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Schedule for Week of July 16, 2017

Schedule for Week of July 16, 2017

by Bill McBride on 7/15/2017 08:11:00 AM

The key economic report this week is June Housing Starts on Wednesday.

For manufacturing, the July New York and Philly Fed manufacturing surveys, will be released this week.

—– Monday, July 17th —–

8:30 AM: The New York Fed Empire State manufacturing survey for July. The consensus is for a reading of 15.0, down from 19.8.
—– Tuesday, July 18th —–

10:00 AM: The July NAHB homebuilder survey. The consensus is for a reading of 68, up from 67 in June. Any number above 50 indicates that more builders view sales conditions as good than poor.
—– Wednesday, July 19th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.Total Housing Starts and Single Family Housing Starts8:30 AM: Housing Starts for June. The consensus is for 1.170 million SAAR, up from the May rate of 1.092 million.

This graph shows total and single unit starts since 1968.

The graph shows the huge collapse following the housing bubble, and then – after moving sideways for a couple of years – housing is now recovering.

During the day: The AIA’s Architecture Billings Index for June (a leading indicator for commercial real estate).

—– Thursday, July 20th —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 247 thousand the previous week.8:30 AM: the Philly Fed manufacturing survey for July. The consensus is for a reading of 23.5, down from 27.6.

—– Friday, July 21st —–

10:00 AM: Regional and State Employment and Unemployment (Monthly) for June 2017


Published at Sat, 15 Jul 2017 12:11:00 +0000

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What D.C. drama? Dow hits 25th record of 2017


Is this the new normal for Wall Street?
Is this the new normal for Wall Street?

What D.C. drama? Dow hits 25th record of 2017


If Wall Street is concerned about all the drama in D.C., it’s definitely not showing it.

The stock market keeps rewriting the record book despite the political scandals and legislative gridlock in Washington.

The Dow did it again on Friday, climbing 85 points to notch its third straight record close, the 25th thisthe year.

The index has now celebrated 42 all-time highs since President Trump’s election last November, according to LPL Financial. It’s up about 3,300 points over that span.

Not to be outdone, the S&P 500 also zoomed to a record on Friday, its first since June 19. The broad index has now closed in record territory 25 times this year and 33 times since Trump’s victory.

The Nasdaq took a beating earlier this summer, but it’s bounced back nicely since then. The tech index is now less than 0.5% away from its first record since early June. The Nasdaq has surged 17% so far this year, nearly doubling the Dow.

In some ways, the party on Wall Street is a bit confusing. The Trump rally was essentially a massive bet on the Trump agenda. But GOP infighting and political controversies have prevented Trump from delivering on his promises of massive tax reform, infrastructure spending and deregulation.

The Trump agenda wasn’t helped by the revelations this week about Donald Trump Jr.’s meeting with a Russian lawyer.

“The D.C. drama is definitely stealing the headlines, but the reality is inflation is low, earnings around the globe are improving, and the Fed is still very accommodative,” said Ryan Detrick, senior market strategist at LPL Financial.

Wall Street received a boost from the Federal Reserve this week after Janet Yellen reiterated that she’s in no rush to raise interest rates. Low rates have helped make stocks look cheap by comparison. CNNMoney’s Fear & Greed Index of market sentiment has flipped back to “greed” mode after briefly flashing “fear” earlier this week.

Corporate profits, the real driver of stock prices, also continue to look pretty good. S&P 500 earnings grew during the first quarter at the fastest pace since 2011. Analysts anticipate slower, but still healthy, growth from the earnings season that came into focus this week.

So what could derail the stock market? It’s entirely possible Wall Street will eventually have a negative reaction to the trouble in Washington. Look to see if investors get antsy later this year about the lack of progress on tax reform.

Wall Street is also watching closely for signs of a slowdown in the U.S. economy. Estimates for second-quarter growth have started to get pared down. That happened again on Friday after new numbers showed U.S. retail sales declined in June for the second month in a row.

Published at Fri, 14 Jul 2017 20:23:39 +0000

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Fed’s Beige Book: “Slight to Moderate “expansion, Labor markets “Tightened Further”


Fed’s Beige Book: “Slight to Moderate “expansion, Labor markets “Tightened Further”

by Bill McBride on 7/12/2017 02:04:00 PM

Fed’s Beige Book “This report was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before June 30, 2017.”

Economic activity expanded across all twelve Federal Reserve Districts in June, with the pace of growth ranging from slight to moderate. In addition, the majority of Districts expected modest to moderate gains in the months ahead. Consumer spending appears to be rising across a majority of Districts, led by increases in nonauto retail sales and tourism. However, many Districts noted some softening in consumer spending, particularly in auto sales which declined in half of the Districts. Manufacturing and nonfinancial services activity continued to grow, with most Districts reporting modest to moderate gains since the last report. Loan demand was steady to increasing in most Districts. Residential and nonresidential construction activity was flat to expanding in most Districts. Most Districts cited low home inventory levels in certain market segments which were constraining home sales in many areas.

Employment across most of the nation maintained a modest to moderate pace of expansion, although the Atlanta and St. Louis Districts noted flat employment levels. Labor markets tightened further for both low- and high-skilled positions, particularly in the construction and IT sectors. Contacts across a broad range of industries reported a shortage of qualified workers which had limited hiring. Wages continued to grow at a modest to moderate pace in most Districts, and many firms attributed these wage gains to tighter labor market conditions. Wage pressures generally trended with employment conditions, and rising wage pressures were noted among both low- and high-skilled positions. A few Districts also reported rising costs of benefits and variable pay.
emphasis added

And a few excerpts on real estate:

New York: Housing markets across the District have strengthened somewhat. Sales volume has picked up throughout the New York City area–particularly for moderately-priced, single-family homes in outlying areas. In contrast, sales activity has slowed a bit in parts of upstate New York, restrained by a lack of homes on the market.

A real estate contact in upstate New York State reported continued escalation in home prices, with homes in more sought-after areas often selling for above the list price. …

San Franciso:

Published at Wed, 12 Jul 2017 18:04:00 +0000

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U.S. economy gains a strong 222,000 jobs in June


Biggest job gains were in these sectors ...
Biggest job gains were in these sectors …

 U.S. economy gains a strong 222,000 jobs in June


America’s strong job market just got a little better.

The U.S. economy added 222,000 jobs in June, much more than economists were expecting, the Labor Department said Friday.

It’s welcome news after the prior two jobs reports had hinted at a possible slowdown in job growth.

“The job market hasn’t lost any steam,” says Josh Wright, chief economist at software firm iCIMS.

The unemployment rate rose slightly to 4.4%, hovering just above its lowest level since 2001. Shortly after the Great Recession ended in 2009, unemployment peaked at 10%.

