Markets pare early losses on lesser concerns about a rate hike

Dow lost 45, decliners over advancers more than 3-2 & NAZ gave back 25.  The MLP index was off fractionally to under 311 & the REIT index went up 2+ to the 341s.  Junk bond funds were weak & Treasuries rose in price.  Oil found buyers (see below) & gold gained.

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With mounting speculation over whether the Federal Reserve will raise interest rates before the end of 2016, Philadelphia Fed pres Patrick Harker weighed in.  Harker explained that there were positive factors in the US economy that led him to support a rate hike by the end of 2016.  “I was supportive in September of a rate move and I am still supportive by the end of the year having one rate move,” Harker said.  But despite his support of a rate hike by the end of the year, Harker did point out pockets of concern in the US economy.  One of hi’s concerns was the state of business investment.  “So, the second half [of 2016] I believe is stronger than the first half.  Generally, things are going well.  The labor market continues to perk along.  Not everything’s perfect but it’s strong.  If there’s one weakness, it’s business investment and that’s an area we continue to monitor.”  He saw 2 factors behind the current lack of business investment, the first being uncertainty.  “I think it’s many factors, but two that come to my mind are uncertainty, right? 18 months ago I was on two corporate boards, sitting on the other side of the director’s table.  And in that world of uncertainty you’re going to hold off making those investments until you can take a prudent risk and understand that uncertainty.  And there’s a variety of those risks that are out there.”  H2 saw the 2nd as consequences of the low-rate environment.  “Secondly, I think, and there’s evidence to suggest, that given how low the rates are, if you have capital to invest, either in plant and equipment, or in an acquisition, or in a stock buyback, the least risky thing to do right now for many firms is the stock buyback.  And while that’s rational for the firm, it doesn’t help economic growth in the long run.”  Another concern was a potential decline in the labor force participation rate.  "So, we’re not going to see a tick up in a sustained way anytime soon.  If anything, our staff here estimates we’re going to see another two percentage point decrease for a simple reason, we the Baby Boomers, are retiring and we’re not re-entering the workforce.”

Fed's Harker Reveals to FOX Business His Top Economic Concern

China stocks barely changed, as reform hopes that boosted shares of several state-owned companies were largely offset by disappointment over weak export data & growing concerns over yuan depreciation.  The blue-chip CSI300 index rose 0.1% to 3302, while the Shanghai Composite Index also gained 0.1% to 3061.  Data showed China's Sep exports fell 10% from a year earlier, far worse than expected, raising concerns over China's economic health.  The figures, which point to weaker demand for Chinese goods, deepened concerns over the value of the yuan, which hit a fresh 6-year low.  The bad news largely offset hopes that more listed state-owned enterprises (SOE) would benefit from Beijing's plans to reduce massive corp debts thru restructuring.

China Shares Flat as Reform Hopes Offset by Weak Exports

Oil futures settled higher, finding support from a weekly drop in US crude production, despite the first supply climb in 6 weeks.  The Energy Information Administration reported that weekly crude output from the lower 48 states fell 36K barrels to 7.969M barrels a day, the lowest level since Jun 2014.  The EIA also said that crude supplies rose 4.9M barrels for the latest week.  Nov West Texas Intermediate crude rose 26¢ (0.5%) to settle at $50.44. 

Oil Ends With a Gain As Weekly U.S. Output Falls

Gloomy thoughts after the market open today went away & buyers brought the Dow for a partial recovery.  Another way to look at it is the 18K floor held, but that reinforces its significance.  Dow is still close to the 18K level.  Navy warships are in a low level state of war with rebels in Yemen.  All such hostile actions can affect the price of oil, with so much coming from that region.  For the time being, the bulls prevailed but that may not last as earnings starts in the coming days (there was a little selling into the close).  Gold & Treasuries remain strong as bank stocks remain under fire (the CEO of Wells Fargo -WFC- stepped down).

Dow Jones Industrials