Tuesday, November 19, 2019

Markets waver on growing trade tensions

Dow fell 102, advancers slightly ahead of decliners & NAZ rose 20.  The MLP index dropped another 3+ to the 197s (a low going back to 2004) & the REIT index added 1 to the 407s.  Junk bond funds dipped lower & Treasuries continued being purchased.  Oil dropped 1+ to the 55s (more below) & gold was steady at 1472.

AMJ (Alerian MLP Index tracking fund)


Live 24 hours gold chart [Kitco Inc.]




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The US will raise tariffs on Chinese goods "even higher" if the two sides cannot finalize a trade deal, Pres Trump said.  The 2 sides struck a "phase one" agreement in Oct & had hoped to have the deal in writing last week, but are still negotiating.  "China's going to have to make a deal that I like. If they don't, that's it. I'm very happy with China right now," Trump said.  "They're paying us billions and billions. If we don't make a deal with China, I'll just raise the tariffs even higher."  He said he has a "good relationship" with China.  Beijing said yesterday that the VP & chief trade negotiator Liu He had "constructive discussions" during a Sat call with US Trade Representative Robert Lighthizer & Treasury Secretary Steve Mnuchin.   "The two sides have engaged in constructive discussions around the respective core concerns of the first phase of the agreement and will continue to maintain close communication," the Chinese Commerce Ministry said.

Trump throws down the gauntlet, won't budge on China's big demand


Pres Trump & his trade team are getting antsy.  They are not sitting idle when it comes to pushing the passage of the United States-Mexico-Canada Agreement.  Officials, including Secretary Mnuchin & Agriculture Secretary Sonny Perdue, as well as White House economic advisers Peter Navarro & Larry Kudlow are hosting one-on-one meetings with about 70 local news outlets in hopes to pressure the Dems to pass the bill that was officially signed about a year ago.  The pres spoke with 2 television outlets & 2 radio shows.  Speaking to reporters yesterday, he slammed House Speaker Nancy Pelosi as "incompetent" & has repeatedly railed against Dems for focusing on impeachment hearings over passing USMCA.  At stake, potentially thousands of jobs that may be created.  The White House also notes passing USMCA will boost US GDP by as much as $100B per year, according to Kudlow.  Mexico & Canada are eager to get the ball rolling as those countries will also see an economic benefit from the USMCA.  At least one Dem is now saying USMCA could be ratified by Christmas.  When asked on Capitol Hill if he thinks this timeline is feasible, House Ways & Means Chairman Richard Neal (D-Mass.) said, "I do."  Just last week, Pelosi insisted passing USMCA remains a priority.  “I’d like to see us get it done this year, I mean, that would be my goal,” Pelosi told reporters, adding that she wants the USMCA to “be a template for future trade agreements.”  Last month she said something similar.  Despite her comments, top trade officials say Pelosi is all talk & no action.  “She fiddles while the USMCA is in the deep freeze," White House trade adviser Peter Navarro said.  "The false narrative here is this whole issue about labor enforcement. That problem’s effectively been solved.”

White House goes scorched earth on Democrats in new USMCA push


South Korea agreed to give the US market access for approximately $110M worth of rice a year,  Trade Representative Robert Lighthizer & Agriculture Secretary Sonny Perdue announced.  "Thanks to President Trump's leadership, this agreement gives our farmers the largest volume of guaranteed market access for rice in Korea that the United States has ever enjoyed,"  Lighthizer added.  "It will prove enormously beneficial for American producers and their customers in Korea, who will enjoy access to high quality and cost competitive U.S. rice."  The agreement providing access for 143K tons of rice annually will go into effect on Jan 1, 2020.  "This announcement continues the Trump administration's aggressive promotion of U.S. exports," Rep Bruce Westerman said.  "Since Arkansas leads the country in rice production, I hope to see even more international markets open up to allow our industry to thrive. I thank Trade Representative Lighthizer and Agriculture Secretary Perdue for their commitment to American agriculture."  This agreement comes as the US global trade landscape is in an uncertain place.  The Trump administration is trying to make progress in negotiations with China & convince Congress to pass the US-Mexico-Canada Agreement.  The uncertainty combined with tariffs hasn't been good for farmers' bottom lines.  Pres Trump said Fri a new round of payments would go out to farmers caught up in the China trade war.  "Our great Farmers will recieve [sic] another major round of 'cash,' compliments of China Tariffs, prior to Thanksgiving," Trump tweeted.  "The smaller farms and farmers will be big beneficiaries."  "In the meantime, and as you may have noticed, China is starting to buy big again," he continued.  "Japan deal DONE. Enjoy!"

South Korea hands US historic $110M win in trade talks


A small band of anti-gov protesters, their numbers diminished by surrenders & failed escape attempts, remained holed up at a Hong Kong university early Wed as they braced for the endgame in a police siege of the campus.  Police were waiting them out after 10 days of some of the most intense protests the city has seen in more than 5 months of often-violent unrest gripping the semi-autonomous Chinese city.  Since the siege began Sun, more than 1K people were arrested & hundreds of injured treated at hospitals, authorities said.  The gov has stood firm, rejecting most of the protesters' demands.  The demonstrators shut down major roads & trains during rush hour every day last week as they turned several university campuses into fortresses & blocked a major road tunnel, which remained closed yesterday.  Even as the latest violence wound down, a fundamental divide suggests the protests in the former British colony are far from over.  In Beijing, the National People's Congress criticized Hong Kong's high court for striking down a ban on wearing face masks at the protests, in a decree that has potentially ominous implications for the city's vaunted rule of law & independent judiciary.  China’s Communist leaders have taken a tough line on the protests & said that restoring order is the highest priority.  Meanwhile, pro-democracy activist Joshua Wong was barred from going on a European speaking tour, after a court refused to change his bail conditions to let him travel outside Hong Kong.   Protesters have left all the universities except Hong Kong Polytechnic, where hundreds had barricaded themselves & fought back police barrages of tear gas & water cannons with gasoline bombs, some launched from rooftops by catapult, & bows & arrows.  Those who remained at Polytechnic were the last holdouts.  Surrounded by police, they faced arrest.  Several groups have tried to escape, including one that slid down hoses from a footbridge to waiting motorcycles, but police said they intercepted 37, including the drivers, who were arrested for “assisting offenders."  They milled about in small groups & had boxes of homemade gasoline bombs, but the mood was grim in the trash-strewn plazas, in contrast to the excitement as they prepared to take on police just a few days earlier.

Police surround last holdouts at Hong Kong campus protest


The House passed a temporary government funding bill to hold off a shutdown for a few more weeks.  The bill would fund the gov at current levels thru Dec 20.  The chamber passed it by a 231-192 margin.  It now heads to the Senate.  Senate Majority Leader Mitch McConnell said yesterday that the White House indicated Pres Trump would support a plan to keep the gov running thru Dec 20.  His backing suggests the GOP-held Senate will pass the measure.  Funding will lapse Fri if Congress cannot pass a funding plan.  The continuing resolution gives lawmakers a few more weeks to strike a deal on long-term appropriations.  Congress passed a 2-year agreement to set budget levels & suspend the debt limit earlier this year.  However, the House & Senate have struggled to agree on where exactly to put the money amid disputes over border security funding. 

House votes to avoid a government shutdown for a month, sending funding bill to Senate

Oil futures declined for a 2nd consecutive session, marking the lowest settlement so far this month & sending US prices below their 50-day moving average.  Expectations for a 4th consecutive weekly rise in US crude supplies & a report that said major oil exporter Russia wasn't likely to advocate for deeper cuts during a key meeting of major oil producers in Dec pressured prices for oil.  West Texas Intermediate crude for Dec delivery lost $1.84 (3.2%) to settle at $55.21 a barrel.  The contract, which expires tomorrow, ended today below its 50-day moving average of $55.59.  Jan Brent crude lost $1.53 (2.5%) to $60.91 a barrel, following its 1.4% skid, a day ago.  Both crude benchmarks marked the lowest front-month contract settlements since Oct 31.  OPEC is slated to hold a 2-day gathering beginning Dec 5 in Vienna, with its core members & major outside producers like Russia, part of an oil group known as OPEC+.  Reports have suggested that Saudi Arabia, the de facto head of OPEC by virtue of its oil production might, is pushing for deeper cuts to production among OPEC & non-OPEC members in an effort to stabilize weak prices ahead of a massive IPO of Saudi Aramco oil behemoth. Saudi officials are aiming for a valuation of $1.6-$1.7T.  In place presently is an agreement between OPEC & non-OPEC members for a combined cut to oil output of 1.2M barrels a day, which ends in Mar.  Additionally, doubts about appetite for the Aramco IPO are also being interpreted as a sign of weakness about the oil market which has been wrestling with fears of slowing global growth and fears of oversupply.

