Dow rose 137 (but off early highs), advancers over decliners better than 3-2 & NAZ dropped 70. The MLP index was 1+ higher to the 284s & the REIT index crawled up about 1 to 436. Junk bond funds were little changed & Treasuries had more buying which reduced yields. Oil was fractionally higher to the 68s & gold retreated 25 to 2669 on profit taking (more on both below).
Dow Jones Industrials
The OPEC+ alliance is once more cracking down on group compliance with oil output cuts, as it presses ahead with a 3-pronged plan of formal & voluntary production trims. 2 OPEC+ delegates, who could only comment anonymously, said that the coalition has sharpened its focus on the conformity of its members with their output pledges, amid repeat overproduction from heavyweight members such as Iraq & Kazakhstan. Russia, whose barrels are sanctioned in the West & transported with lower visibility across a shadow fleet, has also at times exceeded its assigned quota under the alliance's formal policy, 1 source said. 8 OPEC+ members, including kingpin Saudi Arabia, were due to begin returning 2.2M barrels per day of voluntary cuts to the market starting in Oct. Earlier this month, they postponed this phaseout to start in Dec instead. OPEC+ nations are operating 2 other production declines: under official policy, they will produce a combined 39.7M bpd next year. The same aforementioned 8 members are separately curbing their output by another 1.7M bpd throughout 2025, also on a voluntary basis. Undercompliance has been a repeat bane of the OPEC+ alliance, casting a shadow over the credibility of its intentions to cut output, at a time of market uncertainty exacerbated by war in the hydrocarbon-rich Middle East, recent stock sell-offs & a fragile post-Covid recovery in the world's top crude importer, China. Oil prices have remained subdued for the better part of the year & dropped sharply yesterday, following a report stating that OPEC+ de facto leader Saudi Arabia was prepared to suffer thru a low-price environment & abandon an unofficial $100 per barrel price target to bolster its output after Dec.
Oil alliance OPEC+ zeroes in on group compliance after postponing output hike
US consumer spending increased slightly less than expected in Aug, but that did little to change expectations that solid economic growth persisted in the 3rd qtr, while the annual rise in prices was the smallest in just over 3½ years. Strong growth expectations this qtr were underscored by other data from the Commerce Dept showing the goods trade deficit narrowed by the most in nearly 2 years last month. That suggested trade would likely impose a modest drag on gross domestic product, which could be more than offset by a rise in inventories. Economists did not view the data as soft enough to compel the Federal Reserve to deliver another 50 basis points interest rate cut in Nov as hoped by investors, with an elevated saving rate & still-strong wage gains seen providing a firmer base for consumer spending in the months ahead. Consumer spending, which accounts for more than 2/3 of US economic activity, rose 0.2% last month after an unrevised 0.5% gain in Jul, the Commerce Dept's Bureau of Economic Analysis said. Economists had forecast consumer spending climbing 0.3%. Spending was concentrated in services, which increased 0.4% after advancing 0.3% in Jul. Outlays on housing 7 utilities as well as financial services & insurance topped the list. Adjusted for inflation, consumer spending rose 0.1% after climbing 0.4% in Jul. Economists estimated that real consumer spending was running at a 3.4% annualized rate so far this qtr. It grew at a 2.8% pace in the 2nd qtr.
US consumer spending resilient; inflation continues to abate
The number of Americans filing new applications for unemployment benefits dropped to a 4-month low last week, suggesting that the labor market remained fairly healthy. The upbeat outlook on the economy was underscored by other data showing corp profits increased at a more robust pace than initially thought in the 2nd qtr. Strong profit growth should help to underpin the labor market & investment. The economy's resilience could make it harder for the Federal Reserve to deliver another 50 basis points interest rate cut in Nov as some investors are hoping. Initial claims for state unemployment benefits dropped 4K last week to a seasonally adjusted 218K for last week, the lowest level since mid-May, the Labor Dept said. The poll had forecast 225K claims. Unadjusted claims decreased 6K to 181K last week. Though the labor market has lost momentum amid declining job openings & a step-down in hiring, layoffs have remained low. But a strike by about 30K machinists at Boeing (BA), a Dow stock, which has forced the aerospace company to announce temporary furloughs of tens of thousands of employees, including what it said was "a large number of US-based execs, managers & employees" could boost claims. Striking workers are not eligible for unemployment benefits, but the work stoppage could cause employment disruptions at BA's suppliers in addition to the temporary furloughs.
Low weekly US jobless claims, robust corporate profits highlight economy's resilience
Gold headed for a 3rd weekly gain after notching a string of records on expectation of further interest-rate cuts by the Federal Reserve. Spot bullion was down but has added 1.6% over the week & reached an all-time high of $2685 an ounce yesterday. The Fed kicked off its pivot last week with a ½-point cut, & traders have boosted bets on another 75 basis points of reductions this year. Lower rates tend to benefit gold, which doesn't pay interest. Gold has rallied by almost a 3rd this year on rate-cut optimism, as well as robust central-bank purchases & heightened geopolitical tension that's driven haven demand. A US presidential election that's too close to call, & could be massively consequential for markets, is less than 6 weeks away. Spot gold slipped 0.3% to $2664 an ounce.
Gold Heads for Third Weekly Gain Following Record Run
Oil rose after Israel said its military struck Hezbollah's main headquarters in southern Beirut, ramping up tensions in the Middle East. West Texas Intermediate advanced about 1% to more than $68 a barrel while Brent crude climbed toward $72 a barrel. Both grades still were on pace for weekly declines amid the prospect of rising supplies from Saudi Arabia & Libya. The strike came after Israel vowed to continue bombarding Hezbollah targets in Lebanon indefinitely, undermining efforts to secure a cease-fire that could ease the risk of a regional war. The flare-up helped blunt the bearish effect of a report that Saudi Arabia was said to be committed to higher production. Rival Libyan factions this week agreed to appoint a new central bank governor, a step toward resolving a dispute that has slashed oil output. Crude is on track for a quarterly decline amid OPEC+'s plans to ease voluntary supply curbs, as well as top importer China's tough economic outlook. The Asian nation unveiled a slew of monetary & fiscal stimulus measures this week, aiding stocks as well as some commodities, but their effectiveness remains uncertain. The price swings have pushed a gauge of implied volatility for WTI higher. Options markets are now pricing in a lower risk of oil futures spiking, with the premium of bearish puts, which profit from lower prices, over bullish calls growing in recent days. Meanwhile, Tropical Storm Helene is triggering dangerous rain & flooding across the US South, where it has killed at least 4 people & cut power to nearly 4M customers. WTI for Nov rose 1% to $68.34 a barrel & Brent for Nov advanced 0.7% to $72.13 a barrel.
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