Friday, February 21, 2020

Markets tumble on rising confirmed cases of coronavirus

Dow sank 315, decliners over advancers about 3-1 & NAZ dropped 156.  The MLP index fell 3+ to the 196s & the REIT index remained flattish in the 433s (record levels).  Junk bond funds slid lower & Treasuries jumped in price, bringing the yield on the 10 year Treasury down 7 basis points to 1.46%.  Oil fell t o the 53s & gold skyrocketed 28 to 1.46%.

AMJ (Alerian MLP Index tracking fund)

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CL=FCrude Oil52.81
  -1.07 -2.0%

GC=FGold   1,649.50

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China's finance ministry said it will begin exempting 65 US goods from retaliatory tariffs implemented amid the bilateral trade dispute with the US for one year starting nest Fri.  Goods exempt from the extra tariffs include aircraft parts & medical equipment, according to documents published on the ministry's website.  The finance ministry did not provide details, including how much of the 65 products China imported last year.

Good trade: China exempting dozens of US products from retaliatory tariffs

Deere (DE) reported better-than-expected fiscal Q1 results & said the US farming industry, ravaged by the trade war with Beijing, is showing signs of improvement. Shares rallied on the news.  The farm-equipment manufacturer reported EPS of $1.63 but revenue slumped 4.4% to $7.63, beating the $6.41B that was expected.  Results include a $127M pretax charge related to a voluntary employee-separation program.  “John Deere’s first-quarter performance reflected early signs of stabilization in the U.S. farm sector,” CEO John May said.  “Farmer confidence, though still subdued, has improved, due in part to hopes for a relaxation of trade tensions and higher agricultural exports.”  A US-China trade deal was signed by Presi Trump in Jan, providing a respite from steadily escalating trade barriers as the US sought to force Beijing to negotiate a broad commerce agreement.  Still, sales at the agriculture & turf division fell 4% from the year prior to $4.49.  The sales drop came amid lower shipment volumes & unfavorable foreign-exchange fluctuations, which were partially offset by higher prices.  While the farm business is showing signs of bottoming, activity in the construction industry, another key market, has slowed, too, causing the company to reduce production & lower inventories.  Sales from the construction & forestry unit slumped 10%  to $2.04B.  Overall, DE reported net income from its equipment operations spiked 13% from a year ago to $383M as sales slid 5.9% to $6.53M.  Looking ahead, DE sees fiscal 2020 net income of $2.7-$3.1B.  Sales at its agriculture & turf segment are expected to decline 5-1% amid lower demand for large equipment in Canada.  Worldwide construction & forestry equipment sales may drop 10-15% amid slowing building activity & efforts to reduce inventory.  The stock shot up 13.19 (8%).
If you would like to learn more about DE, click on this link:

US farm industry stabilizing as China trade war cools, Deere reports

The coronavirus has spread to several Iranian cities, a health ministry official said, as an outbreak that the authorities say began in the holy city of Qom caused 2 more deaths.  Iran confirmed 13 new coronavirus cases, bringing the total in the country to 18, with 4 of the total having died.  The majority of coronavirus cases in Iran have been in Qom, a Shiite Muslim holy city 75 miles south of the capital Tehran.  The new cases comprised 7 people diagnosed in Qom, 4 in the capital Tehran & 2 in Gilan province, the Health Ministry said in a tweet.  Health officials had called for the suspension of all religious gatherings in Qom.  “It’s clear that new coronavirus has circulated in the country and probably the source of this illness was Chinese workers who work in the city of Qom and had traveled to China,” a health ministry official said, according to the official IRNA news agency.  Additionally, Coca-Cola (KO), a Dow stock & Dividend Aristocrat, is forecasting that the coronavirus will drag down its Q1 EPS by 1-2¢.  The company also estimates that the outbreak will hit unit case volume by 2-3% & organic revenue by 1-2%.  However, the beverage giant is still expecting to meet its full-year outlook.  KO's Chinese business accounts for about 10% of its global volume but less of its profit & revenue.

Coronavirus live updates: Coca-Cola takes an earnings hit, Iran confirms more cases

The difference between the rallies in stocks & gold is showing up today.  Investor money is being put into safe have gold & Treasuries while stocks are sold.  Both investor categories have been rising in price, a relationship which is to meant to last.  Nervous investors are driving up the Volatility Index (VIX), up 2 to th 17s.  Selling can be expected to keep stocks under pressure for the rest of the day.  Meanwhile gold has been having a significant rally in 2020.

