Friday, August 28, 2015

Mixed markets after a tumultuous week

Dow dropped 12 (in the red all day), advancers over decliners almost 2-1 & NAZ climbed 15.  The MLP index added 4+ to the 559s as oil surged again (see below) & the REIT index lost 1+ the 304s.  Junk bond funds climbed higher & Treasuries were sold.  Oil is back over 45 (see below) & gold also gained on the day.

AMJ (Alerian MLP Index tracking fund)









CLV15.NYM....Crude Oil Oct 15....45.30 Up ...2.74 (6.4%)

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Greece’s economy grew more than initially estimated in Q2 as consumption surged during Prime Minister Tsipras’s battle with the euro area over financial aid.  GDP rose 0.9%, compared with an initial estimate 2 weeks ago of 0.8%, the Hellenic Statistical Authority said.  That’s up from 0.1% in Q1 & meant output was 1.6% higher than a year earlier, the fastest pace of annual growth since 2008.  The initial Q2 reading shocked everybody as reports suggested activity was hamstrung by bailout bailout haggling & question marks over the nation’s future in the euro.  Total consumption expenditure rose 1.1%, while exports grew 0.1% & imports decreased 4.9%.  Greece’s economic weakness could show more in Q3, which will include the impact of capital controls, introduced at the end of Jun, sending a Greek manufacturing index to a record low in Jul.  That’s also reflected in the report showing investment falling in Q2, as gross fixed capital formation plunged 10.6%.  Greece is preparing for early elections on Sep 20 in a move by Tsipras to form a new coalition & isolate dissenters.  A poll today showed his lead over opposition parties has narrowed & suggests that he’ll fall short of the votes required for an absolute parliament majority.

Economy Grew as Tsipras Fought With EU Over Aid Deal


Oil surged for a 2nd day, poised for the best weekly gain in more than 4 years, while US equities investors found relative calm in a turbulent week as Federal Reserve officials meet at Jackson Hole.  Oil climbed more than 5% after a 10% rally yesterday & this week oil gained about 16%, making for one of its best weeks in history.



Oil Surges for a Second Day as Some Calm Returns to Equities

The US economy is on track to grow 1.2% in Q3 on data showing a decline in consumer spending on services in Jul, the Atlanta Federal Reserve's GDPNow forecast model showed.  This was weaker than the regional Fed bank's prior estimate on Wed of a 1.4% rise in GDP.  The Atlanta Fed said the weakness in real services consumption last month reduced its estimate on personal consumption expenditures to a 2.6% increase for Q3 from an earlier 3.1% gain.  The Commerce Dept said today personal spending grew 0.3% in Jul, matching Jun's upwardly revised increase.  Analysts had forecast a 0.4% gain.

Atlanta Fed: U.S. Economy Seen Growing 1.2% in 3Q


China stocks jumped more than 4% for a 2nd straight day as signs of fresh support from the gov prompted more bargain hunting following the earlier plunge that panicked global markets.  The mainland's blue-chip CSI300 index rose 4.3%, to 3342, reducing the week's loss to 6.9%.  The Shanghai Composite Index gained 4.8% to 3232, though for the week, it lost 7.9%.  But a rally in Hong Kong petered out, with the flagship Hang Seng Index changing course before the closing bell & losing 1%.  China's surprise currency devaluation on Aug 11 & a survey showing deteriorating factory activity had help trigger a savage selling spree, which at one point drove stocks down more than 20% within a week.  On Fri, stocks on Chinese exchanges bounced for the 2nd day as authorities announced that pension funds managed by China's local govs will start investing 2T yuan ($313B) as soon as possible in stocks & other assets.  The central bank was also seen intervening for a 2nd day to stabilize the yuan currency to reduce market expectations of further yuan depreciation.  In further signs of gov intervention, China's securities regulator said after the close that it would tighten margin requirements further for stock index trading, in a bid to curb excessive speculation.  During the first 4 days of the week, there were 28.7B yuan ($4.48B) of net inflows into Shanghai-listed blue-chips via the Shanghai-Hong Kong Stock Connect Scheme, but on Fri, there was a net outflow of 2.4B yuan, suggesting some foreign investors took profit.

China Shares Rise on Signs of Fresh Gov't Support


This has been the kind of week that most investors would like to forget.  But we can't.  The greatest bull market in history, from the lows 6 years ago, met reality.  There have been only minor setbacks along the way.  Then came this week.  Even with the gov in China buying stocks, that stock market needs more healing & could see additional selling.  There is the constant guessing about the Fed raising interest rates in 3 weeks.  Traditionally the next week (prior to Labor Day) is a slow time for the stock market.  Not this year & nobody has a clue what lies ahead with all the uncertainty out there.  In Aug, Dow fell more than 1K.

