Friday, May 18, 2018

Markets hesitate as yields decline

Dow edged up a mere 1, advancers slightly ahead of decliners & NAZ lost 28.  The MLP index lost 1 to the 267s & the REIT index fell 1+ to 327.  Junk bond funds did little & Treasury yields declined with the 10 Treasury falling to 3.07%.  Oil was up pennies in the 71s  & gold added 3 to 1292 (more on both below).

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The European Commission is proposing that EU govs make direct money transfers to Iran's central bank to avoid US penalties, an EU official said, in what would be the most forthright challenge to US's newly reimposed sanctions.  The step, which would seek to bypass the US financial system, would allow European companies to repay Iran for oil exports & repatriate Iranian funds in Europe, although the details were still to be worked out.  The EU, once Iran's biggest oil importer, is determined to save the nuclear accord, that Pres Trump abandoned, by keeping money flowing to Tehran as long as the Islamic Republic complies with the 2015 deal to prevent it from developing an atomic weapon.  "Commission President Jean-Claude Juncker has proposed this to member states. We now need to work out how we can facilitate oil payments and repatriate Iranian funds in the European Union to Iran's central bank," said an EU official.  The US Treasury announced on Tues more sanctions on officials of the Iranian central bank, including Governor Valiollah Seif.  But the EU official said the bloc believes that does not sanction the central bank itself.

EU considers routing money transfers through Iran's central bank to dodge US sanctions

Oil prices slipped, as traders took profits following a rally on plummeting Venezuelan production, strong global demand & looming US sanctions on Iran.  West Texas Ingtermediate crude futures ended the session down 21¢ at $71.28 a barrel, but posted a 3rd straight week of gains.  Brent crude futures were down 81¢ (1%) to $78.49 a barrel, for a 6th straight week of gains.  The intl benchmark broke thru $80 for the first time since Nov 2014 on yesterday, but gave up nearly all of the day's gains in PM trading.  Investors anticipate more gains due to supply concerns, at least in the short-term.  Brent has gained 17% since the start of the year.  Traders were looking ahead to Venezuela's election on Sun, which could then trigger additional US sanctions if Pres Maduro is re-elected for a 6-year term, though the opposition party has largely boycotted & 2 of his most popular opponents have been banned from running.  The process has been has been criticized by the US, the EU & major Latin America countries.  Further sanctions could hurt Venezuelan oil supply further, already reeling from lack of maintenance & state-run PDVSA's inability to pay its bills.  Most recently, the company elected to close its refinery in Curacao after ConocoPhillips (COP) has seized oil as it seeks to collect on a $2B court award.  OPEC leading producer Saudi Arabia said yesterday it would make sure the world is adequately supplied with oil just as major consumer India expressed frustration with rising prices.

US crude dips 21 cents, settling at $71.28, but posts third straight weekly gain

Gold finished with a modest gain to recoup most of what it lost a day earlier.  Prices still fell 2.2% for the week, pressured by strength in the $, as well as a sharp rise in Treasury yields this week despite a pullback Fri.  Jun gold rose $1.90 (about 0.2%) to settle at $1291 an ounce after losing 0.2% to finish at $1289 yesterday-the lowest settlement of the year.

Gold futures end higher for the session, but lose over 2% for the week

Baker Hughes reported that the number of active US rigs drilling for oil was unchanged at 844 this week.  The oil-rig count had logged gains in each of the last 6 weeks.  The total active US rig count, which includes oil & natural-gas rigs, edged up by 1 to 1046.  Jun West Texas Intermediate crude  pared losses after the rig data, down 21¢ (0.3%) to $71.28 a barrel.

