Friday, November 9, 2018

Markets pull back after inflation data

Dow dropped 114, decliners over advancers 2-1 & NAZ sank 114.  The MLP index fell 4+ to the 253s & the REIT index was flattish in the 351s.  Junk bond funds barely budged & Treasuries were higher.  Oil fell to 60 as it entered a bear market period (more below) & gold fell 13 to 1211.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil59.44-1.23 -2.0%

GC=FGold  1,210.50
-14.60 -1.2%

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Stocks fell as investors digested the outcome of the Federal Reserve's Nov policy meeting while looking to the potential for future rate hikes.  While the Fed move was expected, & it announced that it would maintain rates at the conclusion of the meeting, the Fed also offered a strong assessment of the economy, suggesting a rate hike in Dec is on course.  The announcement, made in the final hours of trading, took the air out of yesterday's rally & stocks ended mixed.  Economic data released today included producer prices. The producer-price index for Oct rose 0.6%, above the 0.2% that was expected, suggesting the price of goods in the US heated up during the month.  In commodities, oil was lower again, poised for its 10th consecutive session for losses after the commodity officially entered a bear market in the prior session.  A bear market is defined as a 20% drop in value from a peak.

Stocks lower on interest rate concerns

Oil is on track for its longest losing streak in 34 years, with futures lower again after the commodity officially entered a bear market yesterday.  West Texas Intermediate crude oil futures fell below $60 a barrel, the first time since early Mar.  Prices are currently hovering around their lowest in about 9 months.  If the contract finishes lower today, it will mark 10 consecutive down sessions, the longest losing streak for the commodity in 34 years.  Oil peaked in Oct on concerns US sanctions on Iran would crimp supply, however, even as these sanctions were officially implemented the oil market appears to be well supplied with other major producers more than compensating.  Theh US, Saudi Arabia & Russia are all producing at or near record levels while DC provided exemptions on some of the biggest exporters of Iranian crude, allowing them to continue to purchase in the near term.  Meanwhile, concerns that global economic growth will wane are also supporting oil bears.  Oil is an economically sensitive commodity, meaning that when the economy cools demand slips, while when the economy fires up demand for oil climbs.  This is because in an expanding economy there is higher demand for goods & travel, & it takes oil to power airplanes, trucks & automobiles.  Oil investors will get an updated look at US oil production in the PM when Baker Hughes releases its weekly rig count.

Oil about to post its longest losing streak in 34 years, here's why

A gauge of US business prices rose in Oct at the fastest pace in nearly 6 years, suggesting inflation could be picking up steam after a summer slowdown.  The producer-price index, a measure of the prices businesses receive for their goods & services, rose a seasonally adjusted 0.6% in Oct from a month earlier, the Labor Dept said, the biggest monthly increase since 2012.  When excluding the often-volatile food & energy categories, prices were up 0.5% in Oct from the prior month.   Excluding food, energy & a volatile gauge of margins called trade services, prices grew 0.2%% last month.  The forecast called for a 0.3% one-month increase in overall prices, a 0.2% increase for prices excluding food & energy & a 0.2% rise for prices excluding food, energy & trade services.  From a year earlier, the overall producer-price index increased 2.9% in Oct, while prices excluding food & energy grew 2.6% & prices excluding food, energy & trade services rose 2.8%.  Last month's headline price growth was driven by gains in prices for services, which grew 0.7%, the largest one-month increase since the beginning of 2016.  In the longer term, annual gains in the headline index have risen since the beginning of 2016, while the 2 core measures have also drifted higher.  The producer-prices measure usually follows the same trends as other broad inflation gauges, though it does not always translate into what consumers pay.  The personal-consumption-expenditures price index, a broad inflation gauge closely watched by the Federal Reserve, pointed to tame inflation over several months thru Sep.  PCE prices rose 0.1% in Sep from Aug, the 4th straight month in which the gauge fell short of the 0.165% monthly pace needed to meet the Fed's 2% annual target.

US business prices jump most in nearly six years

A preliminary reading on consumer sentiment for Nov came in slightly above expectations.  The Univ of Mich consumer sentiment index hit 98.3 for this month.  The forecast for the preliminary read was 98, slightly below an Oct print of 98.6.  “Consumer sentiment remained virtually unchanged in early November from its October reading,” Richard Curtin, chief economist for the Surveys of Consumers, said.  “The stability of consumer sentiment at high levels acts to mask some important underlying shifts. Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates.”  The Federal Reserve kept interest rates unchanged at its meeting this week, but kept the door open for a rate hike in Dec after raising rates 3 times this year.  Curtin added, however, that the virtually unchanged print kept the index on pace for its best year since 2000.  The latest look at consumer sentiment comes shortly after the midterm elections when Dems took control of the House & Reps maintained a majority in the Senate.  This result was largely expected.  Curtin noted that interviews leading up to today's release went thru Wed night, “there was only a one-day overlap after the mid-term election results were known by consumers.”

Consumer sentiment tops expectations in November, stays on pace for best year since 2000

Economic data while good has been less than robust lately.  The housing market is very soggy & the auto market has been trending sideways for a couple of years (although at high levels).  Today's inflation was not helpful, however the consumer confidence data looks good.   Including today's decline the Dow is up 800 this week, not bad after a very tough Oct.

Dow Jones Industrials

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