Unemployment rose for a good reason: More people jumped back into the job market to look for work. The participation rate in the labor force rose a notch last month.

June was the 81st consecutive month of job gains. The figures for May and April were revised upward for an additional 47,000 jobs.

In June, the gains were broad — health care, mining, business services and restaurants all added jobs. Employees’ hours also increased a notch.

“What’s not to like in this report?” says Joseph Brusuelas, chief economist at RSM, a consulting firm. “This is what you want to see.”

There were some weak spots in the report.

Wages grew 2.5% in June compared with a year ago. That’s slightly better than in prior years but well below the goal of 3.5% set by the Federal Reserve. Wages have been one of the last indicators to really pick up momentum since the recession ended in 2009.

Wage growth has hovered in the same range for the last year and a half even as job gains keep coming and unemployment continues falling. Some say the Labor Department isn’t measuring wage growth well while others can make sense of the trend.

Underemployment, which measures people who want to be working full-time but are not, rose to 8.6% in June from 8.4% in May. It’s still far lower than in prior years but it’s never a good sign to see that measure tick up.

The number of Americans who work part-time but want a full-time job rose a notch to 5.3 million in June. Part-time employment has been a persistent problem since the recession ended.

On the bright side, women are coming back to the job market. Among women between ages 25 and 54 — “prime age” workers — participation has risen over the last two years. In June, their participation rate hit 75%, up from 73.3% in early 2015.

Overall, economists say the strong job gains in June reflect a healthy labor market.

“The economy is still in pretty good shape, employers are looking to hire,” says Luke Tilley, chief economist at Wilmington Trust.

Published at Fri, 07 Jul 2017 12:38:00 +0000

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Premarket: 6 things to know before the bell


Premarket: 6 things to know before the bell


premarket stocks trading futures
Click chart for in-depth premarket data.

1. The all-important jobs report: American investors are feeling positive after the latest employment report from the Bureau of Labor Statistics.

Employers created a robust 222,000 jobs in June, making this the 81st consecutive month of employment gains in the country.

The unemployment rate ticked up to 4.4%, which is still considered low by historical standards.

Economists surveyed by CNNMoney had predicted the economy created 172,000 jobs in June.

2. Watching the G20 summit: The G20 kicks off on Friday in Hamburg, Germany. The gathering of world leaders from 20 major economies is going to be closely watched, especially as President Trump is meeting with Russian President Vladimir Putin for the first time.

Differences over trade and climate change between Trump and other leaders could make for a tense meeting.

3. Stocks to watch — Tesla, Samsung:Tesla(TSLA) continues to capture traders’ attention as it announced a big battery deal in Australia. Tesla stock is down 20% since hitting an all-time high in June.

Samsung(SSNLF) launches its Samsung Galaxy FE on Friday in South Korea. The smartphone is a cheaper, refurbished version of the Galaxy Note 7, a fire-prone model that sparked a global recall.

Samsung also announced its earnings guidance for the second quarter. It expects sales will hit 60 trillion Korean won ($52 billion) while operating profit will come in at around 14 trillion Korean won ($12 billion).

Shares in the tech firm closed the day with a 0.4% loss.

4. Global market overview: There’s been a fair bit of negativity in European and Asian markets on Thursday. But the gloomy mood is lifting a bit following the release of better-than-expected U.S. job numbers.

U.S. stock futures are set for a positive open.

On Thursday, the Dow Jones industrial average, S&P 500 and Nasdaq experienced falls of between 0.7% and 1%.

5. Big business Brexit meeting: Top British executives are meeting Friday with the U.K.’s top Brexit official, David Davis. They’ll be pressuring him to tread carefully with Brexit negotiations to protect business interests and jobs.

The Confederation of British Industry (CBI) issued a statement Thursday calling for the U.K. to remain in Europe’s unified market while the country is transitioning out of the EU.

6. Coming this week:

Friday — Bureau of Labor Statistics releases June jobs report at 8:30 a.m.; G20 leaders meet in Hamburg, Germany

Published at Fri, 07 Jul 2017 09:41:13 +0000

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Tech’s market leadership over? Not so fast


Tech’s market leadership over? Not so fast

By Lewis Krauskopf| NEW YORK

Technology shares surrendered their leadership in the U.S. stock market over the past month, but the fast-growing group may soon resume its outperformance and maneuver back into pole position.

Upcoming earnings reports for the technology sector .SPLRCT, whose profits are expected to outpace the overall S&P 500 .SPX for the 11th consecutive quarter, could lure back investors who have been concerned about expensive valuations and that too many people may have piled into the big names.

The sector has slumped 4 percent since the first week of June, while financials .SPSY have climbed more than 5 percent and healthcare .SPXHC has gained 3 percent. This has prompted speculation that investors may have been cashing out their tech profits to move into those groups.

“Technology has taken a rest, but it’s going to heat up again, and I see tech returning to favor the second half of the year,” said portfolio manager J. Bryant Evans of Cozad Asset Management in Champaign, Illinois.

For the first five months of 2017, tech was the talk of the stock market, far outperforming the other 10 major S&P 500 sectors and sparking the Nasdaq Composite .IXIC to its strongest first half since 2009.

“I think of (tech’s recent swoon) as profit-taking rather than driven by change in the fundamental factors,” said John Praveen, managing director of Prudential International Investments Advisers in Newark, New Jersey. “The fundamentals are still positive for the sector.”

On Friday, the tech sector ended a volatile week by rising 1.3 percent, topping all other sectors and a 0.6 percent rise for the S&P 500.

Analysts estimate tech’s second-quarter earnings rose 11.2 percent, with semiconductor companies accounting for much of the gain, according to Thomson Reuters I/B/E/S. The increase tops the estimated 7.9 percent rise for the overall S&P 500 and is well above every sector except for energy .SPNY, whose performance will be skewed because of negative year-earlier results.

“The tech sector has the highest growth expectations and only moderate uncertainty,” Morgan Stanley equity strategists said in a research note.

Given tech’s outsized position – 22 percent of the market value of the S&P 500 – the sector’s growth is critical to overall U.S. corporate profit gains.

For the second quarter, tech profit growth alone is expected to account for nearly 28 percent of the S&P 500’s overall increase in earnings, or nearly half if energy were excluded.

“In an economy that still seems to have some growing pains, consistent growth is worth paying up for,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

Tech’s second-quarter revenue growth is projected at 7.2 percent, faster than 4.6 percent for S&P 500 companies overall, according to Thomson Reuters I/B/E/S.

There is “growth on the top line, which is more important at this point in the cycle, than in the bottom line only,” said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh. This earnings season, she will focus on companies’ comments about sales activity.

Valuations for the sector also may not be so expensive. Tech is trading at 18.1 times earnings estimates for the next 12 months, just above 17.8 times for the overall market.

