Dow fell 30, decliners over advancers 3-2 & NAZ lost 19. The MLP index sank 4+ to the 258s & the REIT index was off fractionally to the 362s. Junk bond funds drifted lower & Treasuries crawled higher. Oil dropped 1+ to the 55s & gold added 3 to 1282.
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.28661297307904254)
Crude took a step back now that 2018 isn't looking so hot anymore. Futures tumbled 1.9%, the biggest decline in more than a month after touching 2015-highs last week. Hopes that a potential extension of OPEC supply curbs will help support the market next year were tempered today when the International Energy Agency said the recent recovery in oil prices coupled with milder-than-normal winter weather is slowing demand growth. US crude rallied above $57 a barrel last week to the highest level since Jun 2015 as tensions in the Middle East raised concerns about the potential for supply disruptions. Prices also found support from expectations that OPEC will extend output cuts scheduled to expire in Mar. That was before the IEA warned that the supply surge from US shale fields will be bigger than anything the oil & natural gas industry has ever seen. By 2025, the growth in American oil production will be on par with that achieved by Saudi Arabia at the height of its expansion, according to the IEA. West Texas Intermediate for Dec delivery fell $1.06 to settle at $55.70 a barrel. Brent for Jan settlement dropped 95¢ to end the session at $62.21. The global benchmark traded at a premium of $6.32 to Jan WTI. The IEA reduced its demand estimate for next year by 200K barrels a day to 98.9M a day & forecasts for demand growth next year also fell by 100K barrels a day to 1.3M a day. “The market balance in 2018 does not look as tight as some would like, and there is not in fact a new normal” that would buoy prices above $60, said the agency. US crude inventories probably slid by 2.4M barrels last week, according to recent estimate.
Oil Retreats as IEA Casts a Dark Cloud Over 2018’s Market Outlook
Household debt rose $116B (0.9%) to $12.96T in Q3, the New York Fed said. Credit-card debt rose by 3.1% while home equity lines of credit (HELOC), balances fell by 0.9%. There were small gains in mortgage, student & auto debt. Flows into credit-card & auto loans delinquencies rose, with 4.6% of credit card debt 90 days or more delinquent, up from 4.4% in Q2 & 2.4% of auto loan debt seriously delinquent, up from 2.3%. That’s still nowhere near the 9.6% of student loan debt that is delinquent, which itself is understated because about ½ of those loans are currently in deferment, grace periods or in forbearance. US households aren’t aggressively leveraging up & the ones that are did so had better credit. The higher level of auto loan originations was mainly to prime borrowers, & the median credit score to individuals originating new mortgages ticked up to 760 from 754. Student & auto loans have grown rapidly, though not so much this qtr. Auto loans have grown for 26 straight qtrs. But there are some worries as subprime auto loan performance continues to deteriorate, the delinquency rate for auto finance companies have grown by more than 2 percentage points since 2014. Another concern is the upturn in serious delinquent credit-card debt, at a time when the job market is in strong shape.
The producer price index rose 0.4% in Oct, the Labor Dept reported, well above the forecast for a 0.1% gain. Another measure preferred by economists, known as core PPI, rose 0.2% for the 3rd straight month. The core rate strips out food, energy & trade margins. The increase in the PPI pushed the 12-month rate of wholesale inflation up to 2.8%, the highest since Feb 2012. The 12-month rate of core PPI advanced 2.3% in Oct, the highest since the series began in Aug 2014. The gain in wholesale prices was widespread & came despite soft energy prices. The price of goods rose 0.3% in Oct, led by pharmaceutical preparations, which increased 2.1%. The index for final demand of services rose 0.5%, the biggest gain since Apr. Trade services jumped 1.1%, the biggest gain since Jan & food prices rose 0.5% in Oct, the biggest gain since Jun. Energy prices were flat after steep 3.4% gain in Sep tied to the hurricanes. Gasoline prices fell 4.6%. The PPI does show that inflation is building in the “pipeline” of the economy. Economists caution that it could take a while for wholesale prices to be passed along to consumers. But the firm wholesale prices in Oct will bolster arguments of Federal Reserve officials who believe that soft consumer inflation seen this year is due to temporary factors. These officials are likely to press for the central bank to raise short-term interest rates gain in Dec.
There’s no need to lift interest rates because inflation isn't likely to return to the Federal Reserve's target soon, one of the more dovish central bankers said. “Inflation data during 2017 have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target,” said St. Louis Fed Pres James Bullard. “The current level of the policy rate is appropriate given current macroeconomic data.” Inflation is expected to remain relatively low & Bullard expects real GDP to slow in 2018 from H2 levels. Bullard said low-stress US financial conditions aren't an important signal. “These indexes have an important asymmetry: High-stress readings are associated with economic weakness. Low-stress readings do not reliably predict future economic outcomes,” he said. “The current low readings probably do not contain any important signal at this point.” Bullard isn't considered representative of other Fed officials, who most believe will lift interest rates in Dec.
