pensioners and salaried employees lose more of their income thru 2020.  "We will do everything to conclude as soon as possible," Moscovici said.  "I will continue in the name of the (European) Commission to urge that all players act responsibly."  The IMF & lead eurozone lender Germany are at odds over the degree of relief needed to make Greece's massive national debt sustainable.  According to Greek officials, the IMF believes European projections that long-term economic growth in Greece can be maintained at 1.3% are too optimistic.  Moscovici maintained that the 1.3% target was realistic.

Greece seeks bailout deal that will restore market access

Americans retreated from signing contracts to buy homes in Apr for the 2nd straight month, a possible sign that a declining number of homes on the market are stifling sales during the traditional spring buying season. The National Association  of Realtors says that its pending home sales index fell 1.3% in Apr to 109.8, after slipping 0.9% in Mar to 111.3.  Potential buyers are crowding open houses in many neighborhoods because there are fewer sales listings.  The number of properties for sales has plunged 9% over the past year to 1.93M, according to the Realtors.  Pending sales contracts are a barometer of future purchases.  A sale is typically completed a month or 2 after a contract is signed.

US pending home sales fell again in April

Forget the drive-thru, McDonald's, a Dow stock & Dividend Aristoctat, could be coming to your driveway.  The CEO said that the number of restaurants available to deliver Big Macs, Chicken McNuggets & fries is expanding by another 1K this week, bringing the total to more than 2K.  New locations include the New York metro area, Seattle, Denver & more.  CEO Steve Easterbrook says MCD will have 3½K restaurants on the UberEats app by the end of Jun.  The world's largest fast-food chain had announced 2 weeks ago that "McDelivery" through the UberEats app was available in 1K US locations.  Uber says its delivery fee varies depending on the city, but that it is generally a flat $4.99.  Easterbrook says MCD was encouraged by early delivery results, particularly with younger customers with late-night appetites.  The stock rose 96¢.  If you would like to learn more about MCD, click on this link:

McDonald's expanding delivery locations on UberEats

McDonald's (MCD)

Stocks were higher in May.  The Dow had a modest advance & barely finished above21K while NAZ jumped up more than 2% to new records.  Trump had a good overseas trip until Europe, then it was so-so.  Investor enthusiasm mirrored his changing fortunes on the trip.  Back in DC, the dysfunctional mess continues where it was when he left off.  The latest on the Paris accord is it looks like he will back out for the sake of more jobs in the US.  However, that situation remains fluid.

Dow Jones Industrials

Lower markets as Trump may pull out of Paris climate agreement

Dow dropped 70 (falling below 21K), decliners over advancers better than 2-1 & NAZ fell 30.  The MLP index lost 1+ to the 298s & the REIT index was off fractionally to the 344s.  Junk bond funds slid lower & Treasuries were a little higher.  Oil sank to 48 (more below) & gold went up to 1270.

AMJ (Alerian MLP Index tracking fund)


Crude Oil48.28



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China's official manufacturing gauge held up in May, buoyed by an improving global outlook.  Manufacturing purchasing managers index remained at 51.2 for a 2nd straight month in May, compared with an estimate of 51.  The non-manufacturing PMI rose to 54.5 (numbers higher than 50 indicate improving conditions).  While some early indicators for May suggested a slowdown in growth is taking hold, the PMI data signal continuing momentum that gives policy makers more room to rein in financial risks. While economists forecast growth will meet or exceed the gov target of at least 6.5% this year, projections also point to a continued slowdown after Q1's surprise acceleration to a 6.9% pace.  Small enterprises strengthened to 51, the highest in data stretching back 5 years, while large companies weakened to 51.2 from 52.  Input prices weakened to 49.5 from 51.8.  New orders were unchanged at 52.3 while new export orders rose to 50.7 from 50.6.  Steel industry PMI climbed to 54.8 from 49.1.

China Factory Gauge Holds Up as Global Economic Outlook Improves

German unemployment fell to a new record low as Europe's largest economy continued to power ahead.  The jobless rate dropped to 5.7% in May from 5.8%, data from the Federal Labor Agency showed.  The number of people out of work slid by a seasonally adjusted 9K to 2.54M, compared with a decline of 15K forecast.  Germany’s economy expanded 0.6% in Q1 on the back of strong domestic demand & firming global trade.  The Bundesbank expects the upswing to continue in the coming months, bolstering employment & private spending.  “In line with good economic conditions, the labor market continues to develop favorably,” labor agency head Detlef Scheele said.  “The number of jobless people extended its decline in May iand employment once again grew at a robust pace. Demand for labor also continues to be at very high levels.”  The ECB is counting on low unemployment in Germany to start pushing wages higher, a key element to restoring sustainable inflation in the euro area.

German Unemployment Declines as Economy Poised for More Growth

Oil prices fell to a 3-week low on news that Libyan output was recovering from an oilfield technical issue, fueling concerns that OPEC-led output cuts to reduce global inventories were being undermined by producers outside the deal.  US light crude traded at $48.31, down $1.35 (2.7%), on track for its 3rd straight monthly loss.  OPEC & other producers, including Russia, agreed last week to extend a deal to cut production by about 1.8M barrels per day (bpd) until the end of Mar 2018.  OPEC members Libya & Nigeria are exempt from the cuts, while US shale oil producers are not part of the agreement & have been ramping up production.  Libya's oil production has risen to 827K bpd, climbing above a 3-year peak of 800K bpd reached earlier in May, National Oil Corp said, after a technical issue that hit Sharara oilfield was resolved.  Shipping data shows that, excluding pipeline exports, Libya shipped an average of 500K bpd of oil so far this year, compared with 300K bpd average for 2016.  Analysts expected US stocks will have fallen 2.8M barrels last week, the 8th straight weekly decline.  Compliance by those signed up to the OPEC-led deal remained high among OPEC members & industry sources said Russian figures for May showed output in line with its pledge.  Saudi Arabia & Russia said that cooperation between OPEC & non-OPEC producers was seen lasting beyond Mar.  "We want to institutionalize cooperation between OPEC and non-OPEC producers," Saudi Energy Minister Khalid al-Falih said.

Oil at 3-week low as rising output risks OPEC-led deal

It appears that Trump will pull out of the Paris climate change accord as tensions between him & Angela Merkel grow.  Germany is an important trading partner for the US.  Dysfunctional DC is not helping to calm growing investor anxieties.  Dow & NAZ continue near record highs, but without major positive economic data, this could be an ugly summer for the stock market.

Dow Jones Industrials