That difference is even smaller when compared with the premium tech has held over the past 15 years, following the dot-com bubble. Over that time, its average P/E has been 17.2 times versus 14.7 times for the S&P 500.

Another factor in tech’s favor: The dollar’s .DXY 6.1 percent decline this year against a basket of major currencies.

S&P 500 tech companies generate 60 percent of revenue from outside the United States, compared with 40 percent for companies in the entire index. A stronger dollar makes foreign sales less valuable when they are translated back into the U.S. currency for reporting purposes.

Despite these positive factors, other sectors may end up besting tech.

Healthcare’s year-to-date performance has nearly kept pace, and a resolution of the legislation moving through Congress could draw investors who have been wary about political uncertainty hovering over the sector.

A pickup in the economy and inflation could favor groups like industrials .SPLRCI, energy and financials, which tend to perform better in such times.

Clues will come starting on July 14, when a big batch of bank reports kicks off the heart of the earnings season.

In tech, Microsoft Corp (MSFT.O) and International Business Machines Corp (IBM.N) report the following week, while Alphabet Inc (GOOGL.O), Facebook Inc (FB.O) and Intel Corp (INTC.O) are among the companies that will follow later in the month.


(Editing by Lisa Von Ahn and James Dalgleish)

Published at Fri, 07 Jul 2017 20:37:29 +0000

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Schedule for Week of July 9, 2017

by TechPhotoGal from Pixabay

Schedule for Week of July 9, 2017

by Bill McBride on 7/08/2017 08:11:00 AM

The key economic reports this week are June Retail Sales and the Consumer Price Index (CPI).

For manufacturing, June industrial production will be released this week.

Also Fed Chair Janet Yellen will present the Semiannual Monetary Policy Report to the Congress.

—– Monday, July 10th —–

10:00 AM ET: The Fed will release the monthly Labor Market Conditions Index (LMCI).3:00 PM: Consumer credit from the Federal Reserve.  The consensus is for a $14.6 billion increase in credit.

—– Tuesday, July 11th —–

6:00 AM ET: NFIB Small Business Optimism Index for June.Job Openings and Labor Turnover Survey 10:00 AM: Job Openings and Labor Turnover Survey for May from the BLS.

This graph shows job openings (yellow line), hires (purple), Layoff, Discharges and other (red column), and Quits (light blue column) from the JOLTS.

Jobs openings increased in April to 6.044 million from 5.785 million in March.

The number of job openings (yellow) were up 7% year-over-year, and Quits were up 4% year-over-year.

—– Wednesday, July 12th —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.10:00 AM: Testimony from Fed Chair Janet L. Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.

2:00 PM: the Federal Reserve Beige Book, an informal review by the Federal Reserve Banks of current economic conditions in their Districts.

—– Thursday, July 13th —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 245 thousand initial claims, down from 248 thousand the previous week.8:30 AM: The Producer Price Index for June from the BLS. The consensus is for no change in PPI, and a 0.2% increase in core PPI.

10:00 AM: Testimony from Fed Chair Janet L. Yellen, Semiannual Monetary Policy Report to the Congress, Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

—– Friday, July 14th —–

Retail Sales 8:30 AM ET: Retail sales for June will be released.  The consensus is for a 0.1% increase in retail sales.This graph shows retail sales since 1992 through May 2017.

8:30 AM: The Consumer Price Index for June from the BLS. The consensus is for a 0.1% increase in CPI, and a 0.2% increase in core CPI.

Industrial Production9:15 AM: The Fed will release Industrial Production and Capacity Utilization for June.

This graph shows industrial production since 1967.

The consensus is for a 0.3% increase in Industrial Production, and for Capacity Utilization to increase to 76.8%.

10:00 AM: Manufacturing and Trade: Inventories and Sales (business inventories) report for May.  The consensus is for a 0.3% increase in inventories.

10:00 AM: University of Michigan’s Consumer sentiment index (preliminary for July). The consensus is for a reading of 95.1, unchanged from 95.1 in June.

Published at Sat, 08 Jul 2017 12:11:00 +0000

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Wall Street falls on weak ADP jobs data, North Korea tensions


Wall Street falls on weak ADP jobs data, North Korea tensions

By Tanya Agrawal

U.S. stocks fell in late morning trading on Thursday as weak jobs data from the private sector struck a bleak tone for the critical non-farm payrolls report due on Friday, while investors fretted about rising tension in the Korean peninsula.

The ADP National Employment Report showed private employers added 158,000 jobs in June, below the estimated addition of 185,000, suggesting some cooling in the labor market as it nears full employment.

The report by payrolls processor ADP acts as a precursor to monthly non-farm payrolls data, which includes hiring in both the public and private sectors.

“The market moves significantly on the jobs report. We are expecting to see a little bit of a rebound from last month, but again we didn’t get that in the ADP number today which was also expected to be stronger than what it was,” said Lindsey Bell, investment strategist at CFRA Research.

Another set of data showed weekly jobless claims rose for the third straight week, with claims climbing to 248,000, above the 243,000 expected.

Bell said ongoing geopolitical worries around North Korea were also adding to the pressure.

The United States said it was ready to use force if need be to stop North Korea’s nuclear missile program after the country test launched a ballistic missile that could hit Alaska.

At 11:01 a.m. ET (1501 GMT), the Dow Jones Industrial Average .DJI was down 90.49 points, or 0.42 percent, at 21,387.68 and the S&P 500 .SPX was down 14.19 points, or 0.58 percent, at 2,418.35.

The Nasdaq Composite .IXIC was down 53.86 points, or 0.88 percent, at 6,097.00.

All the 11 major S&P 500 sectors were lower, with the tech sector’s .SPLRCT 0.97 percent fall topping the list.

A fall in Apple (AAPL.O) and Microsoft (MSFT.O) weighed the most on the S&P and the Nasdaq.

Investors are also parsing minutes from the Federal Reserve’s last meeting that showed policymakers were increasingly split on the outlook for inflation and how it might affect the future pace of interest rate hikes.

The Fed’s preferred measure of underlying inflation slipped to 1.4 percent in May and has run below the 2 percent target for more than five years now.

Shares of Tesla (TSLA.O) fell 4.6 percent after the luxury electric carmaker’s Model S did not get the top score in certain tests by the Insurance Institute for Highway Safety.

General Electric (GE.N) slipped 1.7 percent after the European Commission accused the company of providing misleading information during a merger deal. The stock was among the top three drags on the S&P.

HSN (HSNI.O) jumped 27 percent after Liberty Interactive (QVCA.O) said it would buy the remaining 62 percent stake in the TV shopping network.

Declining issues outnumbered advancers on the NYSE by 2,138 to 630. On the Nasdaq, 1,996 issues fell and 655 advanced.

