Tuesday, May 30, 2017

Markets drift lower following falling commodity prices

Dow fell 50 (in the red all day, but still above 21K), decliners over advancers 3-2 & NAZ was off 7.  The MLP index dropped 4+ to 301 & the REIT index gave back 1+ to the 345s.  Junk bond funds were little changed & Treasuries headed higher as stocks were sold.  Oil slid lower & gold was weak (more on both below).

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Federal Reserve Governor Lael Brainard said soft inflation could cause her to reassess the path forward for monetary policy should it linger, even as the global economic outlook brightens & US growth looks poised to rebound.  “If the soft inflation data persist, that would be concerning and, ultimately, could lead me to reassess the appropriate path of policy,” Brainard said.  She said her baseline expectation is that “it likely will be appropriate soon to adjust the federal funds rate” & start shrinking the balance sheet.  Brainard’s remarks underline a puzzle facing the central bank.  Joblessness has fallen to a post-crisis low & consumer confidence is strong, yet price pressures have cooled, which could make the Fed's coming discussions more complicated.  Policy makers lifted rates in Mar & have penciled in 2 more 2017 rate increases, & investors expect the first of those to come in Jun.  Brainard argued that if the economy evolves as expected, “the federal funds rate will likely approach the point at which normalization can be considered well under way before too long, when it will be appropriate to adjust balance sheet policy.”

Fed's Brainard Says Soft Inflation May Warrant Rate Rethink

Americans this month became less upbeat about the outlook for jobs & business after sentiment reached a 16-year high 2 months ago in anticipation lawmakers would help recharge the economy, according to data from the Conference Board.   Confidence index fell to 117.9 (forecast was 119.5) from a revised 119.4 in Apr.  Present conditions measure crept up to 140.7 from 140.3.  The gauge of consumer expectations for the next 6 months dropped to a 4-month low of 102.6 from 105.4.  Measures of the outlooks for business & employment both decreased to 6-month lows.  Despite the drop, optimism is still running high on an economy that has kept producing a steady flow of jobs, rising stock & home prices & at least gradual gains in wages.  The index of sentiment about current conditions is the second-highest since 2001.  The decline in expectations signals Americans may be growing less upbeat about the prospects for fiscal measures that would help propel growth.  At the same time, it probably would take much bigger or more sustained decreases in confidence to curb the consumer spending that remains the primary engine for the economy.  “Consumers were somewhat less upbeat than in April, but overall remain optimistic that the economy will continue expanding into the summer months,” Lynn Franco, director of economic indicators at the Conference Board, said.  Share of households expecting better business conditions in the next 6 months dropped to 21.3% from 25.1% in Apr. The share of Americans saying there will be more jobs in the next 6 months decreased to 18.6% from 21.9% & the percent saying jobs are currently plentiful was little changed at 29.9% from 30.3%.  Labor differential, measuring share of those saying jobs are plentiful minus the share saying they’re hard to get, rose 0.8 point to 11.7 points.  Buying plans deteriorated as fewer said they expected to purchase cars & major appliances.

U.S. Consumer Confidence Eases on Economic, Jobs Expectations

Gold prices settled lower, pulling back after posting gains over the last 3 weeks.  Prices fell despite some weakness in the $, which is usually supportive for the $-denominated precious metal.  Traders await the release of the monthly US jobs report Fri for clues on the Fed's pace of interest-rate hikes.  Aug gold , the most-active contract, lost $5.70 (0.5%) to settle at $1265 an ounce.

Gold Prices Pull Back After Climbing Over The Last Three Weeks

Oil prices fell about 1%, on signs of resurgent crude output in Libya & concerns that extended production cuts by leading exporting countries may not be enough to drain a global glut that has depressed prices for almost 3 years.  US light crude was 46¢ (0.9%)  lower at $49.34.  Libya's oil production was at 784K barrels per day (bpd) because of a technical issue at the Sharara field, but was expected to start rising to 800K bpd today, the National Oil Corp said.  OPEC & other oil producers, including Russia, agreed last week to maintain output cuts of about 1.8M barrels a day for 9 months longer than originally planned.  Still, prices tumbled after the OPEC deal was announced.  The cutbacks have yet to drain crude inventories significantly.  Part of the problem for OPEC is booming shale production in the US.  Drillers have added rigs for 19 straight weeks to reach 722, the highest since Apr 2015.  Analysts have cut forecasts for oil prices, saying falling US production costs should boost supply for years.

Oil prices slide on worries Libya output will feed glut

Amazon (AMZN) topped $1K today but couldn't hold that lofty level.  Otherwise this was another dreary day for the stock market.  Dow has been flattish for 3 months.  The latest confidence data shows that enthusiasm is slipping (from high levels).  Optimism is taking another look at what's not getting done in DC.  This will be an important week for the stock market if frustration sets in for traders. 

Dow Jones Industrials

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