Friday, June 30, 2017

Markets close the second quarter with advances

Dow gained 63 today with a little selling into the close, advancers over decliners almost 2-1 but NAZ lost 3.  The MLP index rose 3 to the 297s & the REIT index crawled up about 1 to 351.  Junk bond funds went up & Treasuries were sold once again.  Oil rose 1 to the 46s & gold slid back to 1241.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Pres Trump highlighted a deal between Cheniere Energy (LNG) & South Korea during a joint appearance with the country's pres today.  Trump, who discussed a variety of trade issues with Pres Moon Jae-in during his visit, praised South Korean companies for investing in the US.  Multiple companies announced combined investments of $12.8B to coincide with Pres Moon's meeting with Trump.  Cheniere, the only company that exports liquefied natural gas (LNG) from US shale, said earlier this week that its export terminal in Louisiana began shipments to South Korea this month, officially kicking off a deal that was signed in 2012.  Under terms of the 20-year agreement, Cheniere will make 3.5M tons of LNG available to Korea Gas on an annual basis.  “I was gratified to learn about the new investments South Korean companies are making in the United States. This month Cheniere is sending its first shipment of American liquefied natural gas to South Korea in a deal worth more than $25 billion,” Trump said.   Korea Gas is already in discussions with Cheniere to increase its supply of LNG.  South Korea has joined Mexico, Chile & Japan as buyers of US natural gas, as the nation boosts exports amid a period of abundant supplies.

Trump praises $25B LNG deal between Cheniere and South Korea

Pres Trump said he was renegotiating what had been a "rough" trade deal with South Korea when he met for a 2nd day with Pres Moon Jae-in, focusing on North Korea's nuclear threat & trade.  Moon, making his first trip to the US since becoming pres in May, was greeted again by Trump at the White House, where he attended a dinner hosted by the US chief executive yesterday.  Trump has spoken harshly about US trade imbalances & threatened to tear up a 5-year-old trade agreement reached with South Korea.  Speaking alongside Moon in the Oval Office, Trump said the 2 had "accomplished a lot" on North Korea & trade.  "We are renegotiating a trade deal right now as we speak with South Korea, and, hopefully, it will be an equitable deal, a fair deal for both parties," he said.  "It’s been a rough deal for the United States, but I think that it will be much different and will be good for both parties. ... We want something that is going to be good for the American worker, and I think that we will be able to do that today."  Trump said the 2 were in the process of discussing "many options" on North Korea.  Moon has said he wants to form a friendship with Trump & find common ground on North Korea.  He said he & Trump had had "very honest discussions and on issues to include the North Korean nuclear issue and other issues of mutual interest."  "It was a great opportunity for us to further the trust and friendship between me and President Trump," he added.  "It was also an opportunity to reconfirm that the U.S. and Korea are walking together on the same path towards a great alliance."  On Wed, he said that unfair trade practices would be eradicated & factors that limited competition, such as market entry barriers and price regulations, would be re-evaluated under his administration.  The US goods trade deficit with South Korea has more than doubled since the KORUS pact took effect in 2012, from $13.2B in 2011 to $27.7B in 2016.  It was forecast to boost US exports by $10B a year, but they were $3B lower in 2016 than in 2011.

Trump renegotiating 'rough' US trade deal with South Korea

Gold prices settled with a loss today, pressured by gains in global bond yields which dulled investment demand for the metal.  Prices, however, scored a gain of roughly 7.9% for H1, buoyed in part by overall weakness in the $ YTD.  Aug gold fell $3.50 (0.3%) to settle at $1242 an ounce for the session.  It lost about 1.1% for the week & was down about 2.6% for the month.

Gold Prices End The Session Lower, But Tally a Gain For The First Half Of The Year

The tepid pace of US consumer spending in May is nevertheless enough to keep the economy on track for a rebound in Q2, helped by income gains, Commerce Dept figures showed.  Purchases rose 0.1% from prior month (matching est.) after 0.4% increase in Apr.  Incomes rose 0.4% (est. 0.3% rise) after 0.3% gain.  Price gauge tied to consumption fell 0.1% M/M (matching est.); was up 1.4% Y/Y (est. 1.5%). Excluding food & energy, prices rose 0.1% M/M & 1.4% Y/Y (matching both ests.).  Americans may be reluctant to ramp up spending until they see a faster pickup in wages, even as steady hiring, healthier balance sheets & low borrowing costs are helping to support their purchases.  Since household spending accounts for about 70% of the economy, any persistent weakness would damp the outlook for a stronger rebound in economic growth after the lackluster pace of early 2017.  An outsized 4.8% jump in divs powered May's gain in inflation-adjusted disposable income, which matched the biggest since Dec 2012.  Wages & salaries, meanwhile, cooled to a 0.1% increase following a 0.5% gain in Apr.