(Reporting by Tanya Agrawal in Bengaluru; Editing by Anil D’Silva)

Published at Thu, 06 Jul 2017 15:34:36 +0000

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Mid Year Momo Update


Mid Year Momo Update

We’re half way through the year and the upcoming 4th of July weekend officially marks the beginning of the long awaited vacation season. Since most of you will be either mentally or physically absent tomorrow let’s devote whatever remains of our collective attention span to a comprehensive perspective on where we are on the momo front.

By the way there’s another reason why I think it’s important to remind ourselves where we are in the ongoing market cycle. Wherever I poke my nose these days I see nothing but bearish sentiment, for a whole host of reasons. Since I’ve been in this racket for quite a while now I have accumulated all sorts of newsletters I somehow found myself subscribed to – or unsubscribed from over the years without much success. Bottom line: quite a few of them are expecting *the big one* once again and that soon.

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Senate health bill would decimate long-term care coverage


Senate health bill would decimate long-term care coverage

When Americans think about retirement planning, long-term care usually is a major blind spot – few of us want to contemplate the possibility of infirmity and dependency in old age. But we would do well to think about it now, as the Senate Republicans take a holiday weekend pause in their push to dismantle the Affordable Care Act.

Roughly half of Americans now turning 65 will require some level of long-term care during retirement. And when professional care is required, it usually is paid for by Medicaid, which covers 62 percent of long-term care in the United States, according to the Kaiser Family Foundation (KFF).

That may surprise people who think of Medicaid as a social safety net for the poor. Indeed, the program is a critical lifeline for 35 million children and 27 million adults in low-income households.

But nursing home care is expensive, and 62 percent of near-retirement households have saved less than one year of annual income for retirement, according to the National Institute on Retirement Security.

When savings run out, Medicaid steps in – nearly two-thirds of its spending in 2014 went to the elderly and disabled, according to KFF. “Medicaid has been a critical safety net for 50 years for people who have depleted their life savings,” said Jean Accius, vice president of the AARP Public Policy Institute. “It is insurance for your mother or your father or eventually for yourself, because the price can be so high.”

The current national system of financing long-term care is a mess. Few households purchase commercial long-term care policies, and the market has experienced upheaval in recent years as underwriters stopped writing new policies or boosted premiums by double-digit rates.

Yet the Senate bill would take our already-dysfunctional system of long-term care and make it worse – much worse.

The Better Care Reconciliation Act (BCRA) proposes to reduce expected Medicaid outlays by $772 billion over 10 years. That would destabilize access not only to nursing home care but home and community-based services – an innovative approach to care that saves money, and has grown quickly in recent years.

Medicaid is administered by states, but funded jointly with the federal government. Currently, the federal contribution is open-ended. Under BCRA, starting in 2020 states could opt for a federal contribution subject to a per-enrollee cap or in the form of a block grant. The contribution would be based on the current amount sent to a state, and then adjusted annually for inflation.



Proponents of BCRA argue this will not squeeze the states because the inflation adjustment will be tied to the federal measure of medical inflation (CPI-M). But as this Medicaid population ages into their 80s and 90s, their care needs will intensify and become much more expensive on a per-capita basis.

And after 2025, the inflation measure would shift to a more general inflation gauge that rises much more slowly than healthcare costs. Finally, per-enrollee caps will not adjust for unanticipated major new spending needs – for instance, a major new blockbuster drug or the need to deal with a public health emergency.

As federal funding falls behind, states would be left to raise taxes to meet the shortfalls, cut their budgets elsewhere or provide less Medicaid coverage. Cuts could be made first within home and community-based care, because these are optional programs under federal law, while nursing home coverage is mandatory. But nursing home coverage would suffer too, said Jessica Schubel, senior policy analyst at the Center on Budget and Policy Priorities.

“States may be forced to cut provider rates – which already aren’t very high,” she said. “The providers will then be forced to do more with less – they may cut staff, make fewer beds available to Medicaid patients, or close altogether.”

Overall, the BCRA would increase the number of uninsured Americans by 22 million in 2026, according to the Congressional Budget Office (CBO). The increase in the number of uninsured would be disproportionately large among people aged 55-64 and with income less than 200 percent of the federal poverty line. Enrollment in Medicaid would fall by 15 million by 2026.

In the insurance exchanges, premiums for older people would soar to unaffordable levels, CBO found. For example, the net premium (after tax credits) for a 64-year-old with income of $56,800 would skyrocket from $6,800 to $20,500.

Taking away insurance will kill people – literally. A new study published in Annals of Medicine ( documents how the lack of health insurance increases mortality; its math suggests that taking insurance away from 22 million people will result in 29,000 avoidable deaths annually.

At the same time, the tax cuts in BCRA would reduce federal revenue by $700 billion –  with 45 percent of that going to households making $875,000 or more, according to the Tax Policy Center. The bill repeals the Affordable Care Act’s 3.8 percent net investment income tax on dividends, interest and capital gains, and the 0.9 percent Medicare payroll tax surcharge.

The trade-offs in BCRA – insurance for tax cuts for the wealthy – are nothing short of appalling. Governor John Kasich of Ohio put it well while speaking out against the BCRA in Washington this week: “That’s good public policy? What, are you kidding me?”

(The opinions expressed here are those of the author, a columnist for Reuters.)

(Editing by Matthew Lewis)

Published at Thu, 29 Jun 2017 12:26:26 +0000

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Premarket: 6 things to know before the bell

Premarket: 6 things to know before the bell

premarket thursday
Click chart for more in-depth data.

1. Fox-Sky deal: The U.K. government will issue a decision Thursday on 21st Century Fox’s(FOXA) bid to buy the rest of pay-TV group Sky(SKYAY).

The £11.7 billion ($15.2 billion) deal would add a crown jewel to Rupert Mudoch’s media empire. Fox already holds a 39% stake in Sky.

The government has to consider whether the deal is in the public interest.

2. Banks get green light on dividends: All 34 of America’s biggest banks were granted permission by the Federal Reserve to buy back stock or pay dividend on Wednesday, according to the results of the Fed’s annual stress tests.

It was the first time in seven years that the Fed gave the green light to pay dividends to all the banks it scrutinized.

Shares in many major banks climbed up in extended trading following the announcement. Bank of America(BAC), Citigroup(C), Wells Fargo(WFC), Morgan Stanley(MS) and Goldman Sachs(GS) were all up in extended trading.

3. U.S. economy check: The final estimate of first quarter GDP growth will be released at 8:30 a.m. ET.

The U.S. economy got off to a slow start in the first three months of the year, though it was not as weak as originally feared. The initial growth estimate of 0.7% was later revised to 1.2%. The numbers could be upped again on Thursday.