Dow Jones Industrials

Thursday, February 20, 2020

Markets decline as gold hits a new 7 year high

Dow dropped 128, advancers over decliners 3-2 & NAZ pulled back 66.  The MLP index was fractionally lower in the 199s & the REIT index recovered yesterday's loss, up 4+ to 433.  Junk bond funds did little & Treasuries remained in demand.  Oil rose in the 53s & gold gained 11 to 1623.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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A contraction in US manufacturing spurred by the trade battle with China & slowing global growth may have reached an end already, if 2 key business surveys hold up.  Production at American facilities fell in H2-2019 despite an otherwise growing economy, sparking worries that a broader recession might be in the works.  But indicators this week from the key Philadelphia & NY Federal Reserve districts showed a sharp rebound that far exceeded eypectations.  Early in the week, NY's Empire State Manufacturing Survey for general business conditions posted a reading of 12.9, up 8 points from Jan & its best level since May.  New orders surged to 22.1, the highest since Sep 2017, & shipments rose to 18.9, the best since Nov 2018.  Today, the Philadelphia survey exploded 20 points higher to 36.7, the highest in years.  New orders hit their highest since May 2018.  The indices are percentage measures of companies expecting growth or contraction.  Though the employment components for both regions were stagnant, the measures taken together show a manufacturing sector on the rebound.  “Absolutely, the fundamentals in the U.S. are strong — sustained growth, strongest labor market in 50 years, price stability with inflation close to our goal. So, yeah, it’s a good picture,” Fed Vice Chair Richard Clarida said following the Philadelphia report.  However the coast isn't completely clear for the sector as pockets of trouble remain, particularly with Boeing's (BA), a Dow stock, struggles.  The Fed's Jan headline reading on industrial production showed a contraction of 0.3% & the Labor Dept reported that manufacturing jobs fell 12K, mostly due to a decline in motor vehicles & parts.  The manufacturing index was down 0.1%, but stripping out civilian aircraft production, which has been hampered by BA's 737 Max problems, it showed an advance of 0.3%.  Clarida said a first-phase tariff armistice between the US & China, along with the trade agreement between the US, Mexico & Canada and the start of Brexit, should further boost the picture.  “There’s no doubt there’s been a decline in trade policy uncertainty,” Clarida added.  “To the extent that [uncertainty] was holding back investment, that should be a positive this year.”

America’s manufacturing recession looks like it could be over

Small business sentiment is on the rise to kick off 2020, with confidence nearing all-time highs, according to data from CNBC & SurveyMonkey.  The CNBC/SurveyMonkey Small Business Confidence Index climbed 2 points in Q1, from 59 to 61, as concerns over trade policy impacts lessened, thanks to a trade deal with China & the signing of the USMCA.  This is a sharp turnaround from the lows seen last summer as trade turmoil weighed on Main Street's outlook.  The Small Business Confidence Index is calculated based on entrepreneurs' responses to a set of 8 questions about their businesses as part of the Survey.  That poll was conducted Feb 3–10 among a national sample of 2K small business owners ages 18 & up.  While confidence increased, the move can be attributed to more business owners feeling less pessimistic about issues like trade, moving to a more neutral position.  If small business owners had turned positive on their outlook, the confidence index could have risen even further this quarter.  “It’s not that everyone is feeling optimistic — things are moving to the middle,” says Laura Wronski, senior research scientist at SurveyMonkey.  “There’s now a higher percentage of people who don’t expect any impact from things like changes in trade or tax policy.”  In the next 12 months, about 1/5 of small business owners expect a negative impact from changes in trade policy, while 26% expect a positive effect — more than ½ say the changes will have no impact.  Of the small business owners that said either deal would impact their operations directly, most came from the retail sector.  “There was a lot of worry about tariffs and the trade war that has been abated due to the agreement with China,” says Todd McCracken, pres of the National Small Business Association.  “Those concerns about what would happen with trade and supply chains are less worrisome than they were.”  Generally, business owners are feeling more positive about business, with 56% saying conditions are good & only 7% saying the opposite.   Recession fears have also calmed down somewhat, with 49% of businesses saying a recession is likely in the next year, down from 53% this same qtr of 2019.  Jobs & the economy came in as the top issues for 1/3 of respondents, followed by health care, the environment & immigration.  Finding qualified workers to fill positions remains the biggest challenge for 19% of respondents, the same percentage of respondents who deemed this their biggest hurdle in Q1 2019.  “They’ve got no simple solution. We are a victim of our own success, since the economy is doing so well,” McCracken says.  “It’s hard to find workers for that next opportunity.”  Even as workers are in short supply, there's little movement on wages.  In fact, 70% of respondents said that if one of their employees were to quit today, they would expect to pay their replacement the same; just 14% said they would expect to pay more.  With regard to minimum-wage increases kicking in across the country, nearly ½ said they expected wage hikes to have some impact on business, with 22% projecting lower profits & 14% saying hikes would force them to cut hours & 8% saying increases would lead to layoffs.

Small business confidence rises, signaling a more positive outlook for US economy

Gold futures climbed higher, sending bullion up for a 6th straight session to its highest finish in 7 years,as persistent worries about China's coronavirus & a benign interest-rate environment provide a runway higher for the precious metal.  Gold for Apr rose $8.70 (0.5%) to settle at $1620, after a similar rise yesterday.  Prices for the most-active contract posted the highest finish since 2013.  Gold has climbed in tandem with the $, something that doesn't usually occur as a stronger greenback can weaken the appeal for $-pegged safe haven assets like gold.  The $ index climbed for a 3rd day to a 3 year high.  Today, the China's central bank (PBOC) cut its benchmark one-year loan prime rate by 10 basis points & the 5-year loan prime rate by 5 basis points.  That followed its recent cut in the one-year medium-term lending rate.