U.S. oil-rig count unchanged after six straight weeks of gains: Baker Hughes

A top Federal Reserve official said that regulators must use the coming update of the Community Reinvestment Act to encourage banks to do more to help rent-burdened customers.  The Fed & other regulatory agencies are preparing to revamp the CRA, a 1977 law designed to overcome decades of “red-lining” that effectively blocked access to credit & home ownership for low-income Americans, particularly people of color.  Under the law, banks are graded on how much credit they provide to low-income neighborhoods.  In the effort to renew the law, agencies “should do more to encourage banks to offer deposit and credit products designed to help rent-burdened customers save for homeownership and build strong credit scores that will enable them to succeed in obtaining mortgage credit on favorable terms,” said Fed Gov Lael Brainard.  She noted that a recent study from the Pew Charitable Trust found that 38% of renter households in America are spending more than 30% of their pretax income on rent, representing a 19% increase from 2001 & many Americans are paying half or more of income.  “Households that spend a high fraction of their income on rent often may find themselves unable to pursue proven strategies to achieve financial security and invest in their family’s future.” she added.  While there is no easy answer to the problem of affordable housing, Brainard said the CRA was one of the “important policy levers” than can make a difference.  Regulators must also do more to encourage banks to lend to “underserved entrepreneurs and small businesses,” she said.

Fed official: Banks need to help rent-burdened customers save for homeownership

Some traders started their weekends early with little going on in the stock market.  While yields fell today, that is just for the short term.  They will climb going forward.  The Dow fluctuated all day, never getting very far from breakeven while NAZ was in the red throughout the day                           

Dow Jones Industrials

Markets dip while trade talks continue to go forward

Dow was off 14, decliners barely of advancers & NAZ pulled back 34.  The MLP index was even in the 268s & the REIT index gave back 1 to the 327s.  Junk bond funds were mixed & Treasuries went higher.  Oil slid back a tad in the 71s & gold did little around 1289.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil71.47

GC=FGold  1,288.30
-1.10 -0.1%

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Stocks had a lackluster open, with the tech sector under pressure while traders were paying close attention to the latest developments on trade.  Stocks slipped yesterday as the technology sector weakened over Cisco's tepid outlook (CSCO, a Dow stock) & trade turmoil escalated.  The major averages touched session lows after Pres Trump said the US has been “ripped off” by China for years on trade.  Fresh doubts that a summit between Trump & North Korean dictator Kim Jong Un will take place this summer also weighed on the markets.  A 7-year high in 10-year Treasury yields had investors selling interest-rate-sensitive utility, telecom & real estate stocks.  Pres Trump & a US team led by Treasury Sec Steve Mnuchin met at the White House this week with Chinese Vice Premier Liu He to discuss trade.  Talks were scheduled to conclude today.  A spokesman for the Chinese Commerce Ministry said the country has dropped its anti-dumping investigation into US sorghum imports because it was not in the public interest.  In commodities gold futures were lower while oil was down ahead of Baker Hughes weekly rig count.

Stocks flat as traders digest trade, Treasuries

China has dropped its anti-dumping investigation into US sorghum imports, a Chinese Commerce Ministry spokesman said, adding that it was not in the public interest.  But he denied that China offered to slash the US trade deficit by up to $200B.  The move suggests Beijing is willing to come to a deal with DC to avert a trade war.  The US is China's biggest supplier of sorghum, accounting for more than 90% of total imports.  Commenting on the move, the Chinese Commerce Ministry said that "Anti-dumping and countervailing measures against imported sorghum originating in the United States would affect the cost of living of a majority of consumers and would not be in the public interest,"posted on its website.  Yesterday, Beijing cleared the way for a group led by US private equity firm Bain Capital to purchase Toshiba's computer memory chip business.  Meanwhile, Pres Trump & a US team led by Treasury Sec Steve Mnuchin met at the White House this week with Chinese Vice Premier Liu He this week.  Talks were scheduled to conclude today.

China drops anti-dumping sorghum probe, denies deficit offer

Tractor maker Deere (DE) reported a 49.4% jump in Q2 profit, beating estimates, as market conditions improved & boosted sales of its farm & construction equipment.  The company said net EPS rose to $3.67 from $2.50 a year earlier.  Analysts had expected EPS of $3.31 on revenue of $9.786B.  DE now expects full-year net income to be about $2.3B, compared with $2.1B projected earlier.  Net sales & revenues for the year are expected to jump about 26% from the previous year.  Profits were boosted by a favorable net adjustment to provisional income taxes of $174M.  Without the adjustment, EPS was $3.14.  Revenue for the qtr was $10.7B, up 29% from a year ago & equipment sales rose 34.3% to $9.7B.  “Farm machinery sales in both North and South America are making solid gains and construction equipment sales are continuing to move sharply higher,” CEO Samuel Allen said.  The company, however, said it was facing higher raw-material & freight costs.  It forecast a 30% annual increase in equipment sales for fiscal 2018 & a 35% year-on-year jump in fiscal Q3.  The stock shot up 7.57 (5%).
If you would like to learn more about DE, click on this link:

Deere's 2Q profit up 49 percent

Not a lot  happening in the stock market.  Trade talks continue & final results could be weeks or even months away.  The US economy is doing well.  But higher interest rates & gas prices could crimp future growth.  As said so many times previously, the Dow does stray far from 24K

Dow Jones Industrials


Thursday, May 17, 2018

Markets drift lower on US-China trade tensions

Dow dropped 54, advancers slightly ahead of decliners & NAZ gave back 15.  The MLP index added 3+ to the 268s & the REIT index slid to the 328s.  Junk bond funds dipped & Treasuries were sold, taking the yield on the 10 year Treasury up to 3.11%.  Oil inched up in the 71s & gold was off 2 to 1289.

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Live 24 hours gold chart [Kitco Inc.]

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Chinese officials who arrived in DC for trade talks with will likely present a proposal for the US trade delegation on Wed, possibly extending the negotiating process, according to Larry Kudlow, chief economic adviser to Pres Trump.  “We expect they may have a proposal for us, which would extend the conversation and permit additional negotiations,” he said.  “In other words, I’m kind of positive on this story.”  Trump has been insistent about reducing the trade deficit between the 2 countries by $200B from the current $370B.  The White House has blamed the deficit for the loss of Ms of US jobs, which it says are then added to the Chinese economy.  Led by Treasury Sec Steve Mnuchin, the US negotiating team plans to ask the Chinese to change their trade approach in a number of areas, including opening their markets, lowing their trade & non-trade barriers & allowing additional American exports, Kudlow said.  But when the US delegation met with officials in Beijing last week, no deal was reached in large part because China refused a demand to cut the trade deficit by $200B within the next 2 years.  “We have an opportunity here to bring some significant changes to China-American trade policy,” Kudlow said.  “Changes, by the way, [that] will make for fairer and more legal trading practices.”  Trump will be meeting with China's Vice Premier Liu He at the White House Thurs, Kudlow said, adding there’s “great interest” in furthering the potential deal and negotiations.

Larry Kudlow: We’re asking China to change its approach

Oil prices continue to rally as supply tightens & demand remains strong, with both US crude & the intl benchmark, Brent crude, climbing to their highest prices since Nov 2014.  US crude oil edged above $72 a barrel today while Brent crude was trading near $80 a barrel.  As oil prices rise, American drivers are paying more at the pump.  The national average for gas prices was $2.90 per gallon yesterday.  This comes just as the traditional peak driving season, which runs from the Memorial Day weekend thru the Labor Day weekend is about to kick off.  The highest recorded gas price was $4.11.  While oil prices are rising, the International Energy Agency (IEA) said yesterday that it had lowered its global oil demand growth forecast for 2018 to 1.4M barrels per day (bpd) from 1.5M bpd.  The organization added that although supplies currently stand at 98M bpd due to supply cuts led by OPEC, that strong non-OPEC growth in oil will lead the market to grow 1.87M bpd next year.

