Dow dropped 118, decliners over advancers almost 3-1 & NAZ fell 27. The MLP index sank 5+ to the 298s on lower oil prices & the REIT index was off 7+ to the 333s. Junk bond funds were sold & Treasuries declined again, taking the yield on the 10 year Treasury over 2.5% (more below). Oil sank 2 to go under 51 & gold also declined (more on both below).
AMJ (Alerian MLP Index tracking funds)
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Federal Reserve officials raised interest rates & forecast a steeper path for borrowing costs in 2017, saying inflation expectations have increased “considerably” & suggesting the labor market is tightening. The FMOC cited “realized and expected labor market conditions and inflation” in increasing its benchmark rate a qtr percentage point following a 2-day meeting. New projections show central bankers expect 3 qtr-point rate increases in 2017, up from the 2 seen in the previous forecasts in Sep. The central bank said monetary policy supports “some further strengthening in labor market conditions and a return to 2 percent inflation,” adding the word “some” in an indication that officials see less room for improvement in the job outlook. The word “strengthening” also replaced “improvement.” Inflation has firmed toward their 2% target, unemployment has dipped further & Trump has pledged growth-fueling tax cuts & infrastructure spending that could warrant a faster pace of Fed tightening. Trump has accused Fed Chair Janet Yellen of keeping rates low to help Dems, a charge she denied. Now, higher interest rates have the power to blunt the impact of any fiscal stimulus. The FOMC didn't include language in its post-meeting statement explicitly referring to changes in fiscal policy.
Fed Raises Rates, Boosts Outlook for Borrowing Costs in 2017
Hopes for a quick resolution to Greece's bailout review faded after Europe's stability fund froze short-term debt relief measures that would have eased the nation’s payment obligations. Following an announcement by Greek Prime Minister Tsipras that he will spend more on pensions & sales-tax relief, the European Stability Mechanism's governing bodies put their short-term debt relief decisions for Greece temporarily on hold. “The institutions have concluded that the actions of the Greek government appear to not be in line with our agreements,” a spokesman for Eurogroup Chief Jeroen Dijsselbloem, said. “Some member states see it this way also and thus no unanimity now for implementing the short-term debt measures.” Euro-area finance ministers on Dec 5 agreed to the short-term measures, which include easing the repayment schedule of bailout loans & swapping debt to mitigate interest-rate risk, while insisting Tsipras's gov adopt more reforms to ensure the nation maintains a proper fiscal record after the end of its current bailout. However, the IMF, which wants Greece to lower its tax-free threshold & cut pensions further, said the new relief measures aren't enough to put Greece’s debt on a sustainable path. Greek stocks & bonds fell today, with the Athens Stock Exchange index dropping 3.2% & the yield on benchmark 10-year gov bonds rising 28 basis points to 7.08%. The Greek gov mustn't take one-sided steps, & the program can only succeed if all parties adhere to previous agreements, a German Finance Ministry spokeswoman said.
Greek Short-Term Debt Relief in Jeopardy as Bailout Stalls
Treasury yields shot higher after the Fed raised its benchmark interest rate. In addition to raising interest rates, which was widely anticipated by financial markets, the Fed signaled that it expects to raise interest rates next year more swiftly than previously thought. The projection on the Fed's "dot plot" showed members of the Fed's rate-setting committee expect 3 rate hikes next year, though the expected pace for 2018 & 2019 was largely unchanged. The 2-year Treasury yield touched 1.235%, its highest level since Aug 2009. The 10-year traded as high as 2.495%, while the 30-year yield edged lower to 3.118%. Short-term Treasury yields are typically the most sensitive to rate-hike expectations.
Gold futures moved lower in electronic trading latetoday from their settlement level after the Fed announced a ¼ point increase in interest rates. The ICE US Dollar Index was trading 0.4% higher after the decision, pressuring $-denominated prices for the yellow metal. Dec gold was last at $1159 an ounce, down from the $1163 settlement, which had marked a rebound from yesterday's finish at a roughly 10-month low.
