Monday, March 19, 2018

Markets have one ugly day, with tech shares leading the selloff

Dow tumbled 335 (but 150 above the lows), decliners over advancers about 4-1 & NAZ plunged a whopping 137.  The MLP index sank 8+ to the 244s.  Junk bond funds slid lower & Treasuries were about even with the yield on the 10 year Treasury holding at 2.85%.  Oil was off pennies in the 62s & gold gained 5 to 1317 as stocks were being sold.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Stocks declined globally as a technology selloff sent NAZ to the steepest losses in 6 weeks.  Gov bonds pared losses, while the £ jumped on a Brexit breakthrough.  US stocks slumped as tech companies were roiled by reports of a Facebook (FB) data breach & Apple (AAPL, a Dow & NAZ stock) efforts to develop its own screens.  That sapped Asian equities, while tech also led a retreat for the Stoxx Europe 600 Index.  FB fell the most since 2015.  The tech rout added to pressure that had mounted over the weekend in DC, as speculation grew that Pres Trump could be prepared to fire Robert Mueller.  Meanwhile, large digital companies operating in the EU, could face a 3% tax on their gross revenues based on where their users are located, according to a draft proposal by the European Commission.

Tech Selloff Hits U.S. Stocks; Dow Tumbles More Than 450 Points

FB shares were under pressure over concerns about how the company manages 3rd-party access to user information.  The stock had its worst daily performance in 4 years.  The company said on Fri it was suspending Strategic Communication Laboratories (SCL), including their political data analytics firm, Cambridge Analytica.  According to FB, SCL & Cambridge Analytica improperly kept user data, despite telling the Silicon Valley behemoth they had destroyed them.  FB drew some harsh criticism from US & British lawmakers over the weekend for not providing more information about how the data firm came to access the information.  Meanwhile, the attorney general in Massachusetts said in social media posts that her office would launch an investigation.  The company added more clarity to its decision, noting that, “the claim that this is a data breach is completely false,” reiterating that it was an issue with how the company used the information that it had accessed through the proper channels.  Major tech companies were also under pressure from a report claiming that the EU is set to put a 3% tax on revenue from the big digital companies.  The stock plunged 12.53 (7%).
If you would like to learn more about FB, click on this link:

Facebook shares tumble over data privacy concern

Global finance ministers meeting this week in Buenos Aires were planning to focus on topics like the workforce in an age of automation & how to boost infrastructure investment.  Instead, their attention has turned to US tariffs on steel & aluminum.  Finance ministers & central bankers are meeting under the auspices of the Group of 20 summit, a gathering of leaders who represent 80% of the world's economy.  The US would like an agenda focused on its concerns about China.  Instead this year's summit will involve much of the world trying to pressure the US, with French, German & Brazilian officials identifying the latest US tariff moves as a focus of discussion.  "We are all very concerned about the possibility of a trade war," said Marcello Estev√£o, the Brazilian Finance Ministry's secretary of intl affairs.  He said Brazil planned to highlight protectionism as a risk to the global economic outlook, adding that "a majority of countries are with us" in taking this view.  German Finance Minister Olaf Scholz said the G-20 was the right body to discuss trade.  "I believe the world is growing together and should remain together.  Free trade is a very important resource," he said.  Protectionism, he said, "has, of course, to be discussed."  His French counterpart, Bruno Le Maire struck a similar line.  "We don't believe in protectionism, and that we need to have a firm, united and European response to the latest decisions taken by our American partner and ally."  German Chancellor Angela Merkel & Chinese Pres Xi Jinping spoke by phone & both agreed to deepen their strategic partnership & discussed global overcapacity in the steel sector.  The leaders of the 2 countries facing US tariffs "agreed to continue working for solutions within the framework of the G-20 Global Forum," Ms Merkel's spokesman said.

U.S. tariffs to be in spotlight at G-20 summit

The EU's top trade official says the 28-nation bloc should be excluded from Pres Trump's new steel & aluminum tariffs, which enter force this week.  EU Trade Commissioner Cecilia Malmstrom said that "the EU should be excluded as a whole" & that she would convey this message to US representatives in talks in DC tomorrow.   Malmstrom added that the EU is willing to address the problem of steel overproduction, which she says is the real cause of pain for the US & European industries.  The EU has drawn up a list of "rebalancing" duties to slap on US products if it is not exempted.

EU trade chief demands exemption from US steel tariffs

Crude slipped for the first time in 4 sessions as equities declined around the world against the backdrop of surging oil-production growth from US shale drillers.  Futures dropped more than 1.6%.  Investors dumped stocks as risky holdings fell out of favor across the globe.  The anxiety rippled thru a crude market already unsettled by an increase in drilling activity by American explorers as well as inventories in US tanks & terminals that have expanded in 6 of the past 7 weeks.  Oil has stalled out this month after registering its worst Feb drop in ½ a decade.  The uplift in US crude production has tempered OPEC's efforts to shrink a global glut.  Yesterday, Russian Energy Minister Alexander Novak said his country remains committed to the OPEC-led pact to curb supplies, a campaign that may need to be extended into 2019.  West Texas Intermediate for Apr delivery, which expires tomorrow, dropped 36¢ to $61.98.  Front-month futures traded at a 9¢ discount to the 2nd-month WTI contract, on track to close at the deepest discount since Nov.  When upfront supplies sell for less than later-dated barrels, a market condition known as contango, it's typically a bearish signal because it makes it more profitable to stow crude in storage.  Brent for May settlement fell 15¢ to $66.06 & the global benchmark held a $3.95 premium to WTI for the same month.  OPEC Secretary-General Mohammad Barkindo said the cartel & allied oil producers are focused on a full implementation of supply curbs intended to clear excess supplies.  The special group appointed to monitor implementation of the curbs estimated an overall compliance rate of 138% for Feb.  “We started to see the light at the end of the tunnel, but there’s still some work to do,” Barkindo said.  “Inventories are still higher than the five-year average.”  Stockpiles at the key pipeline hub in Cushing, Oklahoma, probably rose last week for a 2nd straight week, according to a current forecast.  After falling by ½ since late Nov, inventories held at Cushing may be poised for restocking as traders take advantage of the contango.

