Monday, February 12, 2018

Markets rebound as OPEC sees global oil demand growing

Dow soared 410, advancers over decliners about 3-1 & NAZ gained 107.  The MLP index shot up 6+ to the 274s.  Junk bond funds rose & Treasuries were a little lower, taking the yield on the 10 year Treasury up only 3 basis points to 2.86% (modest selling while stocks rallied).  Oil went up slightly in the 59s (more below) & gold jumped up 10 to 1326.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

3 Stocks You Should Own Right Now - Click Here!

US consumers said they expected to see the fastest wage growth in several years when polled in Jan, according to a monthly Federal Reserve Bank of NY survey.  Consumers polled expected earnings to rise 2.73% in the coming year, the most since data collection began in 2013, according to results of the NY Fed's Survey of Consumer Expectations.  Jan was only the 3rd month in the survey's 56-month history in which expected wage growth topped expected consumer price inflation, off slightly to 2.71%.  The data jibe with a Feb 2 Labor Dept report which showed that US average hourly earnings rose 2.9% from a year earlier in Jan, marking the fastest pace of the expansion.  Fed officials are looking for clues about whether or not wage growth will continue to accelerate, & eventually put upward pressure on consumer prices, as they contemplate raising interest rates several times this year under new Chairman Jerome Powell.  The Labor Dept report triggered the most severe stock market volatility in years, with some investors reassessing whether equity valuations could handle a steeper rise in interest rates that a pickup in inflation could push the Fed to deliver.  The yield on 10-year Treasury notes has risen almost half a percentage point since the beginning of the year.  The results also showed 39% of consumers felt their personal finances were in better shape than a year earlier & 46% expected to be in better shape in a year (both marking the highest levels in data from 2013).

Fed Survey Shows Americans Expect Biggest Pay Hikes in Years

Ford (F) is revving up production of sport-utility vehicles (SUVs) as consumer demand surges as well as adding to investment in its Kentucky truck plant.  The automaker announced that it will boost production targets by 25% this year as demand for the Ford Expedition & Lincoln Navigator grows, while investing $25M into its Louisville, Ky., plant, which makes the vehicles.  That facility will increase assembly line speed & help the company reach its new production goals.  The new injection of money brings Ford’s total investment at the plant, which opened in 1969, employs more than 8400 & also produces Super Duty pickups, to $925M.  “People are buying more SUVs,” Joe Hinrichs, pres of global operations at Ford, said.  “They are buying large SUVs, and for us, we want to be able to give them the efficient Navigator, more production and produce even more because we finally have a great product in our marketplace to take on some of our competitors.”  The production boost at the Kentucky plant comes as Ford looks to boost automotive profit margins, which shank to 3.7% in Q4 from 5.7% during the prior year.  The Expedition & Navigator are 2 of the more expensive vehicles Ford makes, starting at $51K & $72K respectively.  “Kentucky has been great to us,” Hinrichs added.  Ford reported adjusted EPS of 39¢ in Q4, missing expectations.  The stock rose 17¢.
If you would like to learn more about Ford, click on this link;

Ford boosts production, invests $25M in Kentucky plant

Crude rose after the worst weekly decline in 2 years as OPEC shrugged off the threat that US shale drillers will swamp the market with excess supplies & futures advanced almost 3%, the biggest intraday jump in more than a month.  Strong demand for crude coupled with restrained output from OPEC & allied suppliers will erase any remaining glut, UAE Energy Minister Suhail Al Mazrouei, who's also pres of the cartel, said.  Global demand is robust enough to absorb growing output from shale fields, according to Kuwait's oil minister.  The US benchmark crude contract lost almost 10% of its value last week amid concerns about the broader economy.  Kuwait Oil Minister Bakheet Al-Rashidi characterized the selloff as a “correction only.”  “It will come back,” Al-Rashidi said, adding that he expects world oil demand to increase by about 1.6M barrels a day this year.  Meanwhile, OPEC compliance with crude output cuts rose to a record 136% in Jan, according to calculations from secondary-source estimates.  West Texas Intermediate crude for Mar delivery advanced 62¢ to $59.82 a barrel.  Brent for Apr settlement rose 43¢ to $63.22.  Shale drillers West Texas, Oklahoma & North Dakota may imperil the carefully-laid plans of OPEC & fellow travelers like Russia & Mexico.  The number of rigs searching for US oil jumped 34% in the past year, spurred on as prices recovered from the deepest market rout in a generation.  As a result, US oil production is expected to exceed 11M barrels a day before the end of this year.  OPEC upped its estimate for how much oil non-cartel suppliers will pump this year by 250K barrels a day to 1.4M a day.  “Shale is coming and the expectation is that it will come stronger than in 2017, and this is something that we have to watch,” Al Mazrouei said today.  “But considering all factors, I don’t think it will be a huge distorter of the market.”  OPEC Secretary General Mohammad Barkindo said the cartel & its non-OPEC partners need to continue cooperating beyond 2018 & that their accord is still a “work in progress.”

Pres Trump's budget proposal counts on a unlikely mix of faster growth, lower unemployment & tame inflation. Like the spending request itself, the economic assumptions may turn out to be more wishlist than reality.  Inflation, based on the consumer price index, is expected to average 2.1% in 2018, 2% next year & 2.3% in the long run, according to assumptions published today in the White House budget proposal.  The economy is seen expanding 3.1% this year & 3.2% in 2019, following 2.5% in 2017.  The jobless rate, currently 4.1%, may average 3.9% in 2018 & 3.7% in 2019.  The $4.4T budget’s sanguine scenario for inflation contrasts with investor concerns, which fueled the recent stock-market rout, that a pickup in wages, supported by low unemployment, will lead to faster inflation & encourage the Federal Reserve to raise interest rates more rapidly.  While a decline in joblessness has yet to cause a big acceleration in worker pay or price pressures during this expansion, economists see the risks tilting higher in the wake of fiscal stimulus that includes a $300B federal spending package & $1.5T in tax cuts.  The White House proposal, published by the OMB, shows the 2019 deficit nearly doubling from projections last year to $984B.  The gap would total $7.1T over the next decade & the budget would not come into balance.  Congress is expected to all but ignore the budget proposal, which would slash entitlements & other domestic programs in favor of more outlays for the national defense & immigration enforcement.  The economy is also seen faring better under the new budget proposal relative to what economists had penciled in, although some analysts have begun to raise their estimates in response to details of the likely fiscal boost over the next 2 years.

Trump Budget Sees Jobless Rate Falling Sans Inflation Boost

The relief rally today went reasonably well.  The Dow along with other averages recovered & market breath improved in the PM.  But there was selling in the last hour & the Dow finished a noticeable 160 below its highs.  These are confusing times.  Economic data continues strong but the effects of interest rake hikes are spooking some investors.  One report said retail investors bought a lot of stock before the market crash.  Then there are the new guys who never learned about stock declines.  The stock market is very nervous.

Dow Jones Industrials


No comments: