Coming on the heels of the worst day for stocks since mid-February, U.S. shares were under pressure again Friday as investors reacted to a mixed earnings season, the latest moves or lack of moves from the world’s central bankers and fresh incoming economic data.
The Dow Jones industrial average, which tumbled 211 points Thursday, its worst one-day point drop since Feb. 11, fell 56 points, or 0.3% to close at 17,775 Friday after being down much more earlier in the session. The broader Standard & Poor’s 500 stock index, which also had a tough day Thursday, was off 0.5%. The Nasdaq composite, which got hit the worst Thursday after billionaire activist investor Carl Icahn said he had dumped his entire stake in iPhone-maker Apple, was off 0.6%.
Despite the sloppy finish to the week, the Dow and S&P 500 ended April with small gains, with the Dow up 0.5% for the month and the S&P 0.3%. The Nasdaq did not fare nearly as well, falling 1.9% this month. The big winner in April was the small-company Russell 2000 index, up 1.6%.
Still, the market’s momentum has stalled as stocks near record highs notched last May. Both the Dow and S&P 500 are about 3.0% off their highs.
The Fed is less worried about what is going on abroad but note that when they hiked rates in December they still had two references to the rest of the world in the FOMC statement, see chart below. They are keeping the door open for a rate hike in June.
First, it was Pioneer who said it was “expecting to deliver production growth of 12%+ in 2016 compared to the Company’s previous production growth target of 10%” adding that it also expected to “add five to ten horizontal drilling rigs when the price of oil recovers to approximately $50 per barrel and the outlook for oil supply/demand fundamentals is positive.” Then yesterday it was another US shale giant, Whiting Petroleum, who admitted that $45 oil is good enough, and that it is “increasing its production forecast to a range of 131,400 BOE/d to 136,900 BOE/d” adding that “with the majority of completions scheduled for the second half of the year, the Company expects to realize the full production benefit in late 2016 and 2017.”
And now, according to the latest Reuters production survey, in the aftermath of the failed Doha oil freeze agreement, OPEC will be the next to boost production in the coming month, expanding supplies from an already oversupplied 32.46MMb/d to 32.64MMb/d.
As Reuters notes, its survey indicates output from the Organization of the Petroleum Exporting Countries rose by 170,000 bpd in April. OPEC has no supply target. At a Dec. 4 meeting the producer group scrapped its output ceiling of 30 million bpd, which it had been exceeding for months.
The Reuters survey aims to assess crude supply to market, defined to exclude movements to, but not sales from, storage. Saudi and Kuwaiti data includes the Neutral Zone.
Venezuelan data includes upgraded synthetic oil. Nigerian output includes the Agbami stream and excludes Oso and Akpo condensates. Totals are rounded. There are no individual quotas for the OPEC member countries.
In a recent interview, Bill Gross provided some further truthiness regarding the state of the U.S. economy and the unveiling of the Federal Reserve as the world’s banker.
As we’ve said countless times, Gross reiterates in the interview that the Fed’s only contribution to the real economy has been to help create more jobs that aren’t adding up to any real economic growth (i.e. waiter and bartender jobs at minimum wage). He points out that U.S. economic growth has in fact flat lined.
“I think what they have on their radar basically are the employment numbers as opposed to real economic growth. I mean goodness, this quarter for almost the second quarter in a row we’re close to the flatline in terms of economic growth.“
Indeed it has flat-lined, as evidenced by yesterday’s dismal .5% GDP growth in Q1.
Continuing their rising trend, the country’s foreign exchange reserves increased by USD 1.350 billion to touch a record high of USD 361.601 billion in the week to April 22, Reserve Bank said today.
In the previous week, the reserves had risen by USD 333.7 million to USD 360.250 billion.
The reserves increased on account of rise in foreign currency assets (FCAs), which is a major component of the overall reserves.
FCAs increased by USD 1.350 billion to USD 337.537 billion in the week under review, an RBI release said.
FCAs, expressed in dollar terms, include the effect of appreciation and depreciation of non-US currencies such as the euro, pound and the yen held in the reserves.
Gold reserves remained unchanged at USD 20.115 billion.
The country’s special drawing rights with the International Monetary Fund increased by USD 0.1 million to USD 1.498 billion and the reserve position was unchanged at USD 2.450 billion, the apex bank said.
The International Monetary Fund (IMF) has reached agreement with the Sri Lankan government for a $1.5 billion bailout to help the island nation avert a balance of payments crisis.
The three-year loan will require IMF board approval in June, the global lender said on Friday, and is subject to Sri Lanka implementing reforms, including streamlining the tax code and reducing a bloated deficit.
“The Sri Lankan authorities and the IMF have reached a staff-level agreement on a 36-month Extended Fund Facility (EFF),” for a $1.5 billion loan, Todd Schneider, IMF mission chief for Sri Lanka, said in a statement.
The agreement comes as debt-laden Sri Lanka faces a looming balance of payments crisis due to heavy foreign outflows from government securities and high external debt repayments.
Sentiment on financial markets was bolstered by the IMF deal, helping the rupee currencyLKR= trade firmer and stock index .CSE rise nearly 1 percent in early trade.
Sri Lanka’s foreign exchange reserves have fallen by a third from their peak in late 2014 to $6.2 billion at end-March.
The past 30 years are often seen as a bad time for investors. The period saw two epic market breaks in the US, with the bursting of the dotcom bubble in 2000, and the credit bubble seven years later; the collapse of the Japanese stock market in 1990, from which it is yet to recover; and a severe recession following the credit crisis.
So it is disconcerting to be warned by the McKinsey Global Institute that the past 30 years have been a boon for markets that cannot be repeated. US stocks have averaged growth of 7.9 per cent over the period, which is ahead of the 6.5 per cent average for the past 100 years. McKinsey now suggests that growth of only 4.0 per cent over the next 20 years is possible.
European equities have gained 7.9 per cent per year for 30 years, compared to an average for the last century of 4.5 per cent. Bonds, of course, have been in a bull market for the last three decades, which cannot continue much longer.
Several factors made the past three decades so good. The cold war ended, China emerged, and the world enjoyed a demographic sweetspot as postwar baby boomers made and spent money. Converting these factors into drivers of stock market performance, Richard Dobbs of the McKinsey Global Institute lists at least four that cannot be repeated.
Inflation has been tamed In 1985, Paul Volcker was running the US Federal Reserve, and single-digit inflation was still not to be taken for granted. Now that inflation has been tamed, it cannot be tamed again — unless serious inflation returns, which would be disastrous for asset prices in the short term.