Friday, October 19, 2018

Markets struggle for gains, looking for direction

Dow rose 64, decliners slightly ahead of advancers & NAZ fell 36.  The MLP index was fractionally higher to the 271s & the REIT index did little in the 338s.  Junk bond funds drifted lower & Treasuries were weak.  Oil went up to the 69s & gold finished about even at 1228 (more on both below).

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Live 24 hours gold chart [Kitco Inc.]

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Atlanta Fed Pres Raphael Bostic added the case of missing Saudi journalist Jamal Khashoggi to the list of downside risks to the US economic outlook.  Bostic said the Fed was monitoring the situation because it might lead to sanctions that could impact the oil market.

Fed's Bostic adds Khashoggi case to list of risks to the economic outlook

A new report released by KPMG found that a vast majority of gas executives remain confident that the industry has room to grow, despite the rapid speed of technology & innovation that’s beginning to encroach on the industry.  According to Regina Mayor, KPMG's global head of energy & natural resources, about 88% of all CEOs are confident in their companies' growth & 85% of all oil & gas CEOs are confident in the industry’s growth.  “That compares to only 67 percent of the overall population of CEOs, so you can see with the commodity-price outlook, oil and gas CEOs are quite bullish about the company and the industry in today’s environment,” she said.  Although Mayor acknowledged that technology has disrupted the status quo of the oil & gas industry, she added that more CEOs are trying to incorporate artificial intelligence & robotic solutions to improve rig safety, dispatch crews fast & identify system failures before they arise.  About 46% of CEOs believe that AI could help accelerate revenue growth within a 3-year time frame.  Mayor also suggested that revenue could go up “quite substantially” if there’s more product available.  The price of Brent oil, the intl benchmark, is currently trading around $79 per barrel.  “I think they’re considering double-digit growth in revenue,” she said.  “At a $70 and $80 price outlook, revenue goes up quite substantially, you could even say it’s 20 percent or higher, and they’re very confident that price is going to stay.”

Oil, gas CEOs confident that industry will continue to boom: study

The Treasury Dept outlined rules for investors seeking to finance development in underserved regions in exchange for significant tax breaks.  The proposed guidance would govern investments in "opportunity zones" across the country that were created under the sweeping new Rep tax law.  Treasury Secretary Steve Mnuchin estimated as much as $100B in private capital could be funneled into those areas.  "We want all Americans to experience the dynamic opportunities being generated by President Trump's economic policies," Mnuchin said.  "This incentive will foster economic revitalization and promote sustainable economic growth, which was a major goal of the Tax Cuts and Jobs Act."  For investors, the opportunity zones come with several tax advantages.  Capital gains placed in a certified opportunity zone fund will not be taxed thru the end of 2026 or when the investment is sold, whichever comes first.  Any gains from the fund are permanently shielded from taxes if the investment has been held for 10 years.  In addition, the initial investment will be discounted by up to 15% for tax purposes after 7 years.  The guidance comes just weeks before the midterm elections.  The proposed regulations clarify that only capital gains are eligible for preferred tax treatment.  Investors who can participate include individuals, corps, businesses, REITs, & estates & trusts.  Treasury said additional guidance will be released before the end of the year, with final rules likely to come in the spring.  "We felt it was important to issue the core guidance now that's needed to get the funds up and operating and not wait until we have every question answered," said a senior Treasury official.  One key outstanding issue is how much flexibility the funds will have to buy & sell assets within an opportunity zone.  The official said that will be part of the 2nd round of guidance.  Still, some investors are already setting up funds amid early interest in the new program.  States have designated more than 8700 Census tracts as opportunity zones, including nearly all of Puerto Rico.  The average poverty rate in the zones is 32%, compared with the national average of 17%.

Treasury unveils rules for 'opportunity zone' investing, tax breaks

Oil prices rose on signs of surging demand in China, the world's #2 oil consumer, although prices had for a 2nd weekly decline on swelling US inventories & concern that trade wars were curbing economic activity.  Brent crude futures rose 43¢ to $79.66 a barrel (a 0.5% gain).  West Texas Intermediate (WTI) crude futures settled 47¢ higher (0.7%) at $69.13 a barrel.  For the week, Brent crude was 0.3% lower & WTI fell nearly 3% this week (below 4-year highs reached in early Oct).  WTI's discount to Brent widened to its most since Jun 8, hitting $11.00 a barrel.  Refinery throughput in China, the world's largest oil importer, rose in Sep to a record 12.49M barrels per day (bpd), gov data showed.  An OPEC & non-OPEC monitoring committee found that oil producers' compliance with a supply-reduction agreement fell to 111% in Sep from 129% in Aug, sources familiar with the matter said.  OPEC has led cuts from major oil producers since 2017 to shore up prices.  Oil prices also rose along with rising equities prices in the stock market.  Pressuring prices this week was US gov data showing crude inventories last week climbed 6.5M barrels, a 4th straight weekly build & almost triple the forecast.  Rising supplies, particularly at Cushing, Oklahoma, the delivery hub for WTI pushed the market into contango, in which nearby prices trade lower than forward prices.  The US oil drilling rig count, an early indicator of future output, rose by 4 to 873 this week, the highest since Mar 2015.

Oil up but posts weekly loss on stock build, trade tensions

Gold futures fell but secured a weekly advance, their 3rd in a row, as a leading $ index softened & stocks put in a mixed session.  Investors kept tabs on budget tensions in Europe, which could have consequences for broader market sentiment.  Dec gold  fell $1 to $1,229 an ounce after spending time in positive & negative territory.  The ICE US Dollar Index  slipped 0.3% at 95.68 but has strengthened 0.6% so far in Oct & is up roughly 4% YTD in the wake of interest-rate hikes at the Federal Reserve, another of which is expected before the year is out.

Gold secures weekly gain as dollar slips, stocks trade mixed

Without major news stores to motivate investors, stocks were mixed.  Dow was in the black all day while NAZ slipped into the red in the PM.  Market breadth was near breakeven.  Earnings have been good, but dark clouds of uncertainty are never far away from the thoughts of traders.  The Dow remains in the red for Oct with 8 more trading days left.

Dow Jones Industrials

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