December 14, 2017

Stocks gapped up again today, but quickly fell flat (Dow +1 pt; SPX flat). The tech sector is trading higher, but telecoms, materials and healthcare are in the red. The VIX Index is trading down to 9.8. European markets are poised to close .3% lower. The dollar is a bit stronger against the Euro after the European Central Bank (ECB) said Eurozone inflation will remain low for the foreseeable future. In other words, there is no reason to rush toward reducing monetary stimulus. Commodities are trading mixed. WTI crude oil is holding steady at $57.75/barrel. Bonds prices are slightly lower today. The 5-year Treasury note yield is up toward 2.15%. The 10-year yield is back up to 2.37%. In fact, the 10-year has been trading in a very tight range of 2.32% to 2.40% for the past month. Yesterday, the Federal Reserve’s Open Market Committee raised its short-term policy interest rate by .25% to a target range of 1.25% to 1.50%. The move was widely expected. And by the way, the Fed lowered its forecast for unemployment in 2018 to just 3.9%. 

OPEC claims that despite its best efforts to keep the global oil market in balance, those naughty US oil producers are getting greedy and are increasing production levels. This unfortunately means the world will be over-supplied for another year and OPEC’s noble efforts could be partially blunted. That’s the headline. It is true, apparently, that OPEC’s modest production cuts, along with stronger oil demand around the world, have succeeded in decreasing oil stockpiles, which in turn led to higher oil prices. And it is true that US producers, many of whom were driven nearly out of business in 2015-2016 by OPEC’s all-out production policy, are on the rebound and are again fighting for market share. This makes Saudi Arabia sad, partly because the county is counting on a very lucrative IPO of Saudi Aramco next year and would really like to prop up oil prices for that event. Non-OPEC producers are now expected to grow output by 1.7% next year, which is roughly equal to expected global oil demand growth. That hardly sounds irresponsible. 

According to the US Bureau of the Census, retail sales surged .8% in November from prior month levels. On a year-over-year basis, retail sales rose 5.8%--the highest growth rate since 2012. Separately, the National Retail Federation says US holiday season retail sales are on pace to grow 3.6-4% from year-ago levels. Non-store sales are seen rising more than 10%. Private research firm CGP says holiday spending is “at a pace not seen since before the Recession.” 

As rumored, Disney (DIS) announced a deal to purchase $52.4bil worth of assets from 21st Century Fox (FOXA). Those assets will include the movie studio & cable network, Fox’s 39% ownership stake in Sky, the regional sports networks and a majority stake in Hulu. A Wall Street media analyst said Disney is “becoming the Walmart of Hollywood…” 

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