4. Global market overview: U.S. stock futures were mixed on Thursday.

European markets opened mixed and markets in Asia closed with gains.

The Dow Jones industrial average added 0.7% on Wednesday, while the S&P 500 was up 0.8% and the Nasdaq increased 1.4%.

Before the Bell newsletter: Key market news. In your inbox. Subscribe now!

5. Earnings and economics:ConAgra(CAG), Rite Aid(RAD) and Walgreens Boost Alliance(WBA) are set to release earnings before the open Thursday.

Nike(NKE) is set to release earnings after the close. The sneaker giant might confirm recent reports that it will soon begin selling some products on Amazon(AMZN, Tech30).

The U.S. Department of Labor plans to release its initial claims report for June 24 at 8:30 a.m. ET.

Download CNN MoneyStream for up-to-the-minute market data and news

6. Coming this week:

Thursday — U.K. ruling on Fox-Sky deal; Nike(NKE) earnings; U.S. GDP report
Friday — Personal income and spending data; the University of Michigan consumer confidence survey, China official manufacturing PMI


Published at Thu, 29 Jun 2017 08:35:12 +0000

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Premarket: 7 things to know before the bell

Premarket: 7 things to know before the bell


Premarket Monday
Click chart for more in-depth data.

1. Third Point snaps up Nestle stake: Third Point, run by activist investor Daniel Loeb, has taken a stake worth $3.5 billion in Nestle(NSRGF).

In a letter published Sunday, Third Point expressed support for Nestle’s new CEO, but said the world’s biggest food company should become more profitable and return cash to shareholders. Nestle’s shares gained more than 4%.

2. Takata bankruptcy: Japan’s Takata(TKTDY) said Monday it was seeking bankruptcy protection in Japan and the U.S.

The company was brought down by the huge cost of its exploding airbag crisis. Its faulty inflators have resulted in the recall of tens of millions of vehicles and been linked to 11 deaths in the U.S. and several others elsewhere.

3. Italian banks: Shares in Italian banks climbed early Monday, after the Italian government announced it will fork out €17 billion ($19 billion) to avert a banking system crisis.

The government will pay €4.8 billion ($5.4 billion) in cash and provide as much as €12 billion ($13.4 billion) in guarantees so that Intesa Sanpaolo(IITSF) can take over the healthier parts of two struggling regional banks.

4. India’s Modi visits Trump:Indian Prime Minister Narendra Modi is visiting President Trump on Monday.

Modi represents one of the world’s fastest growing major economies, a market U.S. companies are eager to crack.

But Trump’s “America First” policies have the potential to drive a wedge between the two nations. Potentially thorny issues include immigration, trade and manufacturing, and climate change.

5. Global market overview:U.S. stock futures were higher early on Monday.

European markets opened up, while Asian markets ended the session also higher.

The Dow Jones industrial average was flat on Friday, while the S&P 500 gained 0.2% and the Nasdaq was 0.5% higher.

6. Brexit brief: The British Chambers of Commerce said Monday it expects U.K. growth over the next few years to remain “anemic.” The European Commission will give an update to member states and other European institutionson Brexit talks. The U.K. will release details of the proposed rights of EU citizens living in Britain after Brexit.

7. Coming this week:

Monday — Martin Shkreli fraud trial begins; India’s Narendra Modi visits U.S.; EU Commission reports on Brexit talks; British Chambers of Commerce Economic forecast
Tuesday –U.S. consumer confidence data; WealthX billionaires census release; ECB central bank forum; Barnes & Noble Education reports earnings
Wednesday — Monsanto(MON) earnings; Mobile World Congress Shanghai; Toshiba shareholders meeting; U.S. crude inventories data
Thursday — U.K. ruling on Fox-Sky deal; Nike(NKE) earnings; U.S. GDP report
Friday — Personal income and spending data; the University of Michigan consumer confidence survey, China official manufacturing PMI

Published at Mon, 26 Jun 2017 12:22:56 +0000

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S&P 500 edges up; tech weighs on Nasdaq


S&P 500 edges up; tech weighs on Nasdaq

By Sinead Carew

The S&P 500 and the Dow were slightly higher on Monday but gains were muted by a fall in technology stocks which nudged the Nasdaq lower as investors turned to more defensive sectors.

The slow-growing, high-dividend S&P utilities .SPLRCU and telecommunications .SPLRCL were the best performers among the 11 S&P sectors.

Technology stocks, which have been under pressure as investors worry about stretched valuations, hit a session low in late afternoon trading.

“The bond market is signaling an economic slowing,” said Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago. “That’s why you’re seeing defensive names like utilities do well, because equity investors are buying more in line with what that bond market is saying.”

The Dow Jones Industrial Average .DJI was up 39.35 points, or 0.18 percent, to 21,434.11, the S&P 500 .SPX gained 3.12 points, or 0.13 percent, to 2,441.42 and the Nasdaq Composite .IXIC dropped 11.12 points, or 0.18 percent, to 6,254.13.

A fall in Microsoft (MSFT.O), Amazon (AMZN.O) and Alphabet (GOOGL.O) weighed most on the S&P as well as the Nasdaq.

“It’s simply profit-taking going into the end of the quarter. I wouldn’t be surprised at all to see that reversed in early July with the thought that we’re going to see some strong earnings,” said Tim Ghriskey, chief investment officer of Solaris Asset Management in New York.

The utilities and the four-company telecommunications services sector index were the S&P’s best performers with gains of more than 0.8 percent.

The S&P energy .SPNY was lower as investors worried about a relentless rise in U.S. supply and a surge in demand for short sale contracts, or bets against higher crude prices.

The recent drop in oil prices has spurred concerns about low inflation, which remains below the Federal Reserve’s 2 percent target rate.

The Fed raised rates this month for the second time this year and has indicated it could raise them again but futures imply only a 50 percent chance of another rate hike by December.

The financial index .SPSY rose 0.6 percent after a string of Fed policymakers appeared to back another rate hike this year despite a patch of recent weak economic data.

San Francisco Fed President John Williams said the Fed needs to raise rates gradually or the economy runs the risk of overheating.

New York Fed chief William Dudley said recent narrowing of credit spreads, record stock prices and falling bond yields could encourage the Fed to continue tightening U.S. policy.

Data on Monday showed new orders for key U.S.-made capital goods unexpectedly fell in May, with non-defense orders excluding aircraft – a closely watched proxy for business spending plans – dropping 0.2 percent.

Economists polled by Reuters had expected a rise of 0.3 percent.

Advancing issues outnumbered declining ones on the NYSE by a 2.18-to-1 ratio; on Nasdaq, a 1.33-to-1 ratio favored advancers.

