Friday, October 9, 2015

Markets little changed ahead of earnings season next week

Dow climbed 33, advancers slightly ahead of decliners & NAZ gained 19.  The MLP index extended gains went 1 to the 446s (although still off more than 200 from last year's record highs) & the REIT index lost a fraction to the 318s.  Junk bond funds had modest gains & Treasuries went up while stocks waffled.  Oil was higher but back off from earlier highs in the 50s & gold is over 1150 again, a key support level.

AMJ (Alerian MLP Index tracking fund)

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CLX15.NYM....Crude Oil Nov 15....49.34 Down ...0.09  (0.2%)

Live 24 hours gold chart [Kitco Inc.]

Federal Reserve Bank of Richmond pres Jeffrey Lacker said the US is already at full employment & the central bank may risk overheating the economy as it attempts to drive additional job gains.  With the unemployment rate at 5.1%, the central bank has achieved its goal & “exhausted relevant slack in the labor market,” he said.  “We’re there,”  The forecast of that rate among officials is 4.9%.  “Pushing on to wring more slack out -- there is some risks associated with that,” said Lacker.  Inflation pressures may emerge with a lag, but the “risks can be very real.”  He dissented at the Sep meeting, preferring a 0.25 percentage point increase in the federal funds rate.  Lacker said once the effects of lower oil & import prices dissipate, inflation could reach the Fed’s goal “fairly rapidly.”  Lacker was sanguine about the recent slowdown in employment, saying it could be attributed to a growing scarcity for qualified labor.  Employers added 139K workers a month to payrolls on average in September and August, down from 243,000 the prior three months.  “The thing I am concerned about is the possibility that the slowdown represents a significant tightening in the labor market,” Lacker said, noting that job openings surged to a record in Jul.  “The longer we keep real interest rates so far out of alignment with consumption growth, the more risk we run,” he said. The concern is that the economy “runs past itself” so that when interest rates do increase, a pullback in growth could be “abrupt and contractionary,” Lacker said.

Lacker Says Fed Taking Risks With Economy at Full Employment

A top Chinese central banker said a “persistent" weakening of the yuan would be inconsistent with the fundamentals of the economy, & the country is committed to making its currency regime more flexible & market based.  “As wide-ranging structural reforms are being carried out, the Chinese economy will become more balanced and sustainable," People’s Bank of China Deputy Governor Yi Gang said at the IMF annual meetings in Lima.  Reforms to make the yuan more market-determined will make its exchange rate more flexible, “floating around the equilibrium level in both directions."  The yuan has fallen 2.1% against the dollar since Aug 11, when the central bank announced steps to put the currency more in line with market forces.  Global finance chiefs persuaded China to "refrain from competitive devaluations" at a Group of 20 meeting last month.  Yi said the correction in China’s stock market has “largely run its course," adding that the decline has had a limited impact on the country’s economy.  Chinese officials will “review and improve the regulatory framework of the market, strengthen supervision, and take measures to restore the functioning of the equity market, when appropriate," he said.  Chinese officials spent 1.5T yuan ($236B) purchasing shares thru Aug amid a rout that started in Jun & wiped out $5T in market value.  The gov has tried to bolster the weakest expansion of the Chinese economy in 25 years with measures including interest-rate reductions & the surprise currency devaluation in Aug.  China is seeking to have the yuan added to the IMF’s basket of reserve currencies, which currently includes the dollar, €, £ & ¥.

China's Economy Doesn't Merit Persistently Weaker Yuan: PBOC

Alcoa reported a smaller-than-expected quarterly profit, hurt by a slide in aluminum prices that has prompted the company to separate the smelting operations from the faster-growing plane & car parts business.  Benchmark London Metal Exchange prices fell to 6-year lows towards the end of Sep, a nearly 20% drop from a year earlier.  EPS fell to 2¢ in Q3 from 12¢ a year earlier.  Excluding special items, AA earned 7¢.  Sales fell 10.7% to $5.57B.  Analysts had expected EPS of 13¢ on sales of $5.65B.  The stock sank 75¢.  If you would like to learn more about AA, click on this link:

Alcoa Misses as Aluminum Prices Slide

Alcoa (AA)

Dow had its best week this year rose an amazing 1K since Sep 28.  All the while, little was happening other than praying the expected interest rate hike will be postponed for at least one meeting (maybe longer).  The thinking is that the Fed is planning to increase on Oct 28, but is not committed.  Earnings season along with foreign developments, highlighted by the chaos in the MidEast, will be the major drivers for that decision.  One major difference with the last meeting is that volatility in the Chinese stock market has quieted.  Dow remains very overbought, subject sudden selling.    
Dow Jones Industrials


Markets fluctuate on growing MidEast tensions

Dow went up 36, advancers over decliners 4-3 & NAZ rose 24.  The MLP index slid back 1+ to the 344s & the REIT index lost 1, taking it to the 317s.  There was buying in junk bond funds & Treasuries were higher.  Oil is above 50 on growing fighting in the MidEast & gold advanced.

