Wednesday, July 10, 2019

Markets pare early gains after testimony by chairman Powell

Dow rose 76, advancers over decliners about 2-1 & NAZ went up 60.  The MLP index gained 3+ to the 256s as oil was bid higher & the REIT index added 2+ to the 397s.  Junk bond funds were mixed & Treasuries remained weak.  Oil soared over 60 (more below) & gold surged 19 to 1419.

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A stronger-than-expected Jun jobs report did not change the Federal Reerve's economic outlook or interest rate policy, Fed Chair Jerome Powell said during congressional testimony.  In Jun, the US economy created 224K jobs, surging past analyst expectations of 160K, raising questions about how -- or if -- the report would affect the central bank’s monetary policy.  “The straight answer to your question is no,” Powell said before the House Financial Services Committee. “Since the June meeting, and for a period for that, the data have continued to disappoint. And that’s very broad, across Europe and around Asia, and that continues to weigh.”  Powell noted that while the jobs report was positive -- “that’s great news” -- there are other factors influencing the Fed’s decision-making.  For instance, despite Pres Trump & Chinese Pres Xi Jinping agreeing to a tariff ceasefire & a renewal in trade negotiations 2 weeks ago at the G-20 summit in Japan, Powell said uncertainties surrounding the year-long trade war continue to persist.  “While that’s a constructive step, it doesn’t remove the uncertainty as overall weighing on the outlook,” he added.  “I would say that the bottom line for me is that the uncertainties around global growth and trade continue to weigh on the outlook. In addition, inflation continues to be muted. And those things are still in place.”  However the jobs report was not espected to make or break the Fed's decision.


Federal Reserve officials were split about whether to lower interest rates during their 2-day meeting in the middle of Jun, with some members pushing for easier monetary policy.  Although the central bank most recently voted to keep the benchmark federal funds rate steady (with one member dissenting), minutes from the Jun 18-19 FOMC meeting revealed that some policymakers believed the need for a rate cut was imminent.  "Several participants noted that a near-term cut in the target range for the federal funds rate could help cushion the effects of possible future adverse shocks to the economy and, hence, was appropriate policy from a risk-management perspective," the minutes said.  However, some members believed that with the economy still in a favorable position, cutting rates to increase inflation risked overheating labor markets.  A few participants expressed the view that with the economy still in a favorable position in terms of the dual mandate, an easing of policy in an attempt to increase inflation a few tenths of a percentage point risked overheating the labor markets & fueling financial imbalance.  But most policymakers agreed there was a "significant increase in risks and uncertainties" surrounding the economic outlook, with signs of weakness in business spending, weaker-than-expected foreign economic data & rising concerns about slowing global growth.  "They generally agreed that risks and uncertainties surrounding the economic outlook had intensified and many judged that additional policy accommodation would be warranted if they continued to weigh on the economic outlook," the minutes said.  Traders to price in a 100% chance of a reduction in the benchmark federal funds rate at the Fed's upcoming July 31st meeting.

Fed minutes reveal policymakers divided over interest rate cut

US crude oil production will rise to an all-time high of 12.36M barrels per day (bpd) in 2019 from a record high of 10.96M bpd last year, the Energy Information Administration's Short Term Energy Outlook (STEO) said.  The latest Jul output projection for 2019 was up from EIA's 12.32M bpd forecast in Jun.  EIA also projected US petroleum & other liquid fuels consumption would rise to 20.70M bpd in 2019 from 20.45M  bpd a year ago.  That would be the most since 2005 when petroleum & other liquid fuels consumption hit a record high of 20.80M bpd.  The 2019 demand projection in the Jul STEO report was up from EIA's 20.64M bpd forecast for the year in Jun.  EIA projected output in 2020 would rise to 13.26M bpd & demand would rise to an all-time high of 20.91M bpd.

US crude oil output seen rising to record high in 2019

The Energy Information Administration reported that US crude supplies declined 9.5M barrels last week.  The forecast called for a decline of 2.1M barrels.  The American Petroleum Institute on yesterday reported an 8.1M-barrel drop, according to sources.  The EIA data also showed that gasoline inventories were also down by 1.5M  barrels, while distillate stockpiles climbed 3.7M barrels last week.  Expectations were for a supply decline of 400K barrels for gasoline & an increase of 1.5M barrels for distillates.   Aug West Texas Intermediate crude was up $1.61 (2.8%) to $59.44 a barrel.

EIA reports a fourth straight weekly fall in U.S. crude-oil supplies

Oil futures rallied to settle at their highest since May, with US prices up a 5th straight session for the longest streak of gains since Feb.  Prices got a boost from data showing a 4th consecutive weekly decline in US crude inventories & dovish comments from Federal Reserve Chair Jerome Powell that pressured the $, as a storm in the Gulf of Mexico raised expectations for disruptions to oil & natural-gas production in the region.  Meanwhile, a tropical cyclone is expected to form by tomorrow over the North-Central Gulf of Mexico, according to the National Hurricane Center.  As of midday, nearly 32% of oil production in the Gulf of Mexico & almost 18% of natural-gas production were shut in as a precaution, according to the Bureau of Safety & Environmental Enforcement.

Oil settles at highest since May, as U.S. crude supplies drop a fourth week and a storm threatens Gulf of Mexico output

A rate cut was already baked into the market before Powell's testimony, so it was not a surprise.  The bulls went home early & AM gains were reduced.  The Dow closed over 100 below its early highs & the S&P 500 could not hold 3K.  Earnings are coming & trade negotiations have to show progress to make the bulls happy.

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