Oil hovers near 4-1/2 year high on tightening supplies

The world's largest container shipping company Moller-Maersk, is the latest corp to announce it is preparing to cease operations in Iran after Pres Trump withdrew from the nuclear deal last week & vowed to reinstate “powerful sanctions.”  Maersk, based in Copenhagen, said that the firm was closing down its business in Iran, though it hadn't pinned down the exact timeframe.  The company said a jump in oil prices following the US exit was not helping its business.  The EU hopes to nuclear deal intact, but moves from companies, like Maersk, suggest a lack of confidence & a fear of US reprisal.  French energy group Total announced on yesterday that it would abdicate a $2B project in the South Pars gas field before Nov 4 unless it’s granted a waiver from the US protecting it against sanctions.  Earlier in the week, the chief exec of Munich-based Siemens said that his company could not do any new business in Iran because it faced the possibility of retaliatory sanctions from the US.  Switzerland-based MSC, the world's 2nd-largest shipping group, said yesterday it would no longer accept bookings for shipments to & from Iran.  German insurer Allianz warned this week it was identifying its Iran-related businesses & preparing to “wind-down plans for relevant business to ensure appropriate termination within the defined periods,” a spokesperson said.  Last week, Trump announced his decision to withdraw from the Iran nuclear deal & vowed to reinstate the “highest level” of sanctions on the Iranian regime.  Trump also suggested that other nations that continue to deal with Iran could also be sanctioned by the US.

Trump’s Iran deal withdrawal sparks corporate exodus

The UN is forecasting that the global economy will expand by more than 3% this year & next year, but it warns that increasing risks could trigger "a shock to investment and trade" & a sharp drop to 1.8% growth in 2019.  The UN mid-year report on the World Economic Situation & Prospects says growth in the world economy is surpassing expectations, reflecting further growth in developed countries & broadly favorable investment conditions.  However, the report said, "downside risks" have increased including "a rise in the probability of trade conflicts between major economies."  A UN official cited the Trump administration's imposition of tariffs in Jan & proposed new tariffs against China, but also the renegotiation of the US trade agreement with Mexico & Canada.

UN forecasting global economy will expand by over 3 percent

Pres Trump is expected to meet with a top Chinese official who is in DC for trade talks with US. officials.  White House economic adviser Larry Kudlow said the meeting would take place Thurs.  Treasury Sec Steve Mnuchin is leading talks with Chinese Vice Premier Liu He aimed at avoiding a trade war between the world's 2 biggest economies.  Commerce Secretary Wilbur Ross, US Trade Representative Robert Lighthizer, Kudlow & trade advisers Peter Navarro & Everett Eissenstat will also participate.  The Trump administration has proposed tariffs on up to $150B in Chinese products to punish Beijing for forcing American companies to turn over technology in exchange for access to the Chinese market.  China has counterpunched by targeting $50B in US products.  Neither country has imposed the tariffs.

Trump to meet with Chinese official to discuss trade

Long-term US mortgage rates jumped this week, marking their highest levels in 7 years amid the peak home buying season.  The benchmark 30-year rate pushed toward the significant 5% level.  Mortgage buyer Freddie Mac said the average rate on 30-year, fixed-rate mortgages was 4.61%, up from 4.55% last week.  The new average rate was the highest since 2011.  By contrast, the 30-year rate averaged 4.02% a year ago.  The average rate on 15-year, fixed-rate loans climbed to 4.08% from 4.01% last week.  The latest indications of a strong economy & rising commodity prices, gasoline is at a 4-year high, lifted yields on bonds & mortgage rates followed suit.  US retail sales rose at a solid pace in Apr, a sign that consumers may be rebounding from weak spending earlier this year & driving stronger economic growth.  Consumer spending has rebounded in the past 2 months after a weak Jan & Feb, a trend that could accelerate growth in Q2.  Despite higher borrowing costs & home prices, demand for home purchases has grown so far in the spring buying season, as the economic outlook has continued to improve & bolstered consumer confidence.  Still, "inflationary pressures and the prospect of (mortgage) rates approaching 5 percent could begin to hit the psyche of some prospective buyers," said Freddie Mac.

US average mortgage rates at 7-year highs; 30-year 4.61 pct.