Gold futures post highest settlement since mid-February 2013

Oil futures finished higher, buoyed by a smaller-than-expected weekly increase in US crude supplies.  Prices were already moving up ahead of the supply data, partly on the back of expectations that efforts by China to stimulate the economy will blunt the hit to crude demand from the country's COVID-19 outbreak.  The prospect of a further squeeze on Venezuelan oil exports has also supported prices.  US benchmark West Texas Intermediate crude for Mar delivery rose 49¢ (0.9%) to finish at $53.78 a barrel, with the contract expiring at the settlement.  It marked its highest settlement since Jan 24.  Apr WTI crude, which is now the front-month contract, settled at $53.88, up 39¢ (0.7%).  Global benchmark Apr Brent crude rose 19¢ (0.3%) to $59.31 a barrel, for the highest front-month contract finish since Jan taking the Dow down to  29.  The Energy Information Administration reported that US crude supplies edged up by 400K barrels last week.  Supply data were delayed by a day this week because of the holiday on Mon.  Analysts expected the data, to show a rise of 3.3M barrels.  The American Petroleum Institute reported a climb of 4.2M barrels, according to sources.

Oil futures end higher as U.S. crude supplies post a smaller-than-expected weekly climb

Stocks were sold at midday taking the Dow down to 29K.  Then the bulls returned & brought a recovery, although it still finished in the red.  The Volatility Index (VIX) went up 1+ to the 15s, reflecting growing nervousness by investors.  So far, the virus has not hit the world outside China very hard.  But China has a large impact on the global trade & it affects all economies.  Nobody knows how badly the virus will affect global trade.  Demand for safe haven gold continues strong while investors worry about how long the virus threat might remain..

Dow Jones Industrials

Mixed markets pause after increase in coronavirus death toll

Dow crawled up 1, advancers over decliners about 2-1 & NAZ was off 1.  The MLP index went up 1+ to the 201s & the REIT index rebounded 2+ to 430.  Junk bond funds fluctuated & Treasuries were purchased bringing higher prices.  Oil rose to the 54s & gold jumped up 11 to 1623 (another 7 year high).

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil54.00

GC=FGold   1,621.60

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Procter & Gamble (PG), a Dow stock, warned the coronavirus outbreak is curbing in-store sales & limiting the ability of its digital operations to meet demand.  “China is our second largest market -- sales and profit. Store traffic is down considerably, with many stores closed or operating with reduced hours,” Jon Moeller, CEO & CFO said in an SEC filing.   “Some of the demand has shifted online, but supply of delivery operators and labor is limited.”  The stock rose 62¢.
If you would like to learn more about PG, click on this link:

P&G warns coronavirus is disrupting China business

Federal Reserve Vice Chair Richard Clarida doused talk of a rate cut.  He doesn't think most market participants really expect one or that it is noted.  “Market pricing for rate cuts is a little tricky, because there’s market expectations for rates, there also can be term and liquidity premiums,” the central bank official said in interview.  Futures contracts are pointing to a rate reduction as soon as Jun or Jul & no later than Sep, according to various indicators.  However, Clarida said economists largely do not see the Fed easing this year, a view that he gives strong weight.  “I don’t think when you ask folks they’re pricing in that rate cut, even though market pricing might suggest that,” he added.  Clarida reiterated that the “fundamentals in the U.S. are strong” though he said Fed officials are monitoring risks, in particular the coronavirus.  “It’s obviously something that is probably going to have a noticeable impact on Chinese growth in the first quarter,” he said.  However, there's no indication at this point that it will impact policy.  “What are would be looking for is some body of evidence that suggests that we need to make a material reassessment of our outlook, and certainly we have not done that yet,” Clarida added. “But we are monitoring, because China is a huge part of our economy.”

Fed Vice Chair Clarida throws cold water on traders pricing in a rate cut

The economy showed some more sizzle at the start of 2020, pointing to steady growth in the next several months, according to an index that measures the nation's economic health.  The leading economic index jumped 0.8% in Jan, the Conference Board said, increasing twice as much as expected.  The leading index got the biggest boost from rising permits to build new homes.  They hit a 13-year high last month as builders move to step up construction as falling interest rates stoke more demand.  Declining applications for unemployment benefits, higher consumer confidence, record stock prices & cheaper credit also added to the surge in the index.  The leading index is composed of 10 economic indicators designed to signal the high points & low points in the business cycle.  The US economy is plowing ahead at a decent 2% pace of growth & a record expansion already 10+ year old looks likely to continue, but growing worries about COVID-19 could hurt the economy in the short run if China is unable to contain the novel coronavirus.  If it turns into a global pandemic, there's no telling how much it could hurt the US & world economies.

Leading indicators surge in January, point to steady economic expansion in early 2020

Coronavirus worries are nagging thoughts & traders are paying attention today.  Feb started out as a good month for stocks (see below), but they have been stuck in the mud for 2 weeks.  Meanwhile gold is up 5% in the last month.  Investors with negative thoughts about the stock market continue buying gold as a hedge against uncertainties about the uncertain future.

Dow Jones Industrials