Monday, May 8, 2017

Markets little changed after French presidential election

Dow lost 30, decliners over advancers 4-3 & NAZ fell 5.  The MLP index was fractionally higher to the 309s & the REIT index fell 1+ to the 343s.  Junk bond funds were mixed & Treasuries drifted lower.  Oil crawled higher & gold rose 2 to 1229.

AMJ (Alerian MLP Index tracking fund)


Crude Oil46.37



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Federal Reserve Bank of Cleveland Pre Mester said the central bank should continue on its gradual path of raising interest rates to prevent the risk of overheating the U.S. economy.  “It’s important for the FOMC to remain very vigilant against falling behind as we continue to make progress on our goals,” Mester said, referring to the policy-making FOMC.  “If we delay too long in taking the next normalization step and then find ourselves in a situation where the labor market becomes unsustainably tight, price pressures become excessive and we have to move rates up steeply, we could risk a recession,” she added.  After raising rates in Mar, Fed officials left interest rates unchanged last week, but signaled they're still on track to hike 2 more times this year.  In doing so, they brushed aside a Q1 slowdown in the economy they described as “transitory.”  Labor Dept data affirmed that view, showing employers created a greater-than-expected 211K new jobs in Apr as unemployment fell to 4.4%, the lowest since 2007.  Mester was equally dismissive of data showing the economy expanded at an annual pace of 0.7% in Q1 & that consumer spending was lower than expected.“  The softness in the first quarter hasn’t changed my medium-run outlook, and I expect a rebound in consumer spending over the rest of the year,” she said.  Mester said she has seen encouraging signs of businesses in her district amid both raising wages & increasing investments.  Mester repeated that she would like to see the Fed change its policy this year that keeps its $4.5T balance sheet at a steady level.  Fed officials have been debating when and how to begin shrinking the balance sheet.

Fed's Mester Warns Against Falling Behind With Rate-Hike Pace

German factory orders expanded for a 2nd month as Europe's largest economy picked up speed.  Orders, adjusted for seasonal swings & inflation, rose 1% in Mar, after expanding an upwardly revised 3.5% in Feb, data from the Economy Ministry showed.  The typically volatile reading compares with an estimate for a 0.7% gain.  Orders were up 2.4% from a year earlier, when adjusted for working days.  The Bundesbank said Germany's economy probably gathered momentum in Q1 on the back of strong consumer spending & a brightening outlook for manufacturers.  Business confidence is at the highest level in almost 6 years & data on Fri is forecast to show that growth accelerated in the3 months through Mar.  “Manufacturing orders continue to be vibrant,” the Economy Ministry said.  “Economic conditions in manufacturing are favorable. This is also reflected by strongly improved business climate indicators.”  Orders were bolstered by demand from the 19-nation euro area, with investment goods up 7% in the region & consumer goods surging 20.5%.  Economists predict the ministry will report in separate release tomorrow that industrial production fell 0.7% in Mar after rising 2.2% the previous month.

German Factory Orders Rise as Economic Boom Continues Undaunted

Oil held onto Fri's gains as Saudi Arabia & Russia said they're prepared to extend production cuts into next year to clear the global surplus.  Futures were little changed after increasing 1.5% on Fri, following a decline to the weakest since Nov.  Saudi Arabia's energy minister Khalid Al-Falih said that while the rebound in US shale oil has slowed OPEC’s efforts, the group will likely maintain output cuts this year & possibly into 2018.  Russia's energy ministry said it supports the idea.  Oil capped a 3rd weekly loss last week after dropping to levels last seen before OPEC agreed in Nov to reduce production.  OPEC will meet May 25 to decide whether to extend supply cuts thru H2 as concerns mount that its efforts to trim a global glut are being overwhelmed by rising US supply.  West Texas Intermediate for Jun delivery rose a penny to $46.23 a barrel & total volume traded was about 58% above the 100-day average. The contract gained 70¢ to $46.22 on Fri, trimming the weekly loss to 6.3%.

The French election produced little excitement in the stock market.  Traders will turn their attention to to earnings from the retailers & the goings on in DC.  The Senate is working on its version of a new healthcare plan & both Houses have a new tax plan on their agenda.  Despite DC being deeply divided, probably worse than in decades, those guys will have to deal with this legislation plus all the minor items that come up.  But the popular averages remain at or next to record highs as hopes for the future of the economy remain high.

Dow Jones Industrials


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