Friday, January 25, 2019

Markets rise as Trump announces offer to temporarily end shutdown

Dow rose 176, advancers over decliners better than 3-1 & NAZ went up 85.  The MLP index gained 23+ to the 248s & the REIT index went up 1 to the 47s.  Junk bond funds were mixed & Treasuries fell in price.  Oil crawled higher in the 53s & gold added 18 to 1304 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Pres Trump & congressional leaders have reached a deal to reopen the gov for 3 weeks and end the longest US funding lapse ever, the pres announced.  Trump said he hopes to sign the measure today, the 35th day of the partial shutdown.  It would restart gov operations thru Feb 15, without the money he has demanded for his proposed border wall.  Trump said he expects Senate Majority Leader Mitch McConnell will bring it to the Senate floor "immediately."  Both major parties will set up a conference committee to put together a Homeland Security Appropriations bill once the gov reopens.  However, Trump threatened to let the gov shut down again, or declare a national emergency to bypass Congress, if lawmakers do not reach a border security deal he likes.  "We really have no choice but to build a powerful wall or steel barrier," the president said in the Rose Garden.  "If we don't get a fair deal from Congress, the government will either shut down on February 15 again or I will use the powers afforded to me under the laws and the Constitution of the United States to address this emergency."  Of course, lawmakers may still fail to reach an immigration deal that appeases Trump.  In his remarks, he claimed no border security plan will work "without a physical barrier" — which Dems have opposed despite saying they support other border security funding.  He dedicated most of his speech to highlighting the dangers of illegal immigration.  "This is an opportunity for all parties to work together for the benefit of our whole, beautiful, wonderful nation," he added.

Trump announces deal to end shutdown and temporarily reopen government

Federal Reserve officials are nearing a decision on when to end the reduction of the bonds it is holding on its balance sheet, a key consideration for investors watching how far the central bank will go in tightening monetary policy, according to a report.  The Fed began the balance sheet roll-off in Oct 2017 after it had reached more than $4.5T.  Investors have worried that the operation is adding to market pressure stemming from a series of interest rate hikes that began in 2015.  Further consideration of when to end the roll-off is likely to come up at next week's Federal Open Market Committee meeting.  The policymaking body has been weighing the balance sheet reduction during its last several meetings, with officials noting in Dec that the central bank's benchmark funds rate could become volatile as the operation proceeds.  "A lot of the heavy lifting has been done," Kansas City Fed Pres Esther George said in a Jan 15 interview.  "We're waiting for the committee to be satisfied that they have reached sufficient understanding of what all the moving pieces are."  The Fed has been reducing its balance sheet by allowing a set level of proceeds from the bonds to roll off each month, while the rest has been reinvested.  The maximum roll-off is $50B a month, though it is rarely, if ever reached, Dec saw about a $34B reduction in the Treasuries & mortgage-backed securities that are involved in the program.  In total, the bond reduction has been about $400B.  The central concern is what level of reserves the banking system is comfortable holding.  A higher level of reserves in the system corresponds with a higher balance sheet, meaning the Fed could curtail the roll-off earlier than expected.  While Fed officials initially thought the balance sheet reduction could be done with little disturbance to markets, that hasn't been the case.  Stocks opened higher today, though it wasn't clear whether the report was feeding into the positive sentiment.  Regardless, investors are likely to be relieved at indications that the end could be near for the balance sheet reduction.  Markets have reacted negatively at various points to balance sheet news, with a sell-off in Dec after Fed Chairman Jerome Powell said the operation was running smoothly & likely would not be changed.

The Fed may be moving closer to ending its rally-killing balance sheet reduction

Oil futures rose Fri for a 2nd straight session, supported by supply concerns tied to Venezuela, but a hefty weekly rise in US crude supplies helped to keep prices lower for the week.  Market attention remained fixed on Venezuela, with all eyes on next steps for popular opposition leader Juan Guiado, while the top military brass reupped its allegiance to embattled Pres Nicolás Maduro.  West Texas Intermediate crude for Mar delivery rose 49¢ (0.9%) to $53.62 a barrel.  But the contract was down 0.8% for the week.  Mar Brent crude rose 39¢ (0.6%) to $61.48 on ICE Futures Europe, with a weekly loss of about 2%.  Meanwhile, the Energy Information Administration reported yesterday that domestic crude supplies climbed by 8M barrels for last week, a 2-month high.  That was contrary to expectations for a fall of 600K barrels expected.  Data today showed that the number of active US rigs drilling for oil, which offers a hint on future production activity, rose 10 to 862 this week. That followed a hefty drop of 21 in the oil-rig count a week earlier.

Oil prices rise as Venezuelan unrest remains an unknown factor for global supply

Gold futures settled above $1300 an ounce, with prices for the yellow metal at their highest since Jun as the $ pulled back & investors eyed geopolitical turmoil & global growth worries.  Rising gold prices reflect “political uncertainty” in the US, Eurozone, Venezuela & pockets of South America, as well as China-US trade talks.  Gold for Feb added $18.30 (1.4%) to settle at $1304. The Apr contract notched its highest finish since Jun & climbed by 1.2% for the week.

Gold tops $1,300 for highest finish since June

Another wild & woolly week for stocks.  And little was decided even though stock buyers have been active.  Ending the shutdown for 3 weeks is still hazy & China trade talks drag on with few prospects of reaching a significant agreement.  However the Dow is up almost 3K since the Christmas eve low.  This rally is vastly overextended & there will have to be a day of reckoning.  Already gold has reach the important 1300 level.

Dow Jones Industrials

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