Oil prices slid more than 3% as the $ jumped after the Fed's decision to hike interest rates & after a jump in crude inventories at the biggest US storage center renewed concerns about a glut. Crude tumbled to session lows after the Fed raised interest rates a qtr-point & signaled a faster pace of increases in 2017. The $ rose, making oil more expensive for countries using other currencies. US. crude ended the session down $1.94 (3.66%) at $51.04 per barrel after hitting a low of $50.92. Earlier, the Energy Information Administration reported that inventories at the Cushing, Oklahoma, hub rose for the 6th time in 7 weeks. Overall US crude inventories fell 2.6M barrels in the latest week, much more than the decline of 1.6M barrels forecast. Traders noted that most declines were in PADD 5, the West Coast, saying that did not truly reflect supply-demand fundamentals. Crude stocks in PADD 5 fell about 2.3M barrels. OPEC signaled a growing oil supply surplus next year unless members implement their deal to curb output from record levels & outside producers also deliver on cutback pledges. In a monthly report, OPEC said that without cuts the 2017 overhang would reach 1.24M bpd, about 300K bpd higher than the forecast in its previous report. Saudi Energy Minister Khalid al-Falih said it would take time for the market to recover after the deal between OPEC & rival producers to limit supplies. OPEC & 11 other producing countries agreed to cut almost 1.8M bpd of production in an effort to end 2 years of oversupply 2 cheap oil. However, Russian energy minister Alexander Novak said today that adjustments by oil companies would be "voluntary" to meet Moscow's commitment to trim output by 300K bpd.
The interest rake hike was well advertised & a mention of more hikes next year was expected by many (including me). Stock markets took the news fairly well, selling could have been worse. But the Dow will have to put on hold its plan to top 20K. Traders may also take a harder look at Trump's proposals which are not welcomed by everybody. Passing some legislation could be tough. The stock market, starting with the Dow, remains extremely overbought, needing a correction to flush out nervous-Nelly investors.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking funds)
Federal Reserve officials raised interest rates & forecast a steeper path for borrowing costs in 2017, saying inflation expectations have increased “considerably” & suggesting the labor market is tightening. The FMOC cited “realized and expected labor market conditions and inflation” in increasing its benchmark rate a qtr percentage point following a 2-day meeting. New projections show central bankers expect 3 qtr-point rate increases in 2017, up from the 2 seen in the previous forecasts in Sep. The central bank said monetary policy supports “some further strengthening in labor market conditions and a return to 2 percent inflation,” adding the word “some” in an indication that officials see less room for improvement in the job outlook. The word “strengthening” also replaced “improvement.” Inflation has firmed toward their 2% target, unemployment has dipped further & Trump has pledged growth-fueling tax cuts & infrastructure spending that could warrant a faster pace of Fed tightening. Trump has accused Fed Chair Janet Yellen of keeping rates low to help Dems, a charge she denied. Now, higher interest rates have the power to blunt the impact of any fiscal stimulus. The FOMC didn't include language in its post-meeting statement explicitly referring to changes in fiscal policy.
Fed Raises Rates, Boosts Outlook for Borrowing Costs in 2017
Hopes for a quick resolution to Greece's bailout review faded after Europe's stability fund froze short-term debt relief measures that would have eased the nation’s payment obligations. Following an announcement by Greek Prime Minister Tsipras that he will spend more on pensions & sales-tax relief, the European Stability Mechanism's governing bodies put their short-term debt relief decisions for Greece temporarily on hold. “The institutions have concluded that the actions of the Greek government appear to not be in line with our agreements,” a spokesman for Eurogroup Chief Jeroen Dijsselbloem, said. “Some member states see it this way also and thus no unanimity now for implementing the short-term debt measures.” Euro-area finance ministers on Dec 5 agreed to the short-term measures, which include easing the repayment schedule of bailout loans & swapping debt to mitigate interest-rate risk, while insisting Tsipras's gov adopt more reforms to ensure the nation maintains a proper fiscal record after the end of its current bailout. However, the IMF, which wants Greece to lower its tax-free threshold & cut pensions further, said the new relief measures aren't enough to put Greece’s debt on a sustainable path. Greek stocks & bonds fell today, with the Athens Stock Exchange index dropping 3.2% & the yield on benchmark 10-year gov bonds rising 28 basis points to 7.08%. The Greek gov mustn't take one-sided steps, & the program can only succeed if all parties adhere to previous agreements, a German Finance Ministry spokeswoman said.
