Wednesday, June 13, 2018

Markets remain steady ahead of the rate announcement this afternoon

Dow went up 10, decliners over advancers 4-3 & NAZ gained 22.  The MLP index fell 2+ to 271 & the REIT index lost 1+ to the 345s.  Junk bond funds fluctuated & Treasuries were even.  Oil slid lower in the 66s & gold inched up 1 to 1300.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil66.00

GC=FGold  1,300.00

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Stocks were flat, with the Dow & S&P 500 little changed, while the NAZ set another record in early trading.  Investors were awaiting the conclusion of the Fed's 2-day monetary policy meeting.  It is widely expected that the Fed will raise the federal funds rate by 25 basis points.  Of interest will be any commentary on the future for rate hikes through the remainder of 2018.  Fed Chair Jerome Powell will elaborate on the decision & take the questions in the news conference.  Economic data released today included producer prices, which increased 0.5% in May, according to the Labor Dept.  Core producer prices, which exclude the volatile categories of food & energy, rose a 0.1% last month.  Wholesale costs rose at a yearly rate of 3.1% in May, the highest level since early 2012.

US stocks cautious ahead of Fed interest rate decision

US wholesale prices last month posted the biggest 12-month gain since 2012, a sign that the strong economy is beginning to rouse inflation.  The Labor Dept said that its producer price index, which measures inflation before it reaches consumers, rose 3.1% from May 2017.  The index rose 0.5% from Apr, biggest one-month increase since Jan.  In Apr, producer prices rose just 0.1%.  Energy prices, pulled higher by surging gasoline prices, rose 4.6% last month from Apr, the biggest jump in 3 years.  Food prices rose just 0.1% & seafood prices fell a record 13.1%.  Core wholesale prices, which excludes the volatile food & energy sectors, rose 0.3 from Apr & 2.4% from May 2017.  The Federal Reserve is expected to raise short-term interest rates today for the 2nd time this year & the 7th time since Dec 2015 as inflation hits the central bank's annual 2% target.  Yesterday, the Labor Dept reported that consumer prices rose 0.2% in May, largely on soaring gasoline costs, & 2.8% over the past year, fastest 12-month jump since 2012.  But core consumer prices have risen a milder 2.2% over the past 12 months.

Producer prices up 0.5% from April, 3.1% in past year

Oil prices fell, hit by rising supplies in the US & expectations that producer group OPEC could relax voluntary output cuts.  Benchmark Brent crude was down 30¢ at $75.58 a barrel & US light crude was 20¢ lower at $66.16.  OPEC & some non-OPEC producers, including Russia, started withholding output in 2017 to reduce a global supply overhang & prices have risen by around 60% over the last year.  But the outlook for the oil market in H2 is uncertain & OPEC argues there are downside risks to global demand.  OPEC & other producers will meet on Jun 22-23 to discuss future production policy.  In the US, the American Petroleum Institute said on yesterday that crude oil inventories rose by 830K barrels in the latest week to 433.7M.  Rising US stocks partly reflect a surge in US crude production, which has jumped by almost a 1/3 in the last 2 years to a record 10.8M barrels per day (bpd).  With output in Russia rising back above 11M bpd in Jun & Saudi production climbing to more than 10M bpd, supplies from the top 3 producers are increasing.

Oil prices drop on prospect of rising supplies

The recent spike in oil should ease in the near term, according to the International Energy Agency's (IEA) latest monthly report, but there could be a large supply gap late next year from OPEC & oil demand should grow steadily thanks to a solid global economy.  The fact that the recent spike in oil prices should ease is a good thing, according to oil organization, given the concerns that surging oil prices could crimp global economic growth.  "Prices are unlikely to increase as sharply as they did from mid-2017 onwards and thus the dampening effect on demand will be reduced," the IEA said in its latest monthly report.  The agency is forecasting global oil demand will grow by 1.4M barrels per day (bpd) in 2019, topping 100M bpd in Q2.  Global economic health is important to future oil demand & while the agency sees a solid global economy they are cautions about continued higher oil prices & trade disruptions, both of which could dent global economic growth.  The agency sees a solid global economy, but is cautious. Its main concerns are higher oil prices & trade disruptions.  “There is the possibility of a downward revision to our economic assumptions in the next few months. The world economy is feeling some pain from higher oil prices,” the IEA commented in its latest market report, adding “Increasing trade tensions are the main risk to our oil demand forecast.”  In terms of supply, 2 big variables are Venezuela & Iran.  Oil output for Venezuela has  been crimped by the nation's economic crisis while US sanctions on Iran could further reduce that country's output.

Trump slams OPEC as IEA anticipates near-term oil price relief

Stocks continue to rake a breather.  A sense of calm regarding the North Korea situation is appreciated, but the words from the Fed about the rate decision & a future forecast for interest rates can move the markets in the PM.  Meanwhile, trade discussions are plodding along & these talks will be a major factor in driving future stock prices.

Dow Jones Industrials

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