Wednesday, June 14, 2017

Markets even ahead of Fed rate hike decision

Dow inched up pennies, decliners just ahead of advancers & NAZ slid back chump change.  The MLP index gave back 2 to the 292s & the REIT index dded 1+ to the 354s.  Junk bond funds crawled higher & Treasuries rallied, taking the yield on the 10 year Treasury to 2.14%.  Oil pulled back in the 46s & gold gained 9.

AMJ (Alerian MLP Index tracking fund)


Crude Oil46.18



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A greater-than-expected deceleration in US consumer-price inflation in May could give some pause to Federal Reserve officials as they consider further interest-rate increases, Labor Dept figures showed.  Consumer-price index fell 0.1% m/m (est. unchanged) following 0.2% rise in prior month.  CPI was up 1.9% y/y (est. 2%) after 2.2%.   Excluding volatile food & fuel, costs rose 0.1% m/m (est. 0.2%) after 0.1% rise; up 1.7% y/y, lowest since May 2015 (est. 1.9%).  While the data can be volatile month to month, often depending on energy & food prices, the underlying measure of inflation has slowed to 1.7% from 2.3% in Jan, raising the risk that price gains will drift further from the Fed target.  The decrease in the headline index was led by energy, including the biggest drop in gasoline since Feb 2016, though prices also fell in apparel, airfares, communication & medical-care services. Fed officials primarily judge their progress on meeting their target via a separate index, which has fallen below 2% since meeting that objective in Feb for the first time in almost 5 years.  Central bankers conclude ther 2-day meeting later & they are widely expected to raise the benchmark interest rate for the 2nd time this year amid a tightening labor market.  Additional hikes, however, may be contingent on a rebound in underlying inflation.

Slowing U.S. Consumer Inflation May Sow Fed Doubt on Prices

US retail sales fell in May by the most since the start of 2016, reflecting broad declines in categories including motor vehicles & electronics, Commerce Dept figures showed.  Retail sales dropped 0.3% (est. unchanged) after a 0.4% increase in prior month.  Sales excluding autos & gasoline were unchanged after a revised 0.5% advance.  Retail-control group sales, which are used to calculate GDP & exclude the categories of food services, auto dealers, building materials stores & gasoline stations, were unchanged following a 0.6% Apr advance, revised from 0.2% gain.  8 of 13 major retail categories showed a decline in the value of sales.  The May figures highlight a cautious consumer.  While the value of gasoline service-station receipts dropped the most since Feb 2016 & weighed on overall retail sales, Americans pulled back at other merchants. The data aren't adjusted for prices, so lower fuel costs depress filling-station results.  At department stores, purchases fell by the most since Jul 2016 & sales at electronics & appliances outlets posted the largest decrease in more than 7 years.  While the details show consumer purchases had less momentum in the middle of the qtr than anticipated, a strong job market, elevated sentiment & improved finances remain sources of strength for household spending, which accounts for about 70% of the economy.  The retail sales data capture just under ½ of all household purchases & other reports indicate spending on services has probably been rising.  While the report was relatively weak, it likely won't be enough on its own to dissuade Federal Reserve policy makers from raising interest rates later.

Drop in U.S. Retail Sales Signals Uneven Consumer Spending

China's wobbly economy threw sand in the wheels of the Fed's tightening plans back in late 2015. Today, the world’s number 2 economy poses no such constraint.  The IMF was the latest to acknowledge China's improved outlook, raising its growth forecast for 2017 for a 2nd time this year to 6.7%.  Hours earlier, data showed industrial output steadied in May & the consumer remained a prop for growth, while a pull-back in property investment suggested curbs were starting to bite.  With growth firm for now, capital outflows moderating, foreign exchange reserves swelling again & the yuan strengthening, the People's Bank of China may be relieved that it won't feel obliged to match a widely anticipated interest-rate increase from the Fed later today.  That's because with the outlook for the rest of the year uncertain, it may be time for a pause in tightening measures.  While China followed the Fed's past 2 moves with increases in its reverse repo rates, it's unlikely to do so this time around.  China's stability is playing a central role in the world economy's best period of synchronous growth among developed & emerging economies this decade.  Trade volumes have recovered on the back of Chinese demand & the nation's factory prices, while coming off the boil, are helping to keep a floor under anemic global inflation.  The $11T economy enjoyed its first back-to-back growth acceleration in 7 years in Q1 &, although economists project slower expansion in H2, it isn't expected to fall short of gov's 6.5% full-year growth objective.

China Braced for Fed as IMF Raises Outlook, Data Shows Stability

This s a good time to take nap.  Very little is happening with stocks as traders wait for Janet to peak in the PM.  Another rate hike is all but guaranteed.  The drama will come from what Janet has to say about the future, rate hikes & selling that enormous holdings of debt the Fed owns.

Dow Jones Industrials

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