(Additional reporting by Caroline Valetkevitch in New York, Tanya Agrawal in Bengaluru,; Editing by Arun Koyyur and Nick Zieminski)

Published at Mon, 26 Jun 2017 19:06:53 +0000

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Tech Rebound Sends US Markets Higher

Tech Rebound Sends US Markets Higher

By Justin Kuepper | June 23, 2017 — 5:50 PM EDT

The major U.S. indexes moved higher over the past week, led by technology stocks and lagged by industrials. The leading economic index rose 0.3% in May, according to the Conference Board, suggesting that the overall economy remains strong. Notably, the housing sector rebounded with a 1.1% increase in existing home sales to a higher-than-expected 5.620 million rate, while jobless claims were little changed from their strong prior showing.

International markets were mixed over the past week. Japan’s Nikkei 225 rose 0.97%; Germany’s DAX 30 fell 0.15%; and Britain’s FTSE 100 fell 0.43%. In Europe, IHS Markit’s June flash purchasing managers’ composite dipped to 55.7 in May, but it remains well above the 50 mark that would indicate a contraction. In Asia, Japan offered the first upbeat assessment of its economy since December in a sign of improvement. (See also: The Importance of the Purchasing Managers’ Index.)

The S&P 500 SPDR (ARCA: SPY) rose 0.2% over the past week. After briefly touching upper trendlineresistance, the index moved lower to R1 support at $242.69. Traders should watch for a rebound to retest upper trendline and R2 support at $245.10 or a breakdown to the 50-day moving average or pivot point at $238.49. Looking at technical indicators, the relative strength index (RSI) remains relatively neutral at 59.87, while the moving average convergence divergence (MACD) has started a bearish crossover that could indicate downside ahead for the index.

Technical chart showing the year-to-date performance of the SPDR S&P 500 ETF (SPY)

The Dow Jones Industrial Average SPDR (ARCA: DIA) rose 0.08% over the past week, making it the worst performing major index. After briefly breaking out from R2 resistance at $214.00, the index moved lower toward R1 support at $211.81. Traders should watch for an ongoing move lower to those levels or a rebound to re-test its upper trendline resistance and all-time highs. Looking at technical indicators, the RSI appears overbought at 65.41, while the MACD could be on the verge of a bearish crossover. (For more, see: Top 3 ETFs That Track the Dow.)

Technical chart showing the year-to-date performance of the Dow Jones Industrial Average ETF (DIA)

The PowerShares QQQ Trust (NASDAQ: QQQ) rose 2.24% over the past week, making it the best performing major index. After rebounding from its lower trendline support, the index continued to move toward R1 resistance at $143.07. Traders should watch for a move to those levels or R2 resistance at $145.24, or a move lower to re-test its lower trendline and pivot point at $139.29. Looking at technical indicators, the RSI appears neutral at 57.12, while the MACD is on the verge of a bullish crossover.

Technical chart showing the year-to-date performance of the Powershares QQQ Trust (QQQ)

The iShares Russell 2000 Index ETF (ARCA: IWM) rose 0.51% over the past week. After briefly hitting R1 support at $139.70, the index rebounded toward the upper end of its price channel this week. Traders should watch for an ongoing move to upper trendline​ and R2 resistance at $143.07 or a move lower to the 50-day moving average at $138.59. Looking at technical indicators, the RSI appears neutral at 56.74, while the MACD has been trending sideways, which provides traders with few hints into future price action. (See also: IWM: iShares Russell 2000 Index ETF.)

Technical chart showing the year-to-date performance of the iShares Russell 2000 ETF (IWM)

The Bottom Line

The major U.S. indexes moved higher over the past week thanks to the strong recovery in the tech sector. Next week, traders will be closely watching several key economic indicators, including consumer confidence data on June 27, pending home sales on June 28, GDP data on June 29 and personal income data on June 30. The market will also be keeping a close eye on any political developments in the United States and around the world. (For related reading, check out: ETFs With Major Recent Breakouts.)

Note: Charts courtesy of As of the time of writing, the author had no holdings in the securities mentioned.

Published at Fri, 23 Jun 2017 21:50:00 +0000

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Low U.S. inflation? It’s your phone: BlackRock bond manager


Low U.S. inflation? It’s your phone: BlackRock bond manager

Americans’ love of their smartphones and apps may be contributing to the sluggish pace of inflation that is worrying Wall Street and the Federal Reserve, a top bond manager at BlackRock, the world’s biggest asset manager, said on Wednesday.

Consumers are relying less and less on devices such as cameras, radios and televisions, and services such as taxis and stores, replacing them with programs in their iPhones and other high-end phones, according to Rick Rieder, BlackRock’s chief investment officer of global fixed income.

Companies like Inc, Netflix Inc and Uber Technologies Inc [UBER.UL] have enticed consumers with convenience and low prices through their phones. As a result, they have upended traditional retailers, entertainment outlets and transportation services, Rieder said in an article published on Wednesday.

“Technological innovation is disrupting traditional business models of many industries, putting a lid on prices and influencing inflation in the economy overall,” he wrote.

The core rate of the consumer price index, the U.S. government’s broadest inflation gauge, increased 1.7 percent year-on-year in May, the smallest such rise since May 2015, the Labor Department said last week.

On Monday, Chicago Federal Reserve President Charles Evans, when asked about Amazon’s proposed $13.7 billion buyout of up-market grocer Whole Foods Market Inc at an event in New York, said new competitors with a technological edge entering in major industries pose possible long-term implications that inflation will remain low.

Some of the recent pullback in inflation also stemmed from lower energy prices resulting from global oversupply, analysts said.

The recent softening of inflation has raised speculation on the timing on the U.S. central bank’s next rate increase. A few policymakers including Evans have said it may be worthwhile for the Fed to wait until year-end before considering another rate hike.

Philadelphia Fed President Patrick Harker told the Financial Times the Fed should defer its next hike until December.

In the meantime, this technological shift will likely persist, Rieder said, making it difficult for inflation to meet the Fed’s 2 percent target, which policymakers deem optimal to support stable economic growth.

“This is an increasingly challenging paradigm to execute upon today in the more modern commerce era we live in,” Rieder said. “We believe both investors and policymakers need to abandon an overly rigid view of price change.”

(Reporting by Richard Leong; Editing by Steve Orlofsky)

Published at Wed, 21 Jun 2017 18:31:28 +0000

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Why The Ethereum To Bitcoin Ratio Matters


Why The Ethereum To Bitcoin Ratio Matters

by Taki Tsaklanos from

The price of Ethereum largely recovered from its 40 percent correction on Thursday.  Ethereum was trading at $360 on Wednesday, got smashed to $256 on Thursday, and is now back above $360.  This is typical behavior in cryptocurrency land: strong sell offs in a very short period of time, followed by new highs one week after.  We believe Ethereum will be trading at new all-time highs at the end of June.  Because of that we stick to our long term Ethereum forecast of $1000.