Stocks closed H1 on an up note.  For the month, the Dow gained 2% while NAZ was off fractionally.  Both are near their record highs.  For H1, Dow extended the post election rally, gaining 8% & NAZ shot up 14% to go well over 6K. The trade story with South  Korea is the kind of news traders are hoping will be repeated (as it has already) to boost the US economy.  If there are more such deals & the mess in DC calms down, stocks will rise but the averages near record highs will be challenged to match the advances made in H1.

Dow Jones Industrials

Markets crawl higher while tech remains weak

Dow added 76, advancers over decliners 5-4 & NAZ slid back chump change after recent weakness.  The MLP index continued its recovery, rising 2+ to the 297s, & the REIT index was down pennies in the 349s.  Junk bond funds edged higher & Treasuries continued weak.  Oil climbed to the 45s (more below) & gold was off a tad.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil45.21


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The weakest US consumer expectations since the election indicate growing concern about prospects for Pres Trump's agenda, though Americans' high satisfaction with their finances should support continued spending, Univ of Mich survey data showed.  The final sentiment index fell to 95.1 (forecast and preliminary reading were 94.5) from 97.1 in May.  Expectations measure dropped to 83.9 in Jun, lowest since Oct, from 87.7 the prior month (preliminary reading was 84.7).  Current conditions gauge, which measures Americans' perceptions of their personal finances, rose to 112.5 from 111.7 in the prior month (preliminary reading was 109.6).  The survey shows a widening divide between how Americans view the current state of the economy & prospects for a potential extra boost from Congress & the White House, as lawmakers wrangle over health care & taxes.  While 51% of all consumers reported recent improvement in their finances, the highest share since 2000, Reps are becoming less sanguine about the situation in DC.  For the first time since the election, a bigger share of consumers expected a downturn in the next 5 years than an uninterrupted expansion.  Even so, the average level of sentiment in H1 was the best in 16 years, which supports the household spending that accounts for 70% of the economy.  “Increasing uncertainty about future prospects for the economy has thus far been offset by the recent strength in jobs and incomes,” Richard Curtin, director of the survey, said.  “The data provide no indication of an imminent downturn nor do the data provide any indication of a resurgent boom in spending.  ”Sentiment gap between Reps & Dems was 39 index points in Jun, similar to 38-point difference in Feb.  Households in the top 1/3 of incomes, which account for more than ½ of spending, reported less favorable buying attitudes for durables, vehicles & homes

U.S. Consumers Sour on Outlook While Happy With Their Finances

Spain is revising its economic growth forecast for this year upward to 3% from 2.7%, a further sign of the country's recovery.  Prime Minister Mariano Rajoy said that the latest estimate by the Spanish central bank that the economy grew 0.9% in Q2, up from 0.8% in Q1, was significant.  It was the 2nd upward revision to growth so far this year. Rajoy said.  Spain emerged from recession in late 2013 & is now one of the EU's fastest-growing economies although its unemployment rate of 19% remains the EU's 2nd-highest (after Greece).

Spain revises its economic growth forecast upward, again

Crude oil futures were on track for their biggest weekly gain since mid-May, ending 5 weeks of losses with prices underpinned by a decline in US output.  US crude futures have added 5% this week, marking the biggest rise since the week ending May 19.  US crude was trading up 0.6% (27¢) at $45.20 a barrel.  Data indicating a fall in US production bolstered markets this week after crude prices hit a 10-month low last week in the face of a mounting supply glut.  US crude output fell 100K barrels per day (bpd) to 9.3M bpd last week, the steepest weekly fall since Jul 2016.  Meanwhile, the North Sea crude oil market is showing signs of long-lost strength, suggesting that some of the pessimism that has driven down oil futures & created a record bet against a price rise may be unjustified.  Yesterday, about 6M barrels of North Sea Brent crude were being stored on ships, down from 4-month highs of as many as 9M last week.  Trading sources said it seemed now refineries were starting to take in more cargoes.  In recent weeks, funds have been unloading long speculative positions, reducing bets on higher prices, while brokerages have cut their 2017 forecasts for crude prices.  Global oil supplies remain ample despite output cuts of 1.8M bpd by the OPEC & other producers since Jan.  OPEC has exempted Nigeria & Libya from the curbs, leaving them free to ramp up output following local unrest, with Libyan oil production nearing 1M bpd.

Crude oil prices firm, set for biggest weekly gain since mid-May

Stocks are trying to crawl higher, with only limited success.  Sputtering tech stocks are a worry, even for the staunchest bulls.  The future of healthcare legislation weighs heavily on the stock market because its future is fuzzy.  Those guys are looking for last minute changes to wrap up a deal, but that is unlikely.  Its importance is huge because that is holding up tax reform & raising the debt ceiling (an absolute must).  At these levels, stocks have had an excellent H1 which will difficult to top in H2.

Dow Jones Industrials