The new tax package is going thru its 3.0 version but will need to get to the 5 or even 6 version to get passed (maybe). Times are getting tense in DC as deadlines approach. Additionally General Electric (GE), a Dow stock, has a ton of problems. The div cut & changes proposed by new management are not being well received by investors. The stock dropped 1.13 today, taking it into the 17s. That's a 10 point drop in less than 6 months. Not a good signal to send about the stock market's health. Back to tax reform, those guys still have a lot of work to get done.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
Crude took a step back now that 2018 isn't looking so hot anymore. Futures tumbled 1.9%, the biggest decline in more than a month after touching 2015-highs last week. Hopes that a potential extension of OPEC supply curbs will help support the market next year were tempered today when the International Energy Agency said the recent recovery in oil prices coupled with milder-than-normal winter weather is slowing demand growth. US crude rallied above $57 a barrel last week to the highest level since Jun 2015 as tensions in the Middle East raised concerns about the potential for supply disruptions. Prices also found support from expectations that OPEC will extend output cuts scheduled to expire in Mar. That was before the IEA warned that the supply surge from US shale fields will be bigger than anything the oil & natural gas industry has ever seen. By 2025, the growth in American oil production will be on par with that achieved by Saudi Arabia at the height of its expansion, according to the IEA. West Texas Intermediate for Dec delivery fell $1.06 to settle at $55.70 a barrel. Brent for Jan settlement dropped 95¢ to end the session at $62.21. The global benchmark traded at a premium of $6.32 to Jan WTI. The IEA reduced its demand estimate for next year by 200K barrels a day to 98.9M a day & forecasts for demand growth next year also fell by 100K barrels a day to 1.3M a day. “The market balance in 2018 does not look as tight as some would like, and there is not in fact a new normal” that would buoy prices above $60, said the agency. US crude inventories probably slid by 2.4M barrels last week, according to recent estimate.
Oil Retreats as IEA Casts a Dark Cloud Over 2018’s Market Outlook
Household debt rose $116B (0.9%) to $12.96T in Q3, the New York Fed said. Credit-card debt rose by 3.1% while home equity lines of credit (HELOC), balances fell by 0.9%. There were small gains in mortgage, student & auto debt. Flows into credit-card & auto loans delinquencies rose, with 4.6% of credit card debt 90 days or more delinquent, up from 4.4% in Q2 & 2.4% of auto loan debt seriously delinquent, up from 2.3%. That’s still nowhere near the 9.6% of student loan debt that is delinquent, which itself is understated because about ½ of those loans are currently in deferment, grace periods or in forbearance. US households aren’t aggressively leveraging up & the ones that are did so had better credit. The higher level of auto loan originations was mainly to prime borrowers, & the median credit score to individuals originating new mortgages ticked up to 760 from 754. Student & auto loans have grown rapidly, though not so much this qtr. Auto loans have grown for 26 straight qtrs. But there are some worries as subprime auto loan performance continues to deteriorate, the delinquency rate for auto finance companies have grown by more than 2 percentage points since 2014. Another concern is the upturn in serious delinquent credit-card debt, at a time when the job market is in strong shape.
Household debt rises by $116 billion as credit-card delinquencies pile up
The producer price index rose 0.4% in Oct, the Labor Dept reported, well above the forecast for a 0.1% gain. Another measure preferred by economists, known as core PPI, rose 0.2% for the 3rd straight month. The core rate strips out food, energy & trade margins. The increase in the PPI pushed the 12-month rate of wholesale inflation up to 2.8%, the highest since Feb 2012. The 12-month rate of core PPI advanced 2.3% in Oct, the highest since the series began in Aug 2014. The gain in wholesale prices was widespread & came despite soft energy prices. The price of goods rose 0.3% in Oct, led by pharmaceutical preparations, which increased 2.1%. The index for final demand of services rose 0.5%, the biggest gain since Apr. Trade services jumped 1.1%, the biggest gain since Jan & food prices rose 0.5% in Oct, the biggest gain since Jun. Energy prices were flat after steep 3.4% gain in Sep tied to the hurricanes. Gasoline prices fell 4.6%. The PPI does show that inflation is building in the “pipeline” of the economy. Economists caution that it could take a while for wholesale prices to be passed along to consumers. But the firm wholesale prices in Oct will bolster arguments of Federal Reserve officials who believe that soft consumer inflation seen this year is due to temporary factors. These officials are likely to press for the central bank to raise short-term interest rates gain in Dec.
U.S. producer prices surge 0.4% in October
There’s no need to lift interest rates because inflation isn't likely to return to the Federal Reserve's target soon, one of the more dovish central bankers said. “Inflation data during 2017 have surprised to the downside and call into question the idea that U.S. inflation is reliably returning toward target,” said St. Louis Fed Pres James Bullard. “The current level of the policy rate is appropriate given current macroeconomic data.” Inflation is expected to remain relatively low & Bullard expects real GDP to slow in 2018 from H2 levels. Bullard said low-stress US financial conditions aren't an important signal. “These indexes have an important asymmetry: High-stress readings are associated with economic weakness. Low-stress readings do not reliably predict future economic outcomes,” he said. “The current low readings probably do not contain any important signal at this point.” Bullard isn't considered representative of other Fed officials, who most believe will lift interest rates in Dec.
Bullard says no need to lift interest rates
The new tax package is going thru its 3.0 version but will need to get to the 5 or even 6 version to get passed (maybe). Times are getting tense in DC as deadlines approach. Additionally General Electric (GE), a Dow stock, has a ton of problems. The div cut & changes proposed by new management are not being well received by investors. The stock dropped 1.13 today, taking it into the 17s. That's a 10 point drop in less than 6 months. Not a good signal to send about the stock market's health. Back to tax reform, those guys still have a lot of work to get done.
Dow Jones Industrials
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