Thursday, November 8, 2018

Markets drift lower ahead of Fed meeting announcement

Dow was off 12, decliners ahead of advancers 5-4 & NAZ fell 33.  The MLP index added 4+ to the 262s & the REIT index rose 4 to the 351s.  Junk bond funds fluctuated & Treasuries were steady.  Oil slid lower in the 61s as it enters bear market territory (more below) & gold dropped 4 to 1224.

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GC=FGold   1,225.10

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Stocks were flat, a day after the Dow soared more than 500 points following the midterm elections.  Investors will turn their attention to the Federal Reserve, which will deliver an interest rate decision.  While no change in interest rates is expected, policymakers are widely expected to hike rates in Dec.  Traders also digested weekly jobless claims, which fell to 214K, in line with expectations.  Yesterday, stocks soared with the Dow jumping 545, moving above the 26K level for the first time in a month.

Stocks flat ahead of Fed decision

The number of Americans filing applications for new unemployment benefits fell last week, the latest sign of a historically tight labor market.  Initial jobless claims, a proxy for layoffs across the US, decreased 1K to a seasonally adjusted 214K in the latest week, the Labor Dept reported.  The forecast called for 210K.  Claims for the previous week were revised up by 1K to 215K.  The 4-week moving average of claims, a steadier measure, fell slightly last week (still near 214K).  Jobless claims touched a 49-year low of 202K in mid-Sep before rising modestly following 2 hurricanes striking the southern US, causing disruptions to some businesses.  The Labor Dept noted that claims in 3 states remained affected by the storms during the latest week.  More broadly, the US labor market is extraordinarily tight, leaving businesses reluctant to let workers go.  The unemployment rate held at 3.7% last month, matching a nearly ½-century low.  And the number of unfilled jobs exceeded the number of unemployed Americans seeking work by more than 1M in Sep.  The report showed the number of claims workers made for longer than a week decreased by 8K to 1623K in the most recent week.  It was the lowest level since 1973.  The figure, also known as continuing claims, is reported with a one-week lag.

Weekly US jobless claims fall

China on reported exports & imports for the month of Oct that exceeded forecasts, the country's General Administration of Customs reported.  China recorded a trade surplus of $31.8B with the US in Oct, down from China's overall trade surplus of $34B for Oct (lower than the $35B expected).  Exports denominated in $s rose 15.6% from a year ago Oct, exceeding an 11% growth forecast.  Sep exports grew 14.5% year-on-year.  $-denominated imports meanwhile rose 21.4% from a year ago, topping an expected 14% & Sep imports grew 14.3% year-on-year.  Economic data from China is being closely watched amid a bitter trade dispute between the world's 2 largest economies, with Pres Trump taking issue with his country's massive trade deficit against China.  Despite escalating trade tensions with the US, Chinese data show the economy has largely held up so far.  Many economists say the phenomenon is mostly due to exporters benefiting from increased orders before the tariffs hit, but the figures are likely to show stress in the months ahead.  Chinese exports are also boosted by robust growth, both globally & in the US.  Already, China growth was 6.5% in Q3, its weakest pace since the Q1-2009.  Even before the escalation in trade tensions with the US this year, Beijing was already trying to manage a slowdown in its economy after 3 decades of breakneck growth.  The trade war with the US is now complicating those efforts, with analysts expecting Beijing to to manage the threats from the bilateral dispute that may derail growth.

China's exports and imports both grow more than expected in October

US crude prices dropped for a 9th consecutive session, falling into a bear market, on further signs of growing supply & data showing record Chinese oil imports.  West Texas Intermediate crude futures fell 68¢ (1.1%) to $60.99, down 20.% from last month's 4-year high at $76.90, putting WTI in bear market territory.  Brent crude was down 74¢ (1%) at $71.33 a barrel.  The intl benchmark is down nearly 18% in 5 weeks, when Brent hit $86.74, its highest level since late 2014.  The Energy Information Administration forecast this week that US oil production will average 12.1M barrels per day in 2019, marking an upward revision from its last projection.  US output hit an all-time high at 11.6M barrels per day last week, according to preliminary figures released by EIA yesterday.  If confirmed during revisions, it would more firmly establish the US as the world's top oil producer.  The other producers in the top 3, Saudi Arabia & Russia, have been dialing up production since Jun.  Forecasters have been lowering their estimates for oil demand growth, taking some of the froth out of markets.  However, Chinese trade data released today showed the nation’s oil import rose to an all-time high at 9.61M bpd in Oct.  Oil prices got a boost earlier this week after the Trump administration announced it would issue waivers to 8 countries, allowing them to continue importing Iranian crude.  The US restored sanctions on Iran's energy, banking & shipping industry on Mon.   Crude futures also drew support from a report that Saudi Arabia & Russia are in talks to push a group of about 2 dozen oil producers to cut production.  Even with US sanctions on Iranian oil in place, the perception among investors is that there is more than enough supply to meet demand, as reflected by the front-month Jan Brent futures contract trading at a discount to Feb.

US crude falls into bear market as growing oil output points to oversupply

Stocks are digesting the big gains made yesterday & watching to see what Fed officials will have to say following their meeting.  Nothing dramatic is expected, but traders will be watching for clues about futures rate hikes.  Election results are still being reviewed as investors would like to know more about how the votes will affect the macro economic picture.  Sadly, trade issues continue to be stuck in the mud although the bulls are happy to see the Dow back above 26K.

Dow Jones Industrials

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