Oil futures mark lowest settlement of the month so far


This was pretty much a break even day for stocks, although the Dow was hit with selling.  Retail earnings are a drag.  More importantly, the trade picture got darker.  The South Korea story looks good while USMCA is going nowhere fast even though it is not contested by the US.  Additionally, optimism on the US-China trade faded fast today.  Market indices are near records, but they may need a rest after the recent rally.

Dow Jones Industrials








Markets slide lower on weak earnings

Dow dropped 68, decliners barely ahead of advancers & NAZ rose 13.  The MLP index continued falling, down 1+ to the 199s, & the REIT index crawled higher in the 406s.  Junk bond funds drifted lower & Treasuries inched higher.  Oil  was off 1+ to the 55s & gold slid 1 to 1470.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil55.83
-1.22-2.1%

GC=FGold   1,470.80
-1.10-0.1%






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Stocks opened in record territory as they looked to extend their winning streak to a 6th straight day.  All 3 of the major averages were higher, with NAZ leading the way, up 0.3%., while the Dow & S&P 500 both gained 0.2%.  Pres Trump celebrated the market's strength in a tweet.  Commodities were weaker, with gold down 0.3% near $1467 an ounce & West Texas Intermediate crude oil off 1.7% at $56.15 a barrel.  The yield on the 10-year Treasury note was little changed near 1.81% after mixed housing data.  Housing starts rose 3.8% last month to a seasonally adjusted annual rate of 1.314M units, missing the 1.32M that was expected.  Building permits climbed 5%  to an annual rate of 1.461M units in Oct, the highest since 2007.  In Asia, Japan's benchmark Nikkei 225 edged 0.5% lower, Hong Kong's Hang Seng gained 1.6%, while the Shanghai Composite was up 0.9%.  The Chinese Central Bank cut the 7 -day reverse repurchase rate to 2.50% from 2.55%, fueling expectations that Beijing will continue to ease monetary policies.  Chinese indices were rising moderately despite the continuing unrest in Hong Kong.  Police have tightened their blockade over Hong Kong Polytechnic University, where some protesters are trapped & hundreds who left have been arrested.

Stocks continue record run


NY Fed Pres John Williams said he is content with the current position of monetary policy & interest rates but said the central bank should be prepared to act aggressively to anticipate negative shocks to the economy.  Williams also said he considers the US economy to be “in a very good place” & inflation to be drifting up to the Fed's 2% longer-term goal.  “I think we’ve gotten the adjustments that we need at least right now. Monetary policy is well-positioned given the recent actions,” he added.  “My outlook is one for continued growth. I think we have monetary policy in the right place. Our key thing is we’re not linked in to any specific decisions” at future meetings.  Federal Reserve officials in Oct approved the 3rd qtr-point rate cut this year.  But in doing so, they also indicated that they likely will be on hold for a period as they evaluate incoming data.  The Fed's benchmark funds rate is now targeted at 1.5%-1.75%.  While endorsing that position, Williams also veered back into a discussion that generated some controversy back in Jul, when he said research has shown that it's better to be aggressive in cutting rates before a downturn hits rather than waiting for one to arrive.  He does not endorse the concept of “keeping your powder dry” because of the lags between rate cuts & their impact on economic conditions.  When he made the remarks initially, they prompted a market reaction that eventually led to Williams clarifying his remarks to say that he was speaking theoretically rather than commenting on where he thought current policy should go.  “Given these lags in monetary policy, you really need to be preemptive,” he said.  “You need to be managing risk in anticipation of where a shock may hit and be prepared to adjust course if need be.”