Dow Jones Industrials



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Markets drift lower on consumer sentiment data

Dow fell 52, advancers over decliners 4-3 & NAZ slid back 1.  The MLP index fund jumped another 7+ to the 362s & the REIT index fund lost 1+ to the 304s.  Junk bond funds edged higher & Treasuries advanced.  Oil went up to the 43s & gold saw buying.

AMJ (Alerian MLP Index tracking fund)


CLV15.NYM....Crude Oil Oct 15...42.05 Down ....0.51  (1.2%)

GCU15.CMX...Gold Sep 15......1,125.80 Up ...3.40 (0.3%)





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St. Louis Federal Reserve pres James Bullard said that while world financial markets are volatile, US fundamentals are good & the interest rate-setting FMOC shouldn’t alter its forecast for the economy.  “The key question for the committee is -- how much would you want to change the outlook based on the volatility that we’ve seen over the last 10 days, and I think the answer to that is going to be: not very much,” Bullard said.  “You’ve really got the same trajectory that the committee will be looking at that we were looking at before, so why would we change strategy, which was basically to lift off at some point,” Bullard added (he votes on the FOMC next year).  If market turmoil persists, though, that could affect the timing of the first rate increase, Bullard said later.  “The committee does not like to move when there’s volatility,” he said.  “If we had the meeting this week, people would probably say let’s wait.”  He added, “but the meeting is not this week, it’s Sept. 16 and 17.”  Bullard also said he would support scheduling a press conference following the Oct 27-28 meeting if the committee doesn’t raise rates next month.  That would make it easier for the Fed to explain a liftoff in Oct.  Fed officials are weighing when to begin raising interest rates for the first time since 2006.  While the US is growing at a solid clip, inflation is below the Fed target & the global outlook has been dimmed by a Chinese slowdown that is driving down commodity prices & spurring market turbulence.

Fed’s Bullard: Volatility Isn’t Changing Economic Outlook

Consumer confidence declined in Aug to a 3-month low as recent stock-market turbulence weighed on the outlook for the US economy in the coming year.  The University of Michigan consumer sentiment final index for the month fell to 91.9 from 93.1 in Jul.  The projection called for a reading of 93, little changed from the preliminary reading of 92.9.  A measure of prospects for the economy over the next 12 months was the weakest since Nov.  Confidence withered in the 2nd half of the month after stocks plunged on concerns about the Chinese economy.  A resilient labor market & cheaper fuel may nonetheless keep sentiment from slumping, which will bolster consumer spending.  The survey’s index of expectations six months from now dropped to 83.4, the lowest since Nov, from 84.1 last month.  The initial Aug reading was 83.8.  The gauge of current conditions, which measures Americans' views of their personal finances, declined to a three-month low of 105.1 in Aug from 107.2.  The preliminary figure was 107.1.  Americans expected an inflation rate of 2.8% in the next year, unchanged from Jul.  Over the next 5-10 years, they expect a 2.7% rate of inflation, compared with 2.8% in the previous month.

Consumer Sentiment in U.S. Declined in August


Consumer purchases climbed in Jul as incomes grew, showing the biggest part of the US economy was off to a good start in Q3.

The 0.3% advance matched the prior month’s gain, according to the Commerce Dept.  The forecast was for a 0.4% increase.  Wages rose by the most this year.  Coming on the heels of data showing spending & the overall economy did better than previously estimated in Q2, the figures indicate the momentum carried over into H2.  Steady hiring, cheap gasoline, rising home-equity & low borrowing costs are underpinning demand & helping shield the U.S. from global weakness.  Total incomes rose 0.4% in Jul for a 4th month, matching the forecast.  Wages & salaries increased 0.5%, the biggest gain since Nov.  Because spending increased less than incomes, the saving rate rose to 4.9% from 4.7%.  Adjusting consumer spending for inflation, which generates the figures used to calculate GDP, purchases rose 0.2% after being little changed the previous month.  Economic growth accelerated to a 3.7% annualized rate in Q2, revised up from a previously reported 2.3%.  The 3.1% jump in household purchases also was more than the prior estimate.  Durable goods purchases, including automobiles, jumped 1.3% after adjusting for inflation, with about ½ the gain coming from demand for autos & parts.  That followed a 0.9% drop.  Spending on non-durable goods, which include gasoline, rose 0.1%.  Household outlays on services also rose 0.1% after adjusting for inflation.  Inflation remained tame.  The price gauge based on the personal consumption expenditures index increased 0.1% from the prior month & was up 0.3% from a year earlier.

Consumer Spending in U.S. Increased in July


Stocks are taking a breather after 2 days of big gains.  That was to be expected.  There is also a realization that fundamental problems have not gone away.  China's economy is blurry & that's being kind.  The euro area is not doing well as the Greek debt mess has not been resolved.  The US economy is stumbling along with in fits & starts.  This week after the wild gyrations, Dow is up 150.  Not bad all considered.

Dow Jones Industrials