When it comes to understanding the outperforming cryptocurrencies most writers look at the market cap.  For instance, according to Coinmarketcap Bitcoin has a market cap of $42B while Ethereum stands at $33B.  Early this year Ether has a market cap of $4B.

In our view the market cap comparison does not reflect the best way to look at cryptocurrencies.  What is valuable as an indicator is relative strength, for instance the Ethereum to Bitcoin price ratio.  That stems from analysis in traditional markets.  When analyzing traditional markets we look at the gold to silver ratio to identify which of the two is outperforming or to understand whether a bull market has started or ended.  In stock markets the S&P 500 to Russell 2000 ratio is popular as a gauge of risk (the small cap Russell typically outperformers when investors are in ‘risk on’ mode).

When we look at the two biggest cryptocurrencies, Bitcoin and Ethereum, it is worth analyzing the Ethereum to Bitcoin price ratio. It is shown on the following chart:

This ratio tells that Ethereum’s relative strength dipped in January of this year. However, as of that moment, it went up almost in one straight line.

It moved to an “all-time high” right when it crossed the horizontal red line annotated on the chart.  In chart analysis terms we call it a “breakout.” As goes with most breakouts it tends to come back down to test the breakout point before moving higher as of that point. That is called a “confirmation of the breakout” so it suggests that the uptrend will continues.

In May, the Ethereum to Bitcoin ratio crossed the other red line, see green circle. That is when the acceleration of Ethereum’s outperformance started.

Why is this important? Because it shows the outperforming cryptocurrency. Similar to the gold to silver ratio, it is great to know as an investor if Ethereum is the stronger cryptocurrency compared to Bitcoin which is considered a reference point as it was the first cryptocurrency to become big and is the most well known cryptocurrency currently.

Likewise, readers can do their own research by looking at other ratios: think of the Ethereum to Ripple ratio, the Ethereum to Litecoin ratio, and the likes.

Relative strength tells much more than absolute prices, investors have to make use of it.

Note that this ratio does not suggest anything about the future price of Ethereum or Bitcoin.

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Brexit talks begin; Vermont reconsiders marijuana bill; tech council to meet


The Brexit effect on markets
The Brexit effect on markets

Brexit talks begin; Vermont reconsiders marijuana bill; tech council to meet


1. Brexit talks begin: On Monday, nearly a year after the U.K. voted to leave the European Union, it will begin the tricky process of hammering out the details of the divorce.

It looks like it’s going to be a messy breakup. Last week’s general election left Prime Minister Theresa May without a majority, and without a clear negotiation plan.

May has called for a hard exit fro the EU, which would mean keeping immigrants out of the U.K., stepping away from the European bloc’s trading area and refusing to pay for the separation. But that may be hard to do without political support. If she shifts gears to a “softer” Brexit, the U.K. could ease its immigration stance in exchange for maintaining business ties with Europe — as many British companies would like to do.

Though the British economy has remained stable, the situation could become worse after the exit becomes official. Germany’s statistics office says it has seen a 361% spike in the number of Brits who became German citizens last year. And depending on how negotiations go, tens of thousand of U.K. jobs could be eliminated.

2. Vermont reconsiders recreational marijuana: Last month, Vermont Governor Phil Scott rejected a bill to legalize recreational marijuana. On Wednesday, lawmakers will meet for a special session to discuss its revival.

Scott initially declined to pass the bill over concerns that penalties for stoned driving and giving marijuana to kids were too low. But generally, he’s on board. There’s a lot of money at stake — analysts think marijuana sales in the state could have reached $179 million by 2025 if the bill had become law in May.

If Vermont does ultimately approve the bill, it will join eight states and the District of Columbia in legalizing the drug for recreational use.


3. White House tech council meets: Back in May, President Trump created an American Technology Council to help the government “transform and modernize” its tech. That council is scheduled to meet for the first time on Monday, Bloomberg reports. Tim Cook, Jeff Bezos and others are expected to attend.

Trump sat down with a number of tech executives back in December in an effort to smooth ties with Silicon Valley, which has been especially troubled by the administration’s efforts to pass a travel ban and its break with the Paris accord. For some, the overture wasn’t enough. Elon Musk quit two of the president’s business advisory councils because Trump withdrew from the climate deal, and embattled Uber CEO Travis Kalanick left over the president’s immigration plan in February.


4. Facebook’s first community summit: Facebook is holding its first-ever community summit on Thursday and Friday in Chicago. The social network described the event as a way to “celebrate these community builders” who administer Facebook Groups.

Mark Zuckerberg has touted Groups, and its administrators, as a way to build communities that can offer a coordinated response to problems like terrorism. That’s an especially important battle for Facebook, which is expanding its counterterrorism efforts following attacks in the U.K.


5. Coming this week:

Monday – Brexit talks start

Tuesday – FedEx(FDX) earnings

Wednesday – Vermont starts recreational marijuana special session

Thursday – Barnes and Noble(BKS) earnings; Bed Bath & Beyond(BBBY) earnings

Friday – BlackBerry(BBRY, Tech30) earnings

Published at Sun, 18 Jun 2017 12:00:47 +0000

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Schedule for Week of June 19, 2017

by Unsplash from Pixabay

Schedule for Week of June 19, 2017

by Bill McBride on 6/17/2017 08:09:00 AM

The key economic reports this week are New and Existing Home sales for May.

—– Monday, June 19th —–

No major economic releases scheduled.

—– Tuesday, June 20th —–

No major economic releases scheduled.

—– Wednesday, June 21st —–

7:00 AM ET: The Mortgage Bankers Association (MBA) will release the results for the mortgage purchase applications index.

Existing Home Sales10:00 AM: Existing Home Sales for May from the National Association of Realtors (NAR). The consensus is for 5.55 million SAAR, down from 5.57 million in April.

The graph shows existing home sales from 1994 through the report last month.

During the day: The AIA’s Architecture Billings Index for May (a leading indicator for commercial real estate).

—– Thursday, June 22nd —–

8:30 AM ET: The initial weekly unemployment claims report will be released. The consensus is for 240 thousand initial claims, up from 237 thousand the previous week.

9:00 AM: FHFA House Price Index for April 2017. This was originally a GSE only repeat sales, however there is also an expanded index.

11:00 AM: the Kansas City Fed manufacturing survey for June.

—– Friday, June 23rd —–

Existing Home Sales10:00 AM ET: New Home Sales for May from the Census Bureau.

This graph shows New Home Sales since 1963. The dashed line is the March sales rate.

The consensus is for an increase in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in May from 569 thousand in April.