Fed’s Williams says rates are ‘in the right place’ but policy is not set in stone

The clock has run out on Pres Trump's authority to impose “Section 232” tariffs on imports of foreign-made cars & auto parts, & he may have to find other means if he wants to pursue tariffs on European or Japanese cars, legal experts say.  Their view was supported by a new US trade court ruling, published yesterday, that Trump's authority had lapsed in a previous Section 232 investigation on imports of foreign steel.  Trump took no action last Thurs as a deadline to impose the national security tariffs of up to 25% on automotive imports from the EU, Japan or South Korea expired.  Automakers had expected another delay in Trump's tariff decision as his administration pursues broader trade negotiations with the EU & Japan.  In May, Trump invoked a 6-month negotiating period under Section 232 of the Trade Expansion Act of 1962, a law aimed at protecting the US Cold War-era defense industrial base.  He has hailed the threat of tariffs as a strong negotiating tool to gain leverage over his opponents.  But an initial trade deal with Japan reached in Sep did not address autos trade, while talks with the EU have not formally started as the 2 sides remain at odds over the scope of the negotiations.  In a decision published yesterday, the Court of Intl Trade ruled that Trump ran out of time on a Section 232 investigation of steel imports, when he tried to double the tariffs on Turkish steel to 50% in Aug 2018.  The move aimed at freeing an American pastor detained in Turkey was challenged by an Transpacific Steel, an importer of Turkish steel, which claimed that, among other things, the move came too late to follow proper procedures laid out in the law.

Trump's tariffs on European cars run out of time


Home Depot (HD), a Dow stock, shares fell after the company once again cut its 2019 forecast & reported same-store sales well below estimates.  The company said revenue, which also missed targets, was hurt by investments it is making in its business.  EPS came in a penny better than expected.  The company said the investments it's making in its business have yet to benefit its sales. HD has been spending money updating its stores & digital platform while also improving its supply chain.  “We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions,” CEO Craig Menear said.  EPS went up to $2.53 from $2.51 a year earlier.  Analysts had expected $2.52.  Sales increased 3.5% to $27.22B, just shy of the estimates for $27.53B.  Sales at US stores open at least 12 months rose 3.8%.  Analysts were expecting a 4.7% gain.  HD also cut its sales forecast for the year.  It now expects sales to grow 1.8%, down from a prior estimate of 2.3%.  The company also cut its same-store sales forecast for the fiscal year.  It expects growth of 3.5%, compared with an earlier forecast of 4%.  The outlook for EPS unchanged.  The stock  sank 12 to the 226s.
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Home Depot cuts 2019 forecast after sales miss, shares drop


Stocks are drifting again, looking for direction.  The chart below shows the Dow has had a good run since in Oct.  Now it needs time to rest without exciting news to stimulate buying.  Staying near to 28K, the bulls are still feeling pretty good.

Dow Jones Industrials








Monday, November 18, 2019

Markets slip lower on mixed signals about a US-China trade deal.

Dow slid back 10, decliners over advancers 4-3 & NAZ was off 31.  The MLP index dropped another 2+ to the 202s (another more than a decade low) & the REIT index added 2+ to the 406s.  Junk bond funds did little & Treasuries were bid higher.  Oil pulled back in the 57s & gold crawled up 2 to 1470.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil57.14
 -0.58-1.0%

GC=FGold   1,470.00
+1.50+0.1%







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The US & China continue to make progress toward a phase one trade deal.  “The two sides have engaged in constructive discussions around the respective core concerns of the first phase of the agreement and will continue to maintain close communication,” the Chinese Commerce Ministry said in a press release following Vice Premier & chief trade negotiator Liu He's call with US Trade Representative Robert Lighthizer & Treasury Secretary Steve Mnuchin on Sat.  The 2 sides were hoping to have a partial trade deal in writing last week, but the Asia-Pacific Economic Cooperation summit in Santiago, Chile, was canceled due to unrest in the country, eliminating the soft deadline surrounding an agreement.  A phase one trade deal is expected to be “relatively limited in scope,” with the major focus being on “current trade” & China's willingness to commit to the purchase of $40-50B of US agriculture, Commerce Secretary Wilbur Ross said.  China has called on the US to roll back tariffs as part of a phase one deal, but Pres Trump has ruled that out.  "China would like to make a deal much more than I would," the pres told reporters on Nov 9.  "They'd like to have a rollback. I haven't agreed to anything."  No decision has been made about the tariffs scheduled to hit $156B of Chinese goods on Dec 15.  Still, Ross says there is a “very high probability” that a deal gets done, but warned, “the devil is always in the details.”

