Tuesday, November 7, 2017

Markets drift lower as Trump visits South Korea

Dow lost 3, decliners over advancers  4-3 & NAZ fell 17.  The MLP index went up 2 to the 273s & the REIT index added 1+ to the 358s.  Junk bond funds hardly budged in price & Treasuries were little changed.  Oil pulled back pennies in the 57s (more on world oil demand below) & gold dropped 7 to 1274.  

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil57.14

GC=FGold  1,274.90

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U.S. job openings in September held near a record high despite the fallout from hurricanes Harvey and Irma, indicating a resilient job market, Labor Dept data showed.  The number of positions waiting to be filled rose by 3K to 6.093M (est. 6.075M) from revised 6.09M in Aug, according to Job Openings & Labor Turnover Survey (JOLTS).  Hiring fell to 5.273M from 5.42M & the hiring rate fell to 3.6% from 3.7%. 3.182M people quit their jobs, up from 3.093M; quits rate rose to 2.2% from 2.1%.  The hurricane effect was evident in the latest mix of vacancies, with openings in accommodation & food services down 111K, the most since 2001.  At the same time, underlying demand for workers remains healthy, as professional & business services openings jumped to 1.19M, the highest in more than a year.  Employers are citing a shortage of qualified Americans as the economy approaches full employment.  The figures are in sync with a Labor Dept report last week that showed payrolls rebounded in Oct & were revised for Sep to a gain from a decline, signaling a smaller & more transient hit from the storms than initially estimated.  The rise in the quits rate bodes well for faster wage growth, which has remained elusive in recent years.  Layoffs fell to 1.703M from 1.781M.  There were 1.1 unemployed people vying for every opening in Sep, compared with 1.9 people when the recession began in late 2007.  In the 12 months thru Sep, the economy created a net 1.8M jobs, representing 63.9M hires & 62.1M separations.

Job Openings in U.S. Held Steady in September Near Record High

Global demand for OPEC's crude will rise in the next 2 years more slowly than expected, the group forecast, as a recovery in prices resulting from an OPEC-led supply cut stimulates renewed output growth from non-members.  OPEC also said in its 2017 World Oil Outlook that rapid adoption of electric vehicles could cause oil demand to plateau in the 2nd half of the 2030s, denting OPEC's longer-term prospects.  OPEC & rivals including Russia have been cutting output in 2017 to get rid of a glut.  A resulting price rise is spurring a rebound in non-OPEC supply, but OPEC still expects its market share to increase further down the line.  "It is evident that this major commitment to production adjustments has been central to the rebalancing process that the market has undergone this year," OPEC Secretary-General Mohammad Barkindo wrote in a foreword to the report.  "The long-term focus for additional liquids demand remains on OPEC."  Demand for OPEC crude will reach 33.10M barrels per day (bpd) in 2019.  While up from 32.70M bpd in 2016, the 2019 figure is down from 33.70M bpd forecast in last year's report.  OPEC raised its forecast for the supply of tight oil, which includes US shale.  It said a rise in prices in 2017, plus sustained demand growth, had resulted in a higher forecast for supplies outside OPEC.  "The medium-term outlook for non-OPEC liquids growth has changed quite considerably," the report said, referring to its 2016 forecasts.  "Most strikingly, U.S. tight oil production has exceeded previous growth expectations."  Oil prices hit their highest since Jul 2015 yesterday, trading above $62 a barrel.  This year's report did not mention the oil price it assumes.  Last year's report assumed OPEC's basket of crude oils would reach $65 in 2021.  Global output of tight oil will reach 7M bpd by 2020 & 9.22M bpd in 2030 as Argentina & Russia join North America as producers.  Last year's estimates were 4.55M bpd by 2020 & 6.73M bpd by 2030.  Years of high prices, supported by OPEC output restraint, helped boost non-OPEC supply & make non-conventional oil, such as shale, viable.  This exacerbated a glut, leading to the 2014 price collapse that the OPEC-led cut was designed to tackle.  OPEC also increased its medium-term world oil demand forecast, expecting oil use to reach 102.3M bpd by 2022 - 2.24M bpd more than in last year's report.  Demand is seen at 111M bpd in 2040, up from 109M bpd expected last year, with OPEC's share of the world oil market expected to rise to 46% from 40% in 2016.  Still, OPEC, which normally forecasts ever-increasing oil demand, said more widespread use of electric vehicles (EVs) than assumed in the report's main scenario could trim this figure.  "In just a few years, EVs have gone from being completely unaffordable, impractical and not particularly nice, to representing a valid option for a niche pool of customers," OPEC said.  The 2040 oil demand forecast could be curbed to 108M bpd if electric vehicles are adopted more widely than assumed in the report's reference case.

OPEC sees slower growth in demand for its oil as rivals pump more

Pres Trump warned North Korea the US was prepared to use the full range of its military power if needed to defend itself & its allies during a visit to South Korea that took him to heart of the nuclear standoff with Pyongyang.  Speaking at a joint news conference with South Korean President Moon Jae-in, Trump said that while he hopes to use all tools short of military force, he was prepared to do whatever was necessary "to prevent the North Korean dictator from threatening lives ... so needlessly."  "We cannot allow North Korea to threaten all that we have built," Trump said on the first day of a 2-day visit to South Korea.  In a less strident tone, he also urged North Korea to “do the right thing” and said: “I do see some movement” – though he declined to elaborate.   "We hope to God we don’t have to use” the United States’ full military capabilities, he added.  He began a visit that could aggravate tensions with North Korea.  He flew to Camp Humphreys, the largest US military base in the country, where and he US & South Korean troops, along with Moon.  The trip is intended to demonstrate US resolve over his hardline approach to the North Korean nuclear & missile threats, but many in the region fear further bellicose presidential rhetoric could increase the potential for a devastating military conflict on the Korean peninsula.  Meeting with military commanders about the North Korea issue, Trump said: "Ultimately it will all work out, it always works out, it has to work out.”  Trump praised pres Moon, hailing him for "great cooperation" despite differences over how to confront North Korea & over a trade pact between the US & South Korea.  Moon told Trump he hoped his visit would relieve some of South Koreans' anxiety over North Korea & serve as a "turning point in resolving the North Korean nuclear issue."

Trump, at North Korea's doorstep, warns he's ready to use military force if needed

The JOLTs report was welcomed by traders, but there is also a touch of nervousness.  Trump's visit to South Korea has a lot riding on it.  Everybody is watching North Korea plus South Korea is an important trading partner.  Additionally, new tax legislation is getting more attention with so much that has not been defined.  Stocks have had a spectacular run & this is time to take a rest.

Dow Jones Industrials


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