Monday, May 1, 2017

Mixed markets on mixed April economic data

Dow fell 24, decliners slightly ahead of advancers & NAZ gained 14.  The MLP index added pennies in the 316s & the REIT index was flat in the 346s.  Junk bond funds were sold & Treasuries drifted lower.  Oil slid back to the high 48s & gold was about even at 1267.

AMJ (Alerian MLP Index tracking fund)


Crude Oil48.89



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The House & Senate negotiators reached a bipartisan deal on a $1.1T spending bill that largely tracks with Dem priorities & rejects most of Trump's wish list, including money to begin building a wall along the Mexican border.  The compromise measure would keep the gov open thru the end of Sep.  Under House procedures, a vote could be held as early as Wed.  GOP leaders eager to focus on health-care & tax overhauls bowed to Dem demands to eliminate hundreds of policy restrictions aimed at curbing regulations, leaving the Trump administration with few victories.  The White House sought funding to begin building the border wall, as well as $18B in cuts to domestic agencies, & both demands were rebuffed.  The spending deal includes money for Planned Parenthood, despite Rep demands to defund the group over its provision of abortions.  Trump will be able to point to a $15B  boost for the Pentagon, although $2.5B of that money is contingent on the administration delivering a new plan to fight Islamic State.  It also falls well short of the $30B he had originally requested.  Trump will get $1.5B for border security, but it can't be used for the border wall or additional immigration enforcement agents.  There are also no new restrictions on money going to sanctuary cities that don't fully enforce federal immigration laws.

Congress Reaches Spending Deal That Rejects Most Trump Priorities

US consumer spending stalled in Mar while inflation slowed to below the Fed's target, showing the biggest part of the economy might take more time to gain momentum after a tepid start to the year.  Purchases were little changed in both Mar & Feb from their prior months, Commerce Department figures showed.  The  forecast  called for a 0.2%  advance.  Incomes rose 0.2%, with falling prices applying a drag on the nominal figures.  The figures were foreshadowed in Fri's report on GDP that showed the slowest Q1 for household spending since 2009.  Analysts are expecting the consumer to bounce back, as there's still plenty for Americans to cheer about in the economic outlook, including a steady job market.  Wages rose 0.1% in Mar after a 0.5% gain the prior month.  Disposable income, or the money remaining after taxes, increased 0.5% from the prior month after adjusting for inflation, the fastest gain since Dec 2015.  It was up 2.4% over the past year, compared with a 2.2% year-over-year gain in Feb.  The saving rate increased to 5.9% from 5.7% in Feb.  After adjusting for inflation, in order to generate the figures used to calculate GDP, purchases increased 0.3% after a 0.1%  decline in Feb.  Durable-goods purchases fell 0.7% after adjusting for inflation, in a month marked by a decline in auto sales, while spending on nondurable goods was up 0.3%.  Household outlays on services increased 0.4%, following a 0.2% drop in Feb.  The personal spending report showed the price index tied to consumer purchases fell 0.2% from the prior month, the first decline in a year.  It rose 1.8% from the same time in 2016, marking a slowdown after the inflation gauge, which is preferred by Federal Reserve policy makers, climbed above their 2% goal in Feb for the first time in 5 years.

Consumer Spending in U.S. Stalls in March

America's factories expanded less than forecast in Apr as measures of orders & employment pulled back, Institute for Supply Management data showed.  ISM's index eased to 54.8 (forecast called for 56.5) from 57.2 in Mar (readings above 50 indicate expansion).  A measure of orders dropped to 57.5 from 64.5 in Mar.  Prices-paid index declined to 68.5 from 70.5 & a factory employment gauge retreated to 52 from 58.9 the prior month.  Even with the retreat last month, the gauge remains well above the 51.5 average for all of 2016 & indicates healthy optimism among factory managers.  The data show manufacturing is settling into a more sustained pace of growth after expanding in Feb by the most since mid-2014.  The decline also brings the factory diffusion index back toward levels that are more in line with “hard data,” including industrial production & manufacturer orders & shipments.  The Fed's latest production report showed factory output dropped 0.4%  in Mar on weakness in the auto sector.  While ISM's Apr measures of new orders & factory employment cooled from a month earlier, the report showed overseas markets are doing better.  The index of export orders climbed in Apr to the highest level since Nov 2013.  A gauge of customer inventories dropped to the lowest level since Jul 2015, a sign bookings & production will remain strong.  From a policy perspective, the Trump administration's recent release of a tax-cut plan may provide a glimpse into eventual legislation, giving businesses a bit more clarity for future investments & hiring.  ISM's production gauge rose to 58.6 from 57.6 & exports measure rose to 59.5 in Apr from 59.  The measure of order backlogs eased to 57 from a 3-year high of 57.5.

U.S. Manufacturing Expanded Less Than Forecast in April

Stocks have a lot to digest.  Few investors are committing one way or the other.  Avoiding a gov shutdown is sort of good although the Reps seem like they don't want to play hardball.  Economic data was so-so although the indices are still pretty much at or near recent highs.  Optimism remains strong that Q2 will bring better growth numbers.  Then there is the intl scene.  Friendly countries (including China) are warming to Trump, but uncertainties remain high about the mess in the Mideast & North Korea.  Additional Apr data coming this week will probably continue to be fairly strong, but indecisive.

Dow Jones Industrials


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