Thursday, June 8, 2017

Markets flirt with new records after Comey testimony

Dow rose 8, advancers over decliners 5-4 & NAZ added 24.  The MLP index lost 1+ to the 293s & the REIT index fell 1+ to the 347s.  Junk bond funds were mixed & Treasuries continued weak.  Oil was off pennies at depressed levels & gold had one big drop (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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An increase in US household wealth in Q1 shows higher financial-asset & property values are driving an improvement in consumer finances, according to the Federal Reserve.  Net worth for households & non-profit groups rose $2.35T (2.5%) to $94.84T from previous 3 months, according to the Fed's financial accounts report (previously known as the flow of funds survey).  The value of financial assets, including stocks & pension fund holdings, rose $1.78T.  Household real-estate assets climbed by $436.2B; owner's equity as share of total real-estate holdings increased to 58.3% from 57.5%.  Household wealth has grown, boosted mostly by a 5.5% gain in the S&P 500 Index last qtr & house price appreciation that matched the biggest year-over-year increase since 2014.  That, along with a strong job market, is underpinning consumers' ability to continue spending & will contribute to the economic expansion.  The report also showed companies had $2.2T in liquid assets, giving them the means to boost investment.  Household debt increased at a 3.2% annual rate Q1.  Mortgage borrowing advanced at a 3% pace; other forms of consumer credit, including auto & student loans, climbed at a 5% rate, the slowest since 2013.  Total non-financial debt grew at a 1.4% annual pace.  Federal gov obligations declined 3.3%, state & local gov debt fell at a 3.5% pace, while business borrowing increased 6.2%.

U.S. Households Just Added $2.35 Trillion in Wealth in the First Quarter

Mario Draghi said the euro region still isn't generating enough inflation, overshadowing improved prospects for the economy that led officials to upgrade their growth assessment.  “The risks around the growth outlook are considered to be broadly balanced,” the ECB pres said.  “At the same time, the economic expansion has yet to translate into stronger inflation dynamics. So far, measures of underlying inflation continue to remain subdued. Therefore, a very substantial degree of monetary accommodation is still needed.”  The change in the assessment of risks for the economy sets the scene for the ECB to start a discussion about the timing for the removal of the stimulus, though the tone of Draghi's appearance suggests officials aren't yet ready for such a debate.  That chimes with comments in the run-up to the meeting that policy makers must be extremely cautious in communicating amid a lack of convincing inflationary pressure.  “We need to be patient,” Draghi added.  “We need to continue to accompany the recovery with our monetary policy.”  Draghi said he didn't hear any “dissenting voice” to proposals that were put forward at the meeting & that tapering of the central bank's asset-purchase program was not discussed.  He said that the ECB removed its easing bias to reflect the fact that the risk of deflation has disappeared & added that policy makers were becoming “more confident” that inflation will converge toward its objective in a durable way.  At the same time, he stressed the central bank needs to be persistent & help the economy achieve full recovery.  Draghi said that the underlying inflation was “basically the same” & nothing substantial has happened.  The central bank needed “stronger confidence” that price growth will hold at its goal of just below 2%.  “We have to be confident that the inflation rate is durably converging toward our objective and that it’s a self-sustained convergence,” he said.  As the recovery strengthens & unemployment fall further, “the more confident we become that the convergence is on its way to actually satisfy the conditions.”

Gold futures fell sharply, as weakness in the €, following the ECB's monetary policy meeting, strengthened the $.  The ICE US Dollar Index was up 0.3%, raising its week-to-date gain & contributing to weaker investment demand for $-denominated gold.  The Aug contract for the yellow metal dropped $13.70 (1.1%) to settle at $1279 an ounce.

Gold Prices End At 1-week Low

Oil prices rebounded slightly from yesterday'' deep sell-off, in part because of a slowdown in US production, after an unexpected surge in US inventories & the return of more Nigerian crude caused the market to fall to one-month lows.  US crude production fell to 9.318M barrels per day, the first drop in 4 weeks, according to data from the Energy Information Administration.  US crude futures were up 13¢ at $45.86 a barrel.  On Wed, prices fell 5% after data showed US inventories of crude oil & gasoline surprisingly rose last week as refinery runs declined & exports fell.

Oil up slightly as U.S. production slowdown dampens supply concerns

The drama around Comey's testimony is over, now the market can get back to looking at important news for stocks.  The British elections should be over & they are counting the votes.  The Saudi-Qatar spat drags on & its economic effects are beginning to be felt.  There was a little buying in the last hour which took the popular stock averages to (essentially at) records, one crude measure of what Comey's testimony meant.

Dow Jones Industrials

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