Thursday, January 31, 2019

Markets have best month in 3 decades on strong earnings

Dow was off 15, advancers over decliners 2-1 & NAZ shot up 98.  The MLP index fell 3+ to the 248s & the REIT index gained 2+ to the 361s (approaching record highs).  Junk bond funds inched higher & Treasuries rose in today's trading.  Oil pulled back slightly to the high 53s & gold jumped up 10 to 1325 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The number of Americans filing applications for unemployment benefits surged to near a 1½-year high last week, which could raise concerns that the labor market is slowing.  Initial claims for state unemployment benefits jumped 53K to a seasonally adjusted 253K for last week, the highest level since Sep 2017, the Labor Dept said.  Claims dropped to 200K in the prior week, which was the lowest level since 1969.  The forecast called for claims rising to only 215K.  The claims data covered the Martin Luther King holiday.  While claims tend to be volatile around holidays, last week's big jump could be flagging a moderation in job growth.  The surge could also reflect filings by non-federal gov workers who were temporarily unemployed during the partial gov shutdown that recently ended.  The Labor Dept said no states were estimated last week.  The 3-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 5K to 225 last week.  The claims data has no bearing on the Jan employment report, which is scheduled for release tomorrow, as it falls outside the survey period.  The forecast is for nonfarm payrolls to increase by 165K jobs in Jan after jumping 312K in Dec.  The 5-week partial gov shutdown is not expected to have an impact on Jan's job growth, as workers who were furloughed will be paid retroactively together with colleagues who worked without pay.  However, these workers who stayed at home during the longest gov shutdown in history are expected to temporarily push up the unemployment rate in Jan.  The Federal Reserve just kept interest rates steady but said it would be patient in lifting borrowing costs further this year in a nod to growing uncertainty over the economy's outlook.  The central bank removed language from its Dec policy statement that risks to the outlook were "roughly balanced."  Business & consumer confidence have weakened, with some of the deterioration linked to the gov shutdown.  The claims report showed the number of people receiving benefits after an initial week of aid increased 69K to 1.78K last week & the 4-week moving average of continuing claims gained 8K to 1.74M.

US weekly jobless claims jump to near one-and-a-half year high

Stocks had their best Jan gain in more than 30 years, & that should mean 2019 will be a pretty good year for stocks.  That's what the widely watched Jan barometer says, so goes Jan, so goes the year.  According to Stock Trader's Almanac, going back to 1950, that metric predicting the year has worked 87% of the time.  But the indicator also signaled a positive year last year, & the market suffered an unusual late-year sell off, wiping out all of the gains.  The S&P 500 ended 2018 down 6.6%, despite rising 5.6% in January.  But the S&P also defied history with a terrible Dec decline of 9.6%, the biggest loss for the final month of the year since 1931.  This Jan, the S&P 500 is up 7.7% as of yesterday.  That would be the best Jan performance since 1987, when it rose 13.2% .  Some market pros worry the sharp snap back in stocks since the late Dec low means Jan could be stealing the gains from the rest of the year.  Others believe there could be another test at lower levels in the not too distant future.  Yet, forecasters have a median target of 2950 for the S&P 500 at year end, a big leap forward from the current 2700.   The market has sprung back from the Dec low, with the S&P gaining 15% since Dec 26.

The best January in 30 years could mean good things for the stock market in 2019

US crude oil surged this month to post its best Jan performance on record, breaking a 3-month losing streak that saw futures lose nearly ½ of their value.  Crude futures have powered through a steady flow of weak economic data from China, the world's 2nd biggest oil consumer, amid an ongoing trade dispute with the US.  The energy complex has been boosted by OPEC-led production cuts aimed at draining oversupply & US sanctions on Venezuela, which threaten to disrupt global trade flows & bolster prices.  West Texas Intermediate crude prices ended yesterday's session down 44¢ at $53.79 a barrel, after hitting a 2-month high at $55.37.  WTI posted an 18.5% monthly gain, its biggest jump since Apr 2016 & its best Jan since the futures began trading in 1983.  Intl benchmark Brent crude for Mar delivery was up 25¢ at $61.90 a barrel, on pace to rise 15% in Jan, also the best monthly gain since Apr 2016.  Brent's more heavily traded Apr contract was down 1% at $60.89.  Prices tumbled after the Energy Information Administration reported US oil production rose to an all-time high 11.9M barrels per day in Nov, up from 11.5M  bpd in Oct.  Preliminary weekly figures have long telegraphed the jump, confirmed by EIA's first monthly reading yesterday.  The drop also came after Pres Trump said he wants a big trade deal with China, but may not reach an agreement by Mar 1, the deadline to prevent a rise in tariffs on hundreds of B$s in goods.  An increase in trade barriers threatens to exacerbate a slowdown in Chinese growth that could dent fuel demand.  Negotiators from the 2 countries are meeting in DC this week.  Despite the strong monthly performance, both benchmarks remain in bear market territory, with WTI down about 30¢ from its 52-week high in Oct.  The crude price collapsed to roughly 18-month lows in Q4 on growing oversupply, weak demand signals & technical trading.

