Friday, June 2, 2017

Markets crawl hgher after a weak jobs report for May

Dow rose 23, advancers over decliners almost 2-1 & NAZ added 24.  The MLP index fell 2 to the 299s & the REIT index went up 2+ to the 249s.  Junk bond funds were off a tad & Treasuries gained.  Oil dropped again (more below) & gold climbed to 1278.

AMJ (Alerian MLP Index tracking fund)

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Crude Oil47.61



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The US labor market gave mixed signals in May, with a decline in the unemployment rate to a 16-year low contrasting with below-forecast hiring & wage growth, Labor Dept figures showed.  Payrolls rose 138K (est. 182K rise); Mar-Apr revisions subtracted 66K jobs.  Unemployment rate, derived from a separate survey of households, fell to 4.3% (est. 4.4%) from 4.4% & average hourly earnings rose 0.2% m/m (matching est.); climbed 2.5% y/y (est. 2.6%).  Cooler hiring may partly reflect the challenge of finding skilled & experienced workers amid a tightening job market.  It may also be a sign businesses are reluctant to expand their workforce until they see more evidence the new administration's plans are translating into legislation that’ll reduce taxes & spur growth.  Even so, with the revisions, the 3-month average of payroll gains was the weakest since 2012.  The decline in the unemployment rate, while a sign of a tightening job market, was also due to a drop in the size of the labor force, as the number of people classified as employed & unemployed fell by roughly the same amount.  Even with the figures, economic growth is likely to rebound this qtr & the US is near full employment, helping explain why Fed policy makers are expected to raise interest rates when they meet Jun 13-14.  Sustained hiring amid a shortage of skilled workers should eventually lead to an acceleration in wages.  One calendar quirk that may have depressed wage gains in May was that the 15th of the month, when workers who are paid semi-monthly get their checks, fell on the Mon after the survey week, which includes the 12th.  This has distorted the wage readings in the past.

U.S. Payrolls Miss Estimates

US demand for foreign-made goods climbed & exports declined, causing the trade deficit to widen in Apr, which may restrain the pace of economic growth this qtr, Commerce Dept data showed.  Gap increased 5.2% to $47.6b (forecast was $46.1B) from a revised $45.3B in Mar.  Exports dropped 0.3% to $191B, restrained by autos & consumer goods.  Imports rose 0.8% to $238.6Bon consumer goods, capital equipment.  The merchandise-trade deficit climbed to $68.4B, the 2nd-widest in 2 years.  A wider gap in merchandise trade that persists would limit any rebound in economic growth this qtr after a slowdown at the start of 2017.  Trade contributed little to Q1 growth after subtracting 1.82 percentage points in the final 3 months of 2016.  The trade figures also include the Commerce Dept annual revision for 2014-2016.  The goods & services trade deficit was revised up 0.8% for last year after minimal changes to 2014 & 2015.  After eliminating the effects of price fluctuations, which generates the numbers used to calculate GDP, the gap grew to $63.5B from $60.7B.  Apr imports of capital goods were the highest in 2 years.  Excluding petroleum, the merchandise deficit reached $61.7B, the highest since Mar 2015.

Wider U.S. Trade Gap May Signal Drag on Second-Quarter Growth

Brent crude tumbled below $50, heading for a 2nd straight week of losses, on worries that Trump's decision to abandon a climate pact could spark more crude drilling in the US, worsening a global glut.  West Texas Intermediate crude futures fell $1.45 cents to $46.91 per barrel & is on track for a weekly loss of more than 5%.  The US withdrawal from the landmark 2015 global agreement to fight climate change drew condemnation from its allies & sparked fears that US oil production could expand even more rapidly.  US crude production last week was up by nearly 500K barrels per day (bpd) from year-earlier levels, straining OPEC's efforts to reduce global oversupply.  A week ago, OPEC & a number of non-OPEC producers extended a deal to cut 1.8M bpd from the market until Mar 2018.  Today, Igor Sechin, chief of Russia's largest oil producer, Rosneft, said US oil producers could add up to 1.5M bpd to world oil output next year.  Oil prices are down some 10% since OPEC's decision to extend the cuts.  Rising output from OPEC members Nigeria & Libya, which are exempt from the output reduction deal, is also undercutting attempts to limit production.  OPEC last week discussed reducing output by a further 1-1.5% &  could revisit the proposal should inventories remain high.  Oil markets received some support from official US data which showed crude inventories fell sharply last week as refining and exports surged to record highs.  Crude stockpiles were down by 6.4M barrels in the latest week, compared with expectations for a fall of 2.5M barrels.

Oil prices drop amid glut concerns, U.S. withdrawal from climate deal

The bulls remain happy about abandoning the Paris climate agreement & were willing to over look the mediocre jobs data.  The popular stock averages are at record highs, but the ugly world in DC & the inability to get legislation passed is a dark cloud that is not going away.  Enjoy the high prices while you can.

Dow Jones Industrials

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