Published at Sat, 17 Jun 2017 12:09:00 +0000

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Why Oil May Plunge to $30 a Barrel


Why Oil May Plunge to $30 a Barrel

By Mark Kolakowski | Updated June 15, 2017 — 11:19 AM EDT

The price of oil may sink to between $30 and $35 per barrel next year and stay there for a while, according to Dr. Fereidun Fesharaki, founder and chairman of global oil and gas consulting firm FGE, who spoke to CNBC. Despite “robust demand,” Fesharaki told CNBC that “there is too much oil on the market.”

Late last month, OPEC said that it would extend an 1.8 million-barrel-a-day (B/D) cut to oil output by nine months through March 2018, but Fesharaki believes that this is not enough to stabilize prices. Rather, he told CNBC that an immediate cut of an additional 700,000 B/D is necessary. The spot price of benchmark West Texas Intermediate (WTI) crude oil was $46.10 per barrel as of June 12, according to the U.S. Energy Information Administration (EIA).

Increasing Oversupply

Various facts appear to support Fesharaki’s thesis. Stockpiles of oil worldwide are large and growing, an indicator of persistent oversupply, according to data from the International Energy Agency (IEA) cited by the Wall Street Journal. As of April, inventories of oil in industrialized nations were 292 million barrels above their five-year average, according to the same sources. (For more, see also: Why Oil Prices Could Double to $90.)

While OPEC strains to reduce supply, it nonetheless has allowed Nigeria and Libya to increase production, and output by OPEC as a whole actually rose in May to its highest level so far in 2017, per IEA data reported by CNBC. Additionally, the IEA projects that non-OPEC nations collectively will expand their output by 700,000 B/D in 2017 and 1.5 million B/D in 2018, slightly more than the forecasted growth in global demand. More than half this growth will come from the U.S., which the IEA expects to increase production by 430,000 B/D in 2017 and 780,000 B/D in 2018.

Recessionary Impact?

While a fall in the price of any commodity normally sparks an increase in demand, Fesharaki told CNBC that “A drop in the price of oil is like an earthquake or a tsunami” that actually could dampen demand. He also said that the last time the price of oil fell, so did the stock market, and he feels that “a substantial drop in the price of oil would create a global recession.” Plummeting oil prices would be an economic negative for oil producing nations, according to other analysts cited by CNBC. However, this scenario is more likely in countries that are primarily producers and exporters, rather than consumers, of oil.

The Case For $90 Oil

Bill Strazzullo, chief market strategist at Bellcurve Trading Inc., has taken a contrarian view, boldly predicting that oil can be trading at $90 in the next three to five years. He expects global economic expansion to be the driving factor. Strazzullo gained credibility when oil was trading at about $100 and he (correctly) forecasted that it would crash to $30. Meanwhile, the OECD finds that, on the whole for its 35 members (which include four noteworthy oil producers, the U.S., Canada, the U.K. and Norway), higher oil prices are a net economic negative.

Published at Thu, 15 Jun 2017 13:24:00 +0000

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Chance of Fed hitting ‘terminal rate’ looking terminal: James Saft


Chance of Fed hitting ‘terminal rate’ looking terminal: James Saft

By James Saft

The main thing terminal about the Federal Reserve’s ‘terminal’ interest rate projections are the chances of rates actually making it that high in the foreseeable future.

As expected, the Fed hiked on Wednesday by 25 basis points to 1.0-1.25 percent, but did so against an inflation and consumer backdrop which casts grave doubt that it will actually be able to reach the 3 percent ‘terminal’ rate it sees as a future baseline.

Arguing that recent shortfalls in inflation were “transitory,” the Fed kept to its forecast of one more 25-basis- point rate hike this year and three in 2018. This despite the fact the Fed hasn’t actually hit its 2 percent annual inflation target on its preferred measure in more than five years.

The Fed also expects to carry on hiking rates, presumably in part in order to get some ammunition to expend when next the economy falters, while at the same time moving forward with plans to begin shrinking its $4.5 trillion balance sheet “this year”.

The financial markets aren’t having any of it, and are pricing in one more increase in the next year.

Little wonder after today’s data, which should have given a data-dependent central bank good reason to pause. U.S. consumer price inflation in May fell 0.1 percent month-on-month while core, excluding food and energy, is up just 1.7 percent in a year, down from 1.9 percent a month ago. Core consumer sales also stalled in May, growing not at all.

All of this makes the Fed’s forecasts, and the hawkish tone struck by Fed Chair Janet Yellen at the press conference, look as if they are, in part, seeking to signal confidence so as to achieve ends not justified by the data.

“The Fed remains the test case for whether central banks can ever ‘normalize’ rates. We expect it to try, but fail – hiking the funds target just once or maybe twice more in future forecast-round months,” Neil Williams, Group Chief Economist, Hermes Investment Management, said after the hike.

“With the lagged effects of previous hikes yet to come through – it takes an average 18 months before rate hikes affect consumer spending in full – delayed tax cuts, potential protectionism and cold winds elsewhere, this should mean a ‘peak’ rate under two percent.”

Beyond the broader economic implications of a peak or, if you will, terminal rate below 2 percent, the prospect puts the Fed in the ticklish situation of very likely heading into a downturn dependent not just on interest rate rises but also on its willingness to begin buying assets once again. That and forward guidance, yet another largely discredited policy.



Remember too, that one key difference since last the Fed hiked in March is that there is now much less confidence in the Trump administration’s ability to carry out either meaningful stimulative spending or midwifing a tax cut package which would do more than pump up equity prices.

To be sure, the Fed is still saying that inflation will head back up toward its 2 percent target. But with core PCE up just 1.5 percent now, the Fed’s year-end forecast of 1.7 percent is still two tenths of a percent lower than in March.

“The unemployment rate has dropped by half a point in the past four months, but the Fed now expects, comically, no further decline across the rest of the year. This makes no sense at all and likely will have to be revised in September,” Ian Shepherdson of Pantheon Macroeconomics wrote in a note to clients. The Fed also appears not to expect labor force participation to increase meaningfully.

If so, unemployment, now 4.3 percent, could tick down from here. What is striking is that the unemployment rate is falling further below the rate at which the Fed figures unemployment should accelerate, but yet it accelerates not.

Unemployment and inflation simply are not interacting as textbooks say they should. Markets are looking at the data and taking it seriously; the Fed is sticking, for now, with the textbooks.

“One side has to blink, and given the Fed’s 50-year obsession with the unemployment rate, it’s unlikely to be Dr. Yellen,” Shepherdson wrote.

If inflation finally comes through, the Fed will look like heroes; if not, like auto mechanics with the wrong set of tools and the wrong manual.

(Editing by James Dalgleish)


Published at Thu, 15 Jun 2017 05:45:12 +0000

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