Beijing hints at good news in US-China trade talks


Hong Kong police using tear gas & batons fought off today as they tried to break thru a police cordon that is trapping hundreds of them on a university campus.  Protesters advanced on the police from outside the cordon, while others emerged from the campus, their trademark umbrellas at the fore.  Police used tear gas & in some places swooped in to subdue protesters & make arrests.  It wasn't clear if any of those inside Hong Kong Polytechnic University escaped.  Hong Kong's work week started with multiple protests that disrupted traffic, schools closed because of safety concerns & a temporary lull in the pitched battles for control of the Polytechnic campus, as the emphasis shifted from battering the protesters with tear gas & water cannons to waiting for them to come out.  For days, protesters fortified the campus to keep police from getting in.  Cornered by authorities, they were trying to get out.  Officers repelled one attempt to with tear gas, driving a few hundred protesters back onto the campus.  The give-&-take has played out repeatedly during the city's months of anti-gov unrest.  The protesters want to avoid arrest & the police want to pick up as many as they can.  Protesters won on a legal front when the high court struck down a mask ban imposed by the gov last month.  The court said it did not consider anti-mask laws unconstitutional in general, but in this case, the law infringed on fundamental rights further than was reasonably necessary.  Many protesters wear masks to shield their identities from surveillance cameras that could be used to arrest & prosecute them.  The ban has been widely ignored & police have charged protesters with wearing masks.  The protests started peacefully in early Jun, sparked by proposed legislation that would have allowed criminal suspects to be extradited to the mainland.  But by the time the bill was withdrawn, the protests had hardened and broadened into a resistance movement against the territory's gov & Beijing.  Activists see the extradition bill as an example of Hong Kong's eroding autonomy under Beijing rule since the 1997 handover from colonial power Britain.  The head of a nationalistic Chinese newspaper said Hong Kong police should use snipers to fire live ammunition at violent protesters.  “If the rioters are killed, the police should not have to bear legal responsibility,” Global Times editor Hu Xijin wrote on his Weibo social media account.  Anti-gov protesters barricaded themselves inside Polytechnic last week.  Police surrounded the area yesterday began moving in after issuing an ultimatum for people to leave the area. The crowd wore raincoats & carried umbrellas to shield themselves from police water cannons.  At daybreak, protesters remained in control of most of the campus.  In one outdoor area, some demonstrators made gasoline bombs while others dozed while wearing gas masks.  2 walked about with bows & quivers of arrows, while many stared at their smartphones.

Hong Kong students fight off police charges in epic battle


The nation's single-family homebuilders are feeling very positive about their business, but a monthly sentiment indicator fell in Nov from a recent high.  The national association of Home Builders/Wells Fargo Housing Market Index (HMI) fell one point to 70, after rising steadily since Jun to the highest level of the year last month.  Anything above 50 is considered positive.  The index measured 60 in Nov 2018.  “Single-family builders are currently reporting ongoing positive conditions, spurred in part by low mortgage rates and continued job growth,” said NAHB Chairman Greg Ugalde.  “In a further sign of solid demand, this is the fourth consecutive month where at least half of all builders surveyed have reported positive buyer traffic conditions.”  Of the index's 3 components, current sales conditions fell 2 points to 76, traffic of prospective buyers dropped one point to 53 & sales expectations in the next 6 months rose one point to 77.  Sentiment, as well as housing starts, are stronger this year thanks in part to much lower mortgage interest rates.  The average rate on the 30-year fixed mortgage was around 5% in Nov of 2018 & is now hovering just below 4%.  Homebuilders are also finally, slowly starting to pivot more toward less pricey, starter homes.  There are, however, still several roadblocks at that price point.  “We have seen substantial year-over-year improvement following the housing affordability crunch of late 2018, when the HMI stood at 60,” said NAHB Chief Economist Robert Dietz.  “However, lot shortages remain a serious problem, particularly among custom builders. Builders also continue to grapple with other affordability headwinds, including a lack of labor and regulatory constraints.”  Stocks of the big public builders have been on a tear all year, rising as mortgage rates fall.  Most builders have also been reporting solid beats in quarterly earnings, as buyer demand surges thanks to job growth & a severe shortage of affordable, existing homes for sale

Homebuilder confidence slips slightly in November

Not much excitement in the stock market today.  Progress on the trade deal keeps lumbering along,  The protests in Hong Kong are an important part of the story & they shows no sign of ending soon.  The population there is small compared to the population of mainland China, but it's a significant part of China's total economy.  Making matters worse, Hong Kong's economy has slipped into a recession.  Meanwhile, the US stock markets hovers around record levels.

Dow Jones Industrials