China said it doesn't want to see increased trade tensions with the US as the 2 countries hold talks in DC this week, but it's prepared for any outcome & will defend its own interests.  The comments by a Chinese Commerce Ministry spokesman came after Pres Trump tweeted that there has been "no folding" in the discussions.  Spokesman Gao Feng also said that China hopes the US will take "concrete action" to resolve a case involving Chinese tech company ZTE, which DC hit with a crippling ban on buying from US suppliers after it violated US sanctions.  Steve Mnuchin & Chinese Vice Premier Liu He are leading talks in DC & tomorrow aimed at averting a trade war between the 2 economies.  "We do not want to see the escalation of the trade frictions between China and the U.S.," Gao said at a weekly briefing.  "Of course, we are also prepared for all possibilities."  ZTE's 7-year US business ban, ordered last month, led the company to say it was ceasing operations because it cannot get the parts it needs for manufacturing telecommunications equipment & smart phones.  Earlier this week, Trump surprised many by hinting in a tweet that he wanted to find a way to keep the company afloat.  The 2 countries are reportedly attempting a swap: Relief for ZTE in return for Beijing dropping plans to impose tariffs on US farm products.  "We will resolutely defend our own interests and will not trade our core interests," Gao said, when asked about the reports.  Trump tweeted on yesterday, "Nothing has happened with ZTE except as it pertains to the larger trade deal."

China vows to defend its own interests in US trade talks

Canadian Prime Minister Trudeau said he felt "positive" about talks to rework the NAFTA trade pact, while a top Mexican official held out hope a deal could be hammered out by the end of May.  US officials say the talks need to wrap up very soon to give the current Congress time to vote on a final text for a revamped North American Free Trade Agreement.  "We've worked with them (the Americans) on a whole bunch of issues, including this morning in Washington where we have some of our top folks continuing the conversations. To be honest, we are down to a point where there is a good deal on the table," Trudeau said.  "It's right down to the last conversations ... I'm feeling positive about this, but it won't be done until it's done and people are working very, very hard on it right now," he added.  Mexico's Economy Minister Guajardo said a deal could be reached by the end of May, but added that if no agreement is reached the talks could extend beyond the Jul 1 Mexican presidential election.  "If the conditions are defined by next week, nothing stands in the way of closing a deal by the end of May," Guajardo said.  He added that his technical negotiating team is in DC but there is no date set for the next NAFTA ministerial meeting with the US & Canada.  House Speaker Paul Ryan had said that the Rep-controlled Congress would need to be notified of a new deal by Thurs to give lawmakers a chance to approve it before a newly elected Congress takes over in Jan.

Canada 'positive' on NAFTA, Mexico says deal possible by end of May

A composite index of leading economic indicators gained for the 6th straight month in Apr.  The Conference Board's Leading Economic Index gained 0.4% to 109.4, matching expectations.  "In April, stock prices and housing permits were the only negative contributors, whereas the labor market components, which made negative contributions in March, improved," said Director of Business Cycles & Growth Research at The Conference Board Ataman Ozyildirim.  The measure, which measures 10 key metrics of economic movement, jumped 0.3% to 109 in Mar, which followed a gain of 0.7% in Feb.  The index is used to forecast global economic trends & take checks on the US economy.  The Conference Board, a business research association, determines a composite value based on 10 key metrics, including manufacturers' new orders, stock prices & average weekly unemployment claims, to create the composite value.  "April's increase and continued uptrend in the U.S. LEI suggest solid growth should continue in the second half of 2018," Ozyildirim said.  "However, the LEI's six-month growth rate has recently moderated somewhat, suggesting growth is unlikely to strongly accelerate."

Leading indicators up for sixth straight month

There is a lot going on for stocks to digest & much of it is centered around trade talks.  China, Iran, NAFTA, whatever.  There is a lot going on.  In fluid situations it's difficult to figure out what anything means.  Meanwhile Treasury yields keep climbing, as expected.  And rising oil prices are increasing prices at gas pumps.  The Dow continues its sideways trend which looks like it could continue for some time.

Dow Jones Industrials