Oil surges more than 18 percent this month for its best January on record

A survey of business conditions in the Chicago area that’s seen as a proxy for the broader US economy cooled off in Jan, falling to the lowest level in 2 years & providing more proof that 2019 has gotten off to a slow start.  Although any reading over 50 to an improving economy, the index has taken a big tumble lately.  Just 3 months ago, the index stood at 66.4.  New orders fell to a 2-year low & production was the weakest in 10 months.  Customers were put off in part by higher prices, execs told MNI.  Stable inventory growth suggested strong sales in the months ahead, though.  Employment was little changed & some companies would like to hire, but can't find enough skilled workers, especially in blue-collar tradesThe Chicago survey gives a good idea of what's happening with manufacturers & other large US companies, including many with expansive global operations.  It is viewed as a leading indicator of how well the US & even global economies are performing.  The US & global economies appear to have slowed.   Jobless claims surge to 16-month high of 253K.  The US, buoyed by a strong labor market, is still growing steadily.   That’s not the case for Europe, though & China is also struggling to expand as much as its economy usually does.  The festering trade fight with the US is part of the reason.  The Federal Reserve is worried enough that it's tabled plans to raise interest rates until it gets a better handle on what's going on.

Chicago economy grows at slowest pace in 2 years and not just due to a polar vortex

Gold futures settled higher, tallying a 4th straight monthly gain, after the Federal Reserve left interest-rates unchanged & employed language hinting at a momentary pause in monetary tightening, bullish development for bullion prices.  The most-active Apr gold contract climbed $9.70 (0.7%) to settle at $1325 an ounce, after settling at $1315 an ounce before the Fed's updated policy statement.  The Federal Reserve on Wed left a key interest rate at a range of 2.25% to 2.50% & Chairman Jerome Powell said the central bank would be “patient” about further interest-rate moves, adding that it was open to slowing the pace of the runoff of its $4T balance sheet if needed.  Of particular note to market participants, the Fed removed a reference to “further gradual rate increases” in its policy statement, leaving many to believe that future rate hikes were on hold until further notice.  The policy update marked a decidedly dovish shift for the Fed, even if the market had anticipated a more moderated stance on the pace of monetary normalization.  This position has put downward pressure on the $, which skidded lower late Wed, providing a runway for commodities priced in the currency to trade higher.  The yellow metal had already been in an uptrend prompted by earlier communications of the Fed's softening stance on rate increases & uncertainty about a resolution of a protracted tariff spats between the US & China.  Pres Trump said yesterday trade talks in DC are going well, but that he doesn't expect to reach a final deal until he & Chinese Pres Xi Jinping meet “in the near future.”  Meanwhile, a report today from the World Gold Council showed that 2018 gold demand edged up by 4% to 4.345 metric tons, as central bank buying climbed to 651 metric tons, its highest in 50 years.  Tracking the most-active contracts, gold futures ended 3.3% higher for the month.

Gold prices settle higher, up a 4th month in a row

Jan was an out standing month for stocks, oil & ALSO GOLD.  The Dow rose 1700 after a horrible Dec.  Oil had a similar story.  Bargain hunters returned in Jan to bid up prices.  Meanwhile, nervous Nellie investors put their money in gold & the buying came in the last 5 trading days of Jan.  Stocks continue overbought even though background data is very weak (US-China trade talks, another possible gov shutdown, a drab housing market, etc.).  Feb will test the the strength of the bulls to control the stock market.

Dow Jones Industrials

Mixed markets after yesterday's giant rally

Dow fell 53, advancers over decliners 3-1 & NAZ jumped on 89 on earnings reports. The MLP index was flattish after recent gains to the 252s & the REIT index added 2+ to the 361s.  Junk bond funds fluctuated & Treasuries were bid higher taking the yield down on the 10 year Treasury by a large 5 basis points to 2.65%.  Oil went up to the 55s & gold soared 13 to 1339 (yet another multi month high) as Fed indicates rate hikes have been put on hold.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil54.96

GC=FGold   1,328.50

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Stocks traded mixed, pulling back slightly after yesterday's earnings & Fed-fueled rally.  In economic news, the number of Americans filing applications for unemployment benefits surged to near a 1½-year high last week, which could raise concerns that the labor market is slowing.  In Asian markets, China's Shanghai Composite gained 0.4% & Hong Kong's Hang Seng index finished the day up 1%.  Japan's Nikkei closed up 1.1%.  In Europe, London's FTSE added 0.5%, Germany's DAX slipped 0.5% & France's CAC was slightly higher.