This was another ugly day which has become common in the last couple of months (shown clearly in the Dow chart below).   FB & other high profile tech companies have been in the lead on the way up.  Now they are serious trouble, at least for the short term.  Good times were not meant to last without hiccups along the way.  It is difficult to make sense of days like these with their wild swings.  It's best to wait & see what a sense of calm brings.  Besides tech problems, Wed is the FOMC meetings & tariff issues are not going away anytime soon.

Dow Jones Industrials

Lower markets, led by selling in Facebook

Dow dropped 222, declines over advancers better than 3-1 & NAZ sank a very big 103.  The  MLP index tumbled 7+ to 245 & the REIT index added 2 to the 331s.  Junk bond funds were mixed & Treasuries slid back slightly.  Oil was fractionally lower in the 62s & gold did little at 1311.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil62.08

GC=FGold  1,313.30

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Stocks declined globally amid a technology selloff & as investors braced for a week packed with risk events, from central bank decisions to a G-20 gathering.  Gov bonds also fell, while the £ jumped on a Brexit breakthrough.  US stock slumped as tech companies were roiled by weekend reports of a Facebook (FB) & Apple (AAPL, a Dow & NAZ stock) efforts to develop its own screens. That sapped Asian equities, while tech also led a retreat for the Stoxx Europe 600 Index.  The gauge's drop threatens to trigger a trading pattern known as a “death cross,” a bearish sign for many technical analysts.  Sterling rallied as the UK & EU reached a deal on the transition agreement for the period immediately after Brexit.  The ¥ fluctuated before slipping amid a drop in support for Japanese Prime Minister Shinzo Abe's cabinet.  In a busy week, the biggest focus for global markets will be the first US interest rate decision under new Federal Reserve Chairman Jerome Powell.  It comes after he hinted to investors that he's open to lifting the policy rate 4 times this year, rather than the 3 currently reflected in dot-plot forecasts.  Some analysts expect the projection to rise to 4 on Wed, while others say there will be no change following a round of mediocre data & policy makers' stated intentions to move gradually.  Trade tensions also remain in the spotlight as US Treasury official David Malpass said he misspoke hours after claiming America was pulling out of decade-old formal economic talks with Beijing.  Meanwhile, investors are assessing the implications of a new head at China's central bank.  The ruble weakened for a 6th day, the longest losing streak since Oct, as Russian Pres Putin won a landslide victory in a tightly controlled election.  West Texas oil edged lower.

Stocks Slide in Broad Selloff

The Chamber of Commerce & 44 other associations are urging Pres Trump not to impose sweeping tariffs in response to China's trade practices, warning the action would “trigger a chain reaction of negative consequences for the U.S. economy.”  The business groups wrote a letter to Trump acknowledging “serious concerns” regarding what they described as China's theft of trade secrets & other practices and policies, but they urged a measured response that avoided tariffs.  “The Administration should not respond to unfair Chinese practices and policies by imposing tariffs or other measures that will harm U.S. companies, workers, farmers, ranchers, consumers, and investors,” the groups said in the letter.  Trump has announced he would impose tariffs of 25% on steel & 10% on aluminum, with some exclusions & exceptions, to curb cheap imports from China & other countries.  The administration is also considering clamping down on Chinese investments in the US & imposing tariffs on a broad range of its imports to punish Beijing for alleged theft of intellectual property.  Sweeping tariffs would provoke retaliation, stifling US exports & raising costs for businesses & consumers, the groups said.  They highlighted the potential impact, including higher prices for electronics, apparel & other products, & harming US companies that sell component pieces of final products exported from China.  US manufacturers would face more expensive product components & disrupted supply chains, affecting jobs.  Manufactured products comprised more than 85% of exported goods from the US in 2017, totaling $1.3T.  Tariffs that result in reduced consumption of products would also depress financial markets.  They urged the administration to work with them to find effective, alternative responses to Chinese trade practices.

Dozens of US Business Groups Warn Trump Against China Tariffs

The UK & EU have reached a deal on the transition agreement that businesses are keen to get pinned down for the period immediately after Brexit.  Brexit Secretary David Davis & chief EU negotiator Michel Barnier briefed reporters in Brussels.  Leaders are expected to sign off on the agreement at a summit on Thurs & Fri.  The UK has been trying to secure a written promise from the EU about the transition agreement.  Businesses are cranking up the pressure to make the transition as solid, & useful, as possible.  They are becoming increasingly aware that any agreement reached at the summit this week will be a political commitment, not legally binding until the final withdrawal agreement is signed early next year.

EU, U.K. Reach Brexit Transition Deal

FB, a darling of many investors, is having a very ugly day & that selling is bleeding into the rest of the stock market.  Meanwhile, other dark clouds are around.  The Fed meeting is always big for investors who have become addicted to low interest rates.  Tariff uncertainties remain worrisome.  Then there is the routine chaos coming out of  DC.  So stocks are having tough time bringing back the multi year rally.  Just look at the Dow chart below.

Dow Jones Industrials