Tuesday, June 6, 2017

Markets retreat as gold reaches 7 month highs

Dow fell 47, decliners modestly ahead of advancers & NAZ gave back 20.  The MLP index gained 1+ to 301 & the REIT index was off 1+ to the 347s.  Junk bond funds crawled higher & Treasuries rose in price.  Oil went up & gold soared, nearing 1300 (more on both below).

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An increase in US job openings in Apr to a record high indicates demand for workers remains strong in the US economy while the supply is tightening, a Labor Dept report showed.  The number of positions waiting to be filled rose by 259K to 6.044M (est. 5.75M), from revised 5.785M in Mar, according. to Job Openings & Labor Turnover Survey (JOLTS).  Hiring fell to 5.05M from 5.3M & the hiring rate eased to 3.5% from 3.6%.  3.03M Americans quit their jobs, down from 3.14M while quits rate fell to 2.1% from 2.2%.  The increase in help-wanted signs, coupled with a decline in hiring, may indicate that companies are increasingly dealing with a shortage of qualified workers as the job market tightens.  The figures are in sync with the overall picture of a labor market that continues to be resilient, helping boost consumer spending & contributing to the economy's rebound in Q2.  Layoffs fell to 1.59M from 1.66M.  There were 1.2 unemployed people vying for every opening in Apr, compared with 1.9 when the recession began at the end of 2007.  Accommodation & food services, construction, financial activities were among industries posting increased openings; vacancies declined in manufacturing & retail.  In the 12 months thru Apr, the economy created a net 2.2M jobs, representing 62.9M hires & 60.7M separations.

U.S. Job Openings Hit Record High in April, Topping 6 Million

CEOs of some of the largest US companies are becoming even more sanguine about sales & spending, a good omen for the economy after a lackluster Q1, according to a quarterly survey from the Business Roundtable.  Main index gained 0.6 point to 93.9, highest since 2Q-2014.  The measure of expected capital spending rose 4.6 points to 87.2.  The sales outlook rose 0.5 point to 124.3 while the employment gauge fell 3.3 points to 70.3.  Prospects for legislation that will reduce taxes & spur growth continue to hearten business leaders, who had boosted their confidence in the economy following the Nov election.  While companies see sales gaining & increasingly plan capital investments, a dwindling pool of skilled & experienced labor for hire may be restraining efforts to boost headcounts.  The CEOs estimate the economy will grow 2% this year, down from 2.2% in the previous survey & slightly below the forecast in a recent survey.  When asked how their company's capital spending will change in the next 6 months, 43%  said increase, 52% said no change & 6% said decrease.  The hishtorical average is 80 for main index.  The survey had responses from 148 CEOs & was conducted May 3-24 (readings above 50 indicate economic expansion).  The Business Roundtable represents companies with almost 15M employees, more than $6T in annual revenue

The US Energy Information Administration lowered its crude-oil price forecast & raised its US production outlook for 2018, according to its monthly report.  The gov agency expects West Texas Intermediate prices to average $53.61 a barrel next year, down 2.7% from its previous forecast.  For 2017, it raised its WTI forecast by 0.2% to $50.78.  The EIA also said it expects Brent crude to average $55.61 a barrel in 2018, down 2.6% from the previous forecast.  US crude production, meanwhile, is forecast at 10.01M barrels a day for 2018, up 0.4% from the previous outlook.  Jul WTI oil was $47.82 a barrel, up 42¢ (0.9%) & Aug Brent crude added 25¢ (0.5%) to $49.72 a barrel.

EIA Cuts Oil Price Forecast, Lifts U.S. Production Outlook For 2018

Gold prices climbed to settle at their highest level since early Nov.  Uncertainty surrounding a rift between Qatar & other Middle East nations, the upcoming U.K. election & ECB meeting lifted investment demand for the precious metal.  Aug gold rose $14.80 (1.2%) to settle at $1297.50, the highest finish since Nov 4.

Gold Climbs To Its Highest Finish In 7 Months

Treasury Sec Steve Mnuchin said that despite softening growth, China will remain an economic powerhouse for the foreseeable future, as well as an essential ally in the effort to deter North Korea from developing its nuclear capacity.  “[China’s] growth is clearly slowing down … [but] relative to the developed world it’s still quite high,” Mnuchin said at a US-China Business Council event.  “Obviously their growth rates are higher than ours … they have a large economy that is growing significantly,” indicating the sheer size of its economy will be enough to keep it afloat for years to come.  Mnuchin went on to say he is not particularly concerned by any aspect of China's economy over the near-term, which includes Beijing's handling of its currency.  China's economy expanded at a rate of 6.9% in Q1, slightly faster than expected.  Last year's average growth rate of 6.7% was the slowest pace in 26 years.  He reiterated the administration's goal of spurring 3% domestic GDP growth, saying he doesn't believe critics who insist that pace is unachievable.  Another point Mnuchin drove home is his focus on the Terrorism Financing & Intelligence department within the Treasury, where North Korea has become a key consideration & China a critical ally.  “North Korea is obviously a big concern of ours, particularly with some of the recent activity there,” Mnuchin said.  “[China is] an important part of the solution there.”  Mnuchin said Pres Trump & President Xi are having “important” discussions related to North Korea & sanctions.  Trump has made no secret that he believes China, which acts as a key economic lifeline for North Korea, can play a big role in deterring Kim Jong-un's militarization.

China's economy slowing, still a powerhouse & important ally: Mnuchin

These are nervous times for investors in what could be a very important week for the stock market.  The Qatar story is just beginning to unfold & its ramifications can be wide spread.  Safe haven investments, starting with gold, are attracting more interest by investors.  That money represents negative bets on the stock market.  Stock averages continue essentially at record highs while gold is also flying higher.  With greater levels of uncertainty around the globe, stocks may have to start playing defense again.

Dow Jones Industrials

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