Friday, January 11, 2019

Markets struggle as government shutdown worries continue

Dow gave back 5 (well above early lows), advancers modestly ahead of decliners & NAZ fell 14.  The MLP index was off 3+ to 245 & the REIT index rose 5 to the 339s.  Junk bond funds were little changed & Treasuries rose in price bringing lower yields.  Oil slid back to the 51s ending the 9 session winning streak & gold was steady at 1288.

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The gov shutdown hasn't completely stopped the flow of stunningly bad housing data.  Sales of newly built homes fell 18% in Dec compared with Dec of 2017, according to data compiled by John Burns Real Estate Consulting (JBRC), a California-based housing research & analytics firm.  Due to the partial gov shutdown, official gov figures on home sales for Nov & Dec have not been released.  Sales were also down a steep 19% annually in Nov, according to JBRC analysts.  The firm counts 373 market ratings by local builders overseeing more than 3500 new home communities, estimated to be 16% of US new home sales.  These figures correlate closely with gov readings.  New homes sales took a hit as mortgage rates rose sharply at the start of last fall, putting further stress on a market where prices had been overheating for the past 2 years.  "I think the 4.5 percent plus mortgage rate is just a double whammy," said John Burns, CEO of JBRC.  "It's keeping entry level buyers out of the market. They're very disappointed with what they can afford, and it's keeping current homeowners who want to move locked in, because their current mortgage rate is so much lower."  The numbers confirm what some of the nation's largest public builders reported this week in quarterly earnings reports, that the housing market softened dramatically in the fall as mortgage rates rose & affordability weakened.  New home sales fell hardest in California, where prices are highest.  Sales dropped 40% annually in northern California & 49% in southern California.  Sales were just 5%  lower in the Midwest, where homes are far less expensive.  While buyer traffic was lower in Nov & Dec compared with previous years, it has remained steady since Aug.  Demand for housing is still very high.  Mortgage rates did fall back in Dec & builders reported seeing a correlating jump in buyer traffic thru model homes, though not contract signings.  Just under one qtr of builders surveyed said they reduced prices & that may have helped sales in frothy markets such as Seattle & Portland, OR.  Cancellations, however, rose compared to a year ago, with entry-level buyers pulling the plug most.  Their cancellation rate was 18%, compared with move-up buyers who cancelled 14% of deals & luxury buyers who pulled out of 11% of deals.  The rate for luxury buyers was higher than a year ago, which may be due to heavy turbulence in the stock market at the end of the year.

New home sales tank 19 percent to end 2018

Baker Hughes  reported that the number of active US rigs drilling for oil fell by 4 to 873 this week.  The total active US rig count, however, was unchanged at 1075.  Feb West Texas Intermediate crude was down 96¢ (1.8%) at $51.63 a barrel from the Thurs finish.

Baker Hughes data reveal a second weekly decline in a row for the U.S. oil-rig count

Oil prices fell about 2% amid worries about a global economic slowdown, but futures ended the week higher, keeping some gains from a week-long rally spurred by U S-China trade hopes.  US West Texas Intermediate crude futures ended thre session down $1 (1.9%) at $51.59 a barrel.  Brent cruse futures fell $1.15 (1.9%) to $60.53 a barrel.  The pullback marked the end of a 9-day winning streak for crude futures, the best string of gains since 2010 for WTI & 2007 for Brent.  Still, both benchmarks posted their 2nd week of gains, with WTI rising about 7.5% & Brent up 6%.  Markets were supported earlier this week by hopes that an all-out trade war between DC & Beijing might be averted.  3 days of talks concluded Wed  with no concrete announcements, but higher-level discussions may convene later this month.  Investors remained concerned about a slew of recent economic data that has raised worries about a global economic slowdown.  China plans to set a lower economic growth target of 6-6.5% in 2019 compared with last year's target of “around” 6.5%, as Beijing gears up to cope with higher US tariffs & weakening domestic demand.  On the supply side, oil markets have received support from supply cuts led by OPEC.  The deal is aimed at reining in a glut that emerged in H2-2018.  Lower oil exports from Iran since Nov, when US resumed sanctions against the OPEC producer, have also supported crude.  Iran will see its crude exports severely curtailed for a 3rd month in Jan, according to tanker data & industry sources.  Playing a key part in the emerging glut was the US, where crude oil production has soared to a record 11.7M barrels per day.

Oil falls amid caution over global economy

After a 5 day rally, stocks paused for a rest.  News in the last week has been unspectacular, but bargain hunters were bidding prices higher.  Housing continues to struggle & the US-China trade talks were not helpful, at least so far.  The gov shutdown is getting a lot of attention & that has the potential to cause serious damage to the economy.  The Dow was hurt by selling in the first 2 hours, then buyers returned to cautiously trim the loss.  The final tally was up 500+ for the week.  Not bad but the next week is a new week.

Dow Jones Industrials

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