AMJ (Alerian MLP Index tracking fund)

CLX15.NYM...Crude Oil Nov 15...49.87 Up ...0.44 (0.9%)

GCV15.CMX...Gold Oct 15......1,154.10 Up ...9.40 (0.8%)

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Federal Reserve Bank of Atlanta pres Dennis Lockhart said the first interest rate increase since 2006 will likely be warranted later this month or in Dec.  “The economy remains on a satisfactory track, and, speaking for myself, I see a liftoff decision later this year at the October or December FOMC meetings as likely appropriate,” Lockhart said.  He supported the FOMC decision last month to leave interest rates unchanged, after market turmoil and slowing growth in China raised doubts about the US outlook.  The committee hesitated because it saw risks to its forecast that inflation would return to its 2% target as expected.  "The ambiguity of the moment reinforces the need to closely watch the vital signs of the economy over the coming weeks to determine if the outlook has changed," he added.  Lockhart, who has never dissented, said consumer activity will be a key signal that the US economy can sustain its momentum despite the global slowdown.  “The consumer-based dimension of the economy has been robust for several months,” Lockhart said even as manufacturing & exports have been hurt by a stronger US dollar.  The Atlanta Fed’s tracking estimate for Q3 is a “relatively soft 1.1 percent,” though much of the weakness is due to a swing in inventories.  Last month’s employment report was “certainly disappointing” but didn’t change the overall picture of improvement, with labor market slack continuing to be reduced in Q3, he said.  "In the third quarter, payroll job gains have averaged 167,000 per month. While this is a step down from the brisker pace of job growth we’d enjoyed over the first half of the year, it is still more than enough to accommodate the trend growth in the labor force," he continued.  Lockhart also said financial market turmoil shouldn’t be overly influential to the Fed.

Lockhart Says He Still Backs Fed Rate Liftoff by December

US import prices barely declined in Sep, with oil prices rebounding & the drag on prices from a weak global economy appearing to moderate, Labor Dept data showed.  The smaller-than-expected 0.1% decline in import prices could help lay the groundwork for an eventual interest rate hike by the Federal Reserve.  Prices for imported oil rose 1.1% after declining sharply in Aug.  Non-oil import prices declined only 0.2% in Sep, which was half the pace of the declines registered in Jul & Aug.  Fed chief Janet Yellen has argued that import prices have been a major factor keeping inflation well below the Fed's 2% target.  The surge in value of the dollar, which has been fueled by expectations a strengthening US economy would lead to higher interest rates, has been a factor decreasing the price of non-oil import prices.  Yellen has argued that this dynamic was bound to fade & that US inflation would then trend higher.  The Fed held off from hiking interest rates in Sep largely because a weak global economy had raised doubts within the US central bank that inflation would rise toward the Fed's target as expected.  Analysts had expected a 0.5% decline in import prices during Sep.  Export prices fell 0.7%, more than the 0.2% forecast.

U.S. Import Prices Barely Decline in September

The Obama administration is overhauling its faltering program to train & equip Syrian rebel forces as the strategy in the region faces a new challenge from Russia’s intervention in the Syrian civil war.  Defense Secretary Ashton Carter said that he was dissatisfied with the approach to supporting moderate fighters who have taken on Islamic extremists.  Obama will announce the changes “very shortly,” he said.  “We have devised a number of different approaches to that going forward and taken them to President Obama,” Carter added.  He cited the support the US has offered Syrian Kurdish forces, who have seen some success against the terror group, as the direction the administration is pursuing.  General Lloyd Austin, the head of US Central Command, told a Senate hearing last month that only “four or five” of about 50 US-trained rebels were in the fight against Islamic State at that point.  Lawmakers of both parties called the program a failure.  “So we’re counting on our fingers and toes at this point,when we had envisioned 5,400 by the end of the year,” Senator Claire McCaskill said.  The change in approach is likely to prompt additional questions about the viability of Obama’s Syria strategy.  The pres signaled last Fri that he wasn’t happy with the train-&-equip program, saying it had "not worked the way it was supposed to."  The US had hoped to train a force of Syrian rebels to take on Islamic State, which has seized swaths of Syria & Iraq.  Obama has ruled out sending US ground troops into the battle.  In Iraq, the US has about about 3.6K troops at 6 locations to train & advise Iraqi army forces & Kurdish Peshmerga fighters.  Kurds are also involved in the Syria fight.  “The work we’ve done with the Kurds in northern Syria is an example of an effective approach where you have a group that is capable, motivated on the ground, that you can enable their success,” Carter said.  “That’s exactly the kind of example that we would like to pursue with other groups in other parts of Syria going forward. That is going to be the core of the president’s concept.”  Obama’s Syria strategy also has been been complicated by Russia stepping into the conflict to defend its ally, pres Bashar al-Assad.

Obama Revamps Syria Rebel Strategy Amid Challenge From Russia

There is not much for traders to do ahead of next week when earnings season will kick into high gear.  Tensions & fighting keep going from bad to worse while the US is struggling to figure out a strategy (as it has been doing for years).  Dow has risen 1K in the last couple of weeks & remains heavily overbought.

Dow Jones Industrials

stock chart