Monday, January 8, 2018

Markets drift lower after last week's run

Dow fell 52, decliners over advancers 4-3 & NAZ went up 4.  The MLP index was 1+ lower to the 285s after its recent rebound.  Junk bond funds crawled higher & Treasuries hardly budged in price.  Oil was flattish in the 61s (more below) & gold lost 2 to 1319.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil61.49

GC=FGold    1,319.50

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Stocks were mixed, with the S&P 500 down after its best week in more than a year, as investors assessed the prospects for corp earnings, while the $ strengthened after 3 straight weekly declines.  The S&P 500 took a breather after a 4-day rally while the NAZ edged higher before the crush of corp results due this week.  European equities added to the biggest weekly advance since Apr, while markets in Tokyo were closed for a holiday.  Oil held above $61 a barrel & a measure of financial-market stress sank to its lowest level since 2014.  With risk assets globally enjoying a strong start to 2018, corp earnings may dictate the next move for equity markets.  Last week's surge in US stocks came as investors looked past weaker-than-forecast jobs figures, speculating that tax cuts will lead to higher company profits.  While data showed confidence in the euro area continued its advance at the end of 2017,  Germany's continued struggle to form a gov restrained the single currency.  The € fell & UK stocks were flat after weak economic data & reports that Prime Minister May is considering creating a position for a minister in charge of contingency planning for a no-deal Brexit.  South Korea's won reversed gains as authorities said they would take action to stem one-sided moves in the currency.  The comments came a day before the nation is to hold its first high-level talks with North Korea since 2015.

U.S. Stocks Mixed as Dollar Gains With Crude Oil: Markets Wrap

Confidence in the euro area continued its advance at the end of 2017, capping what was probably the strongest year for the economy in a decade.  The European Commission's measure of sentiment touched its highest since 2000 in Dec.  The reading of 116 was above the forecast of 114.8 & was based on an improvement in the outlook for industry & services.  After slowly emerging from the bank failures, record joblessness & sovereign debt crisis that marred its last decade, the 19-nation economy has found its feet.  Growth in 2017 was probably the fastest since before the financial crisis & momentum this year is forecast to be almost as impressive.  Reports last week showed the region's economic growth at the end of the year was the strongest in almost 7 years & unemployment continuing to decline.  In Spain, the jobless rate is at a 9 year low, while Germany's is the lowest on record.  Still, despite the ECB's negative interest rates & asset purchases worth €2.3T ($2.8T) so far, inflation has been slow to stage a convincing return, remaining below the bank's goal.  One reason is that, despite the better employment picture, wages have been slow to rise.  In Germany, the euro area's biggest economy, pay talks for metalworkers & engineers this week could be key for determining whether inflation is finally on track for a pickup.  In the meantime, the ECB's bond buying is set to continue until Sep.  The monthly pace was halved to €30B from Jan, but officials have retained an option to prolong or increase the program if needed.  In light of the robust economic backdrop, the ECB's more hawkish policy makers have been pushing for the program not to be extended again.  Pres Draghi has said strong cyclical momentum & reduced slack has increased confidence on the inflation outlook, though he's made no commitments on what will happen after Sep.

Euro-Area Economic Confidence Soars to Nearly Two-Decade High

Oil prices rose, coming close to new 3-year highs on a slight decline in the number of US rigs drilling for new production & sustained OPEC output cuts.  West Texas Intermediate (WTI) crude futures had risen to $61.94 a barrel, 50¢ above their last settlement.  Brent crude futures were at $67.95 a barrel, 33¢ above their last close.  Brent hit $68.27 last week, the highest since May 2015.  Traders said the gains were due to a slight decline in the number of US rigs drilling for new production.  The rig count eased by 5 in the latest week, according to oil services firm Baker Hughes.  Despite this, US production is expected soon to rise above 10M barrels per day, largely thanks to soaring output from shale drillers.  Only Russia & Saudi Arabia produce more.  Rising US production is the main factor countering output cuts led by the Middle East-dominated OPEC & by Russia, which began in Jan last year & are set to last thru 2018.  A senior OPEC source from a major Middle Eastern oil producer said that OPEC was monitoring unrest in Iran as well as Venezuela's economic crisis, but will boost output only if there are significant & sustained production disruptions from those countries.

Oil approaches 2015 highs on fewer U.S. rigs, OPEC

Stocks started last week by extending their gains made in 2017 with an impressive rally.  Today they are taking a breather.  That's to be expected.  Earnings will begin led by the big banks which should have favorable reports.  Then there is threat of a gov shutdown on Jan 19.  That's not getting much attention by traders.  Maybe they figure a shutdown would be good for the economy & earnings.  Meanwhile the Dow is up a staggering 7K since the election.  Hard to believe after so many had negative thoughts back then.

Dow Jones Industrials

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