Stocks trade mixed after huge rally

US & Chinese officials are reportedly in talks to set up a meeting between Pres Trump & Chinese Pres Xi Jinping for next month, according to several reports.  The possible meeting could take place right after a summit between Trump & North Korean leader Kim Jong Un & just before the US-China trade deal deadline.  Officials for both sides are currently meeting in DC in an effort to strike a deal.  Today, Trump tweeted about the discussions, saying that "meetings are going well with good intent & spirit on both sides."  "China does not want an increase in tariffs & feels they will do much better if they make a deal. They are correct," Trump added.

As trade truce deadline approaches, Trump, Xi could meet in February

Brutal cold that can cause frostbite within a few minutes continued to blast the Midwest & hit the Northeast today, snarling air travel & suspending package deliveries.  Airlines canceled more than 1400 flights today at Chicago's O'Hare Intl Airport, more than ½ of the daily schedule at the United Air Lines (UAL) & American Airlines (AAL) hub, as it was too cold for ramp workers to access & service many aircraft.  More than 40% of the scheduled 237 flights at Chicago Midway Intl Airport, were canceled.  Hundreds of other flights were canceled in Chicago yesterday due to the cold.  Temperatures at O'Hare at 5:30 AM. were minus 21 degrees Fahrenheit, with wind chills of 37 degrees below zero, the National Weather Service said.  Major airlines said they would waive date-change fees for travelers affected by the severe weather.  While aircraft can take generally take off in low temperatures, the bitter cold limits how long ground workers can remain loading baggage or servicing aircraft.  The low temperatures also curtailed some package deliveries in certain areas of the Midwest & Northeast.  The United States Postal Service suspended deliveries to some cities in the Midwest today "to ensure the safety and well-being of our employees."

Record cold grounds more than 1,500 flights, UPS, USPS suspend some deliveries

Negotiations on border security funding are underway in Congress as the threat of another gov shutdown looms large over Capitol Hill.  But Pres Trump, who has made it his key goal to secure funding toward a southern border barrier, appeared to be more pessimistic than ever about the outcome of the talks.  "Republicans on the Homeland Security Committee are wasting their time," Trump said in a tweet today.  "Democrats, despite all of the evidence, proof and Caravans coming, are not going to give money to build the DESPERATELY needed WALL."  "Wall is already being built, I don't expect much help!" he added.  The dismissive statement appeared to reference a bipartisan conference of 17 lawmakers in the House & Senate tasked with hashing out a deal to fund the gov.  The White House did not immediately respond to a request for clarification on the pres's tweet.  The pressure is on for the group of lawmakers, with about 2 weeks remaining on a self-imposed deadline before parts of the gov once again shut down.  Politicians on both sides of the aisle have made it clear they want to avoid at all costs another gov funding lapse, especially so soon after the record-shattering 35-day partial shutdown that was temporarily halted last Fri.  Trump is demanding that any long-term funding deal include &B$s toward the construction of a barrier along the US-Mexico border.  Dems have refused to put any money toward a wall have accused Trump, who once said he would be "proud" to shut down the gov in pursuit of a wall, of holding federal workers hostage to gain leverage in the debate.  Trump on Fri signed a temporary measure to reopen the full gov for 3 weeks.  The move came after polls showing more Americans blamed him for the shutdown than blamed Dems.  But he maintained after the bill signing that any deal must include new border wall funding — & renewed his threat to bypass Congress all together by declaring a national emergency if he doesn't get what he wants.  "In 21 days, if no deal is done, it's off to the races!" Trump tweeted.

Trump returns to hard-line stance on the wall as Congress works to avoid another shutdown

Stock buyers welcomed the earnings reports from the tech companies, but the rest of the market is digesting all that is going on.  The bitter cold weather is pinching business.  More importantly, trade talks with China are lumbering along while another gov shutdown is just 2 weeks away.  With both sides standing firm, it is difficult to see how congress can solve this crisis in such a short amount of time.  Gold buyers are encouraged, taking the precious metal's prices to levels not seen in months.

Dow Jones Industrials