Thursday, June 22, 2017

Markets vacillate after Senate healthcare proposal is released

Dow dipped 12 with selling in the last hour, advancers over decliners 4-3 & NAZ rose all of 2.  The MLP index went up 2+ to the 279s & the REIT index was fractionally higher in the 352s.  Junk bond funds fluctuated & Treasuries crawled higher.  Oil had a minor recovery after recent selling (more below) & gold gained 5 to 1251.

Dow Jones Industrials

Live 24 hours gold chart [Kitco Inc.]

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4 Republican senators say they are not ready to vote for the GOP health care bill, putting the measure in jeopardy.  The 4 are Ted Cruz of Texas, Ron Johnson of Wisconsin, Mike Lee of Utah & Rand Paul of Kentucky.  They say that they are open to negotiation before the full Senate considers the measure.  The 4 say there are provisions that are an improvement to the current health care system.  But they add that the measure fails to accomplish what they have promised to their constituents, "to repeal Obamacare and lower their health care costs."  GOP leaders hope to vote on the bill next week & can only afford 2 defections from the 52 Senate Reps.

Sen. Rand Paul says he and three other GOP senators oppose health bill as written

Leadership within the House of Representatives, including its speaker, Paul Ryan, is showing signs of softening its stance on the proposed border adjustment tax in order to appease opposition from lawmakers & expedite passage of a tax-cut proposal.  The sudden shift in tone comes after a near revolt from almost the entire House Rep Conference, with members saying privately the infamous import tax would be “dead on arrival” if it was ever brought to the floor for a vote.  The border adjustment tax was originally devised by Ryan, as a way to pay for the up & coming tax reform plan that includes a sharp cut to the federal corporate tax rate to around 15% from 35% & tax cuts for individuals.  The border adjustment tax, or BAT, is essentially a tax on all imported goods coming into the US, & could raise $B in revenues.  But the tax is controversial: Opponents say it will hurt consumers who will pay more for goods bought at retailers which import merchandise.  That argument combined with a general GOP distaste for raising taxes of any kind has turned the tide against the BAT in the House. Ryan is turning to Senate leaders & White House officials to look for alternatives to the border adjustment tax.

Paul Ryan may do an about face on the border adjustment tax amid GOP infighting

The leading economic index climbed 0.3% in May & offered further proof the US continues to grow at a steady clip, according the Conference Board.  "The U.S. LEI continued on its upward trend in May, suggesting the economy is likely to remain on, or perhaps even moderately above, its long-term trend of about 2% growth for the remainder of the year," said Ataman Ozyildirim, director of business cycles research at the board.  A measure of​ current conditions rose 0.1% & a "​lagging" index increased by the same amount.  The LEI is a weighted gauge of 10 indicators designed to signal business-cycle peaks & valleys.

U.S. Leading Indicators Climb 0.3% In May; Economy Steady

Oil rose, a day after sliding to 10-month lows, but market sentiment remained negative due to ongoing pressure from a persistent supply glut despite OPEC-led efforts to balance the market.  US crude futures were up 55¢ at $43.08 a barrel.  Yesterday, they fell as low as $42.05, the lowest intraday level since Aug 2016.  Last month, OPEC & other producers extended the output cut deal for 9 months.  But the global crude glut has persisted, with output rising in Libya & Nigeria, OPEC members exempt from the cuts.  The decline has tested OPEC's pledge to do "whatever it takes" to support oil prices.  Crude output is still increasing in the US, where some shale producers can produce profitably even if oil prices drop below $40 a barrel.  Tropical storm Cindy disrupted some operations in the Gulf of Mexico, home to about 17% of US crude & 5% of dry natural gas output, supporting markets modestly.  However, the storm is on the wane & has been downgraded to a tropical depression.

Oil bounces up off 10-month lows; crude glut still weighs

The stock market is handling all the confusion in DC over a new healthcare bill quite well.  An inability for those guys to make legislation happen does not bother traders, at least for the time being.  In the old days unpredictability was considered a negative & stocks sold off.  Not now.  Even gold, a traditional safe haven investment, has pulled back in the last week while stock averages have been at or near record levels.  The Dow is up a staggering 3½K in the last 12 months, shown below.  Hard to believe!!

Dow Jones Industrials

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