May 30, 2017

Stocks opened lower this morning, digesting recent gains. The Dow is currently down 30 pts and the SPX is off .1%. Telecoms are surging today, recovering some of their year-to-date losses. On the other hand, energy and financial sectors are down sharply. The dollar is a bit weaker this morning but most commodities aren’t rising. WTI crude oil is trading down to $49.35/barrel. Bonds are higher in price, lower in yield. The 5- and 10-year Treasury yields ticked down to 1.77% and 2.23%, respectively. 

Freeport McMoran Copper & Gold (FCX) just terminated 2,000 striking employees at its Grasberg mine in Indonesia. This mine accounts for about 3.5% of total global copper production and if mine production grinds to a standstill this could affect copper prices. But the longer-term trend is lower. Copper prices have been flat for the last 6 months and have fallen about 50% over the last several years as the China-driven Commodity Super Cycle ended. JP Morgan analysts say they expect copper demand to soften and believe this will be the fourth consecutive year of global copper surplus. 

The Atlanta Federal Reserve’s GDP forecasting model is estimating second quarter growth at 3.7%. That’s a huge rebound from 1.2% in the first quarter. The model estimates consumer spending at about 2.9%, with business investment above 6%, residential investment at 3%, and government spending & net exports dragging on growth. In addition, the model expects businesses to resume building inventories after a pronounced lull. 

April’s Personal Income & Spending report came in as expected. Both incomes and spending grew .4% from the prior month, signaling a pick-up from first quarter levels. The wages & salaries portion of incomes shot up .7% for the month. In addition, the consumer savings rate, despite the increased level of spending, held steady at 5.3%. On a year-over-year basis, incomes are up 3.6% and spending is up 4.3%. Finally, we note that inflation is still very tame in the 1.5% to 1.7% range, depending on how you measure it. This, by the way, is the Fed’s preferred inflation gauge and their target is 2%. So this report will not put any pressure on the Fed to raise rates any time soon. 

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