Thursday, August 10, 2017

Markets drop on increased North Korea tensions

Dow sank 96, decliners over advancers better than 4-1 & NAZ dropped 66.  The MLP index added 1 to the 284s & the REIT index fell 1+ to the 348s.  Junk bond funds declined & Treasuries rose in price.  Oil went up pennies in the 49s & gold jumped up 12 to 1292 on increased North Korea fears.

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OPEC boosted estimates of demand for its crude this year & next amid stronger-than-expected fuel consumption & a weaker outlook for rival supply.  OPEC raised forecasts for the amount it needs to supply in 2017 & 2018 by about 200K barrels a day for each year, according to a monthly report from its secretariat.  Still, a rebound in Libyan production pushed the group’s output last month to the highest this year, undermining its plan to rebalance oversupplied world markets.  Oil prices have lost about 6%% this year as production cuts by OPEC & Russia fail to clear a global glut.  Yet Brent futures have stabilized above $50 a barrel this month as US crude inventories diminish, signaling OPEC's actions are finally having some impact.  The organization increased projections for global oil demand in 2017 & 2018 by about 100K barrels a day for each year.  Consumption proved stronger than expected in developed nations during Q2, it said.  OPEC also lowered estimates for rival supply, by 50K barrels a day in 2017 & 90K a day in 2018, following weak output in the US & Canada last qtr.  The report indicated that OPEC’s strategy to rebalance the market is having some success, with oil stockpiles in developed nations falling by 21.9M barrels in Jun.  Still, at just over 3B barrels, this leaves them about 252M above their 5-year average.  OPEC has said its main objective is to reduce inventories to average levels.  The plan has been complicated by a rebound in supply from Libya & Nigeria, which were exempt from last year's agreement to cut production while they tackled domestic unrest & supply outages.  Libyan output climbed 154K barrels a day to about 1M a day in Jul.  Production from all 14 members reached 32.87M a day.  Iraq, which has lagged behind other nations in delivering its promised cuts, showed some improvement in its adherence.  The country's output fell 33K barrels a day to 4.468M a day, still above its target.  Saudi Arabia told the organization it pumped 10.01M barrels a day in Jul.  The number, initially missing from the report, represents a decline from 10.07M the previous month.

OPEC Boosts Oil-Demand Outlook While Its Production Rises

Federal Reserve Bank of NY Pres William Dudley offered a positive outlook for the US. economy, job market & inflation, saying better conditions would help support the most vulnerable Americans.  “Our outlook anticipates a continued moderate growth trend, with some further strengthening in the labor market and an increase in inflation over the medium term toward our objective of 2 percent,” he said.  “Stronger labor market conditions are perhaps the best means to improve the economic well-being of most Americans, particularly those who have been struggling and are most vulnerable to economic downturns,” said Dudley.  Fed policy makers are expected to announce when they meet next month that they will begin paring down the central bank's $4.5T balance sheet.  They have raised their benchmark interest rate 4 times since 2015, but the chances of another increase this year have fallen to around one in 3 following a string of gov reports that showed muted wage & price pressures in recent months.  Dudley said “comparatively modest” wage growth relative to the decline in the unemployment rate, which stood at 4.3% in Jul, in part “likely reflects the fact that productivity growth has been sluggish compared to historical experience.”  He also called issues of economic inequality& mobility “among the most important that we face as a nation.”  “Currently, we see comparatively high levels of inequality in the labor market in terms of differences in the wages workers earn,” he added.  “Monetary policy can help support economic growth, but it is much less powerful in addressing the structural factors that underpin inequality in the labor market.”
Fed's Dudley Sees Moderate Growth and Higher Inflation Ahead

US producer prices unexpectedly fell in Jul, recording their biggest drop in nearly a year, weighed down by declining costs for services & energy products.  The Labor Dept said its producer price index for final demand slipped 0.1% last month, reversing Jun's 0.1% gain.  The Jul drop was the largest since Aug 2016.  In the 12 months thru Jul the PPI increased 1.9% after rising 2.0% in the year thru Jun.  The forecast had the PPI ticking up 0.1% last month & climbing 2.2% from a year ago.  Though the link between the PPI & the consumer price index has weakened, last month's drop in producer prices could worry Fed officials who have long argued that the moderation in inflation was temporary.  Fed Chair Janet Yellen told lawmakers last month that "some special factors" were partly responsible for the low inflation readings.  Inflation, which has remained below the central bank's 2% target for 5 years, is being watched for clues on the timing of the next Fed interest rate increase.  Low inflation, characterized by sluggish wage growth, suggests the Fed could delay raising rates again until Dec.  Last month, prices for services fell 0.2%, the first decline since Feb.  That accounted for more than 80% of the decrease in the PPI.  Services were weighed down by a 0.5% drop in the index for final demand trade services.  Services had increased for 4 straight months.  The cost of healthcare services rose 0.3% after being unchanged in Jun.  Those costs feed into the Fed's preferred inflation measure, the core personal consumption expenditures price index.  Energy prices fell 0.3%, declining for a 3rd straight month & food prices were unchanged following a 0.6% jump in the prior month.  A key gauge of underlying producer price pressures that excludes food, energy & trade services was unchanged last month.  Core goods fell 0.1% after increasing for 8 straight months.  The core PPI increased 1.9% in the 12 months thru Jul after advancing 2.0% in Jun. 

US producer prices post biggest drop in 11 months

North Korea dominates the news for traders.  A lot more is involved with this rogue country than just words.  It's supposed to have nuclear weapons & seemingly is prepared to use them.  Hopefully tensions will recede & the traders will be able to concentrate on stories about rate hikes & earnings.  Even with this high level of drama, the popular stock averages are still very close to their record levels, an encouraging sign for the bulls.

Dow Jones Industrials
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