Wednesday, May 23, 2018

Markets rise cautiously after Fed minutes show calm on inflation outlook

Dow finished up 52, advancers barely ahead of declines & NAZ added 47.  The MLP index was off 1+ to the 267s & the REIT index continued in the 331s.  Junk bond funds hardly budged & Treasuries rallied, taking the yield on the 10- year Treasury down to 3%.  Oil slid into the 71s & gold was even at 1292.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Federal Reserve officials indicated that they will likely raise interest rates in Jun, minutes from the central bank’s latest policy meeting show.  Members of the Federal Open Market Committee judged that “it would likely soon be appropriate for the committee to take another step” to hike the benchmark short-term interest rate if economic data confirms their outlook, according to the minutes released today.  The Fed has signaled a total of 3 interest rate increase this year, including a rate hike in Mar.  But officials were divided between telegraphing 3 or 4 rate hikes, & investors are closely watching for signs that the Fed could accelerate its timeline.

Fed minutes show June rate hike in view

House Ways & Means Committee Chair Kevin Brady said that he is working closely with Pres Trump & the Senate to pass a 2nd round of tax cuts, a task he says can be completed by the Nov elections.  A key goal, according to Brady, is making temporary cuts for individuals under the Tax Cuts & Jobs Act permanent.  “You have to start with permanence,” he said.  “Because you can’t overestimate the importance for growth and for certainty there.”  Furthermore, according to Brady, lawmakers are considering ways to make the tax code more supportive of families as well as  growth.  “No one ever regrets saving early,” he said. “Most Americans simply regret saving way too late. So if we can get them in that savings mode earlier… it’s going to help them.”  He added that Reps are also looking at ways to encourage innovation & entrepreneurship.  “America just fell out of the top 10 countries in the world for innovation,” he said.  “I want Congress to keep looking at how do we encourage more innovation here in the United States so we can win sort of that innovation race we’re in with other countries.”  Brady added that Reps are also thinking about making the $11M estate tax exclusion permanent.

Tax cuts 2.0 can be done by November elections: Congressman Brady

Sales of new US single-family homes fell less than expected in Apr, but data for the last 3 months was revised lower.  The Commerce Dept said new home sales dropped 1.5% to a seasonally adjusted annual rate of 662K units last month.  The Mar sales pace was revised down to 672K units from the previously reported 694K units.  Economists had forecast new home sales, which account for about 11% of housing market sales, falling 2.0% to a pace of 679K units in Apr.  The gov also revised sales data going back to 2013.  The benchmark revisions showed sales in the first 3 months of the year not as strong as previously reported.  New home sales are drawn from permits & tend to be volatile on a month-to-month basis.  They rose 11.6% from a year ago.

New home sales fall less than expected in April

Oil prices were mixed after a surprise jump in crude stockpiles & following a report that OPEC could scale back its deal to limit oil production at its Jun meeting.  US commercial crude inventories surged by 5.8M barrels in the week through May 18.  That surprised the market, which was expecting a decline based on earlier industry data & a weekly poll of analysts.  US crude ended the session down 36¢ at $71.84 a barrel.  Brent crude futures were up 24¢ at $79.81 a barrel, rebounding from a brief slide after the EIA data.  US crude oil exports dropped by more than 800K barrels a day last week to about 1.75M  barrels a day.  Meanwhile, crude imports were up by 558K barrels & refiners produced less distillate fuel, which includes diesel & heating oil.  Oil prices have gained nearly 20% so far this year, with Brent briefly rising above $80, driven primarily by coordinated supply cuts by OPEC & partners including Russia.  OPEC may decide to raise oil output as soon as Jun due to worries over Iranian & Venezuelan supply & after DC raised concerns the oil rally was going too far.  The US plans to reimpose sanctions on major oil producer Iran, while an economic crisis has decimated Venezuela's crude output.  Based on the prospect of a shortfall in supply relative to demand, investors had driven their bets on a sustained rise in the price of oil to record highs earlier this year.  But with so much uncertainty over how sanctions might affect Iranian supply, fund managers have cut their holdings of crude futures & options by more than 10% in the last 7 weeks to the lowest level this year.

Oil slips 36 cents, settling at $71.84, after surprise surge in US crude stockpiles

The stock market was sluggish until the Fed minutes were released.  When the minutes indicated the Fed would let inflation run above 2% for a "temporary period" buyers returned, taking the Dow up 200 from depressed levels.  Tomorrow stocks will concentrate again on trade issues which are blurry.  Aside from last Fri, the last time the Dow closed above 25K was mid Mar.  The PM rally only gave it a modest gain for the day & market breadth was not impressive.  Steady as she goes.  But talk about TaxCut II has the potential to bring out more buyers.

Dow Jones Industrials

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