Greek Short-Term Debt Relief in Jeopardy as Bailout Stalls
Treasury yields shot higher after the Fed raised its benchmark interest rate. In addition to raising interest rates, which was widely anticipated by financial markets, the Fed signaled that it expects to raise interest rates next year more swiftly than previously thought. The projection on the Fed's "dot plot" showed members of the Fed's rate-setting committee expect 3 rate hikes next year, though the expected pace for 2018 & 2019 was largely unchanged. The 2-year Treasury yield touched 1.235%, its highest level since Aug 2009. The 10-year traded as high as 2.495%, while the 30-year yield edged lower to 3.118%. Short-term Treasury yields are typically the most sensitive to rate-hike expectations.
Two-year Treasury Yield Touches Highest Level Since August 2009
Gold futures moved lower in electronic trading latetoday from their settlement level after the Fed announced a ¼ point increase in interest rates. The ICE US Dollar Index was trading 0.4% higher after the decision, pressuring $-denominated prices for the yellow metal. Dec gold was last at $1159 an ounce, down from the $1163 settlement, which had marked a rebound from yesterday's finish at a roughly 10-month low.
Gold Futures Fall In Electronic Trading After Fed Raises Interest Rates
Oil prices slid more than 3% as the $ jumped after the Fed's decision to hike interest rates & after a jump in crude inventories at the biggest US storage center renewed concerns about a glut. Crude tumbled to session lows after the Fed raised interest rates a qtr-point & signaled a faster pace of increases in 2017. The $ rose, making oil more expensive for countries using other currencies. US. crude ended the session down $1.94 (3.66%) at $51.04 per barrel after hitting a low of $50.92. Earlier, the Energy Information Administration reported that inventories at the Cushing, Oklahoma, hub rose for the 6th time in 7 weeks. Overall US crude inventories fell 2.6M barrels in the latest week, much more than the decline of 1.6M barrels forecast. Traders noted that most declines were in PADD 5, the West Coast, saying that did not truly reflect supply-demand fundamentals. Crude stocks in PADD 5 fell about 2.3M barrels. OPEC signaled a growing oil supply surplus next year unless members implement their deal to curb output from record levels & outside producers also deliver on cutback pledges. In a monthly report, OPEC said that without cuts the 2017 overhang would reach 1.24M bpd, about 300K bpd higher than the forecast in its previous report. Saudi Energy Minister Khalid al-Falih said it would take time for the market to recover after the deal between OPEC & rival producers to limit supplies. OPEC & 11 other producing countries agreed to cut almost 1.8M bpd of production in an effort to end 2 years of oversupply 2 cheap oil. However, Russian energy minister Alexander Novak said today that adjustments by oil companies would be "voluntary" to meet Moscow's commitment to trim output by 300K bpd.
Oil Prices Fall on Stronger Dollar, Renewed Glut Worries
The interest rake hike was well advertised & a mention of more hikes next year was expected by many (including me). Stock markets took the news fairly well, selling could have been worse. But the Dow will have to put on hold its plan to top 20K. Traders may also take a harder look at Trump's proposals which are not welcomed by everybody. Passing some legislation could be tough. The stock market, starting with the Dow, remains extremely overbought, needing a correction to flush out nervous-Nelly investors.
Dow Jones Industrials
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