Tuesday, January 2, 2018

Markets rise, led by a rally in tech stocks

Dow rose 104, advancers over decliners 3-2 & NAZ soared 103 to close over 7K.  The MLP index advanced 5+ to 281 & the REIT index was off a smidgen in the 355s.  Junk bond funds went up & Treasuries declined, bringing higher yields.  Oil was a little lower, still above 60, (more below) & gold jumped up 9 to 1318 (shown in the chart below).

AMJ (Alerian MLP index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Russia's oil industry continued its long-term expansion last year, with production hitting a record even as Pres Putin joined forces with OPEC to clear a global glut & lift prices.  The nation's oil output increased to an average 10.98M barrels a day in 2017, up 0.1% from the previous year, according to the Energy Ministry’s CDU-TEK statistics unit.  That's the 9th consecutive annual increase to the highest level since the collapse of the Soviet Union in 1991.  Russian output has soared under Putin's leadership, nearly doubling from 6.1M barrels a day in 1999.  The industry's long expansion could pause in 2018 because Russia has agreed to another year of cuts with OPEC.  The unprecedented period of cooperation depleted bloated fuel stockpiles & boosted prices last year, re-shaping the global oil market & energy geopolitics.  Despite the cuts, Russia achieved a record because it ramped up production so rapidly the year before.  Output reached 11.23M barrels a day in Oct 2016, a month before the accord with OPEC was announced.  Russia implemented its pledged 300K barrel-a-day supply cut gradually, meaning output remained above 11M barrels a day for several months in early 2017.  Russia’s allies in OPEC aren't complaining.  Brent prices climbed 18% last year & global inventories have fallen.  Brent rose 0.2% to $67 a barrel today.  Following the Nov decision to extend the pact thru 2018, Saudi Arabia’s Energy Minister Khalid Al-Falih, sitting next to his Russian counterpart Alexander Novak at a press conference, said “we are completely aligned.”  Oil output in Dec was 10.95M barrels a day, up 0.1% from Nov, while exports dropped 5.3% to 5.24M barrels a day, according to CDU-TEK.

Oil prices eased after hitting mid-2015 highs in early trading, as major pipelines in Libya & the UK restarted & US production soared to the highest in more than 4 decades.  It was the first time since Jan 2014 that the 2 crude oil benchmarks opened the year above $60 per barrel, buoyed by large anti-gov rallies in Iran & ongoing supply cuts led by OPEC & Russia.  West Texas Intermediate (WTI) crude futures traded 20¢ lower at $60.22 a barrel.  Earlier WTI hit $60.74, the highest since Jun 2015.  Brent crude futures, the intl benchmark, were down 53¢ (0.8%) at $66.34 a barrel.  The session high of $67.29 was the highest since May 2015.  The spread between US crude & Brent hit the narrowest in nearly 2 weeks.  The 450K barrel per day (bpd) capacity Forties pipeline system in the North Sea returned to full operations on Dec 30 after an unplanned shutdown.  Repairs have been finished on a Libyan oil pipeline damaged in a suspected attack last week & production is restarting gradually, engineers said.  Iran's Supreme Leader today accused the country's enemies of stirring unrest, as the death toll rose to 21 from anti-gov demonstrations that began last week.  Iran is OPEC's 3rd largest crude producer.  Iranian oil industry & shipping sources said protests have had no impact so far on oil production or exports.  Oil markets have been supported by a year of production cuts led by the Middle East-dominated OPEC & Russia.  The cuts started in Jan 2017 & are scheduled to cover all of 2018.  US commercial crude oil inventories have fallen by almost 20%  from their historic highs last Mar, to 432M barrels.  Strong demand growth, especially from China, has also been supporting crude.  However, rising US production, which is on the verge of breaking thru 10M bpd, has tempered the bullish outlook.  Oct US crude production rose 167K barrels per day to 9.64M bpd, according to the EIA's monthly production report.  If the figure is not revised next month, it would be the highest monthly level since 1971.

Oil hits highest since mid-2015, then dips

McDonald's, a Dow stock & Dividend Aristocrat, is testing the use of fresh beef in another burger, the latest move by the fast food chain to swap out frozen beef as it seeks to improve its image.  The company said that the new burger, called Archburger, is being tested in 7 restaurants in Tulsa, Oklahoma.  MCD held similar tests for fresh beef Quarter Pounders for about a year before announcing in Mar that it would roll it out to most of its 14K restaurants by the middle of this year.  MCD said the latest test is limited & it is seeking feedback from customers & its restaurants.  The company has made several changes to its menu in recent years in an attempt to appeal to Americans who are increasingly concerned with the ingredients in their food.  The world's largest burger chain, for example, has cut artificial preservatives from Chicken McNuggets & switched out the apple juice in its Happy Meals for one with less sugar.  Fresh beef is a big change for the company, which has relied on frozen beef patties for more than 40 years.  At less than 3 ounces, MCD said the fresh beef patties used in the Archburger are slightly smaller than those in the Quarter Pounder & larger than the ones in its hamburgers & cheeseburgers.  The stock went up 1.10.
If you would like to learn more about MCD, click on this link:

McDonald's tests fresh beef in another burger

The outlook for earnings is high & investors responded by bidding up stocks today.  Tech shares on NAZ got the most attention while the Dow finished below its AM highs.  The situation in Iran can bring changes to the stock market, starting with oil where it is a major player.  Additionally, cold weather in much of the US has already shaken the commodities markets.  Dec data will be coming this week & they should be favorable, continuing the trends in 2017.  The Dow continues about 180 below 25K when NAZ topped 7K (after reaching 6K back in 2000).

Dow Jones Industrials

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