Wednesday, September 30, 2020

Market gains trimmed after stimuius talks ended

Dow rose 328 (but  under session high), advancers ahead of decliners 4-3 & NAZ rose 82.  The MLP index was off 2+ to the 207s & the REIT index fell fractionally to to 346.  Junk bond funds slid lower & Treasuries declined.  Oil advanced finishing just under 40 & gold dropped 11 to 1892 (more on both below).

More Americans signed contracts to buy homes in Aug, suggesting the hot US housing market will continue to churn well into fall.  The National Association of Realtors said that its index of pending sales rose 8.8% to a record high of 132.8.  An index of 100 represents the level of contract activity in 2001.  It had sunk to a low of 69 in Apr, when buyers & sellers were sidelined as the coronavirus swept thru the US.  Contract signings are a barometer of finalized purchases over the next 2 months, so this month's numbers point to continued strong sales into Oct.  The housing market has been one of the highlights of the US economy, which is still trying to get back its pre-virus momentum.   Contract signings are now 24.2% ahead of where they were last year, after falling behind last year's pace earlier in the year because of the pandemic.  The positive pending home sales numbers follow a pair of indicators showing continued strength in the housing market.  The National Association of Realtors said last week that sales of existing homes rose 2.4% in Aug to its highest level since 2006.  Sales are up 10.5% from a year ago & back to pre-COVID-19 levels of early 2020.  Also last week, the Commerce Dept reported that sales of new homes rose a solid 4.8% in August after surging 13.9% in Jul.  Historically low interest rates of less than 3% are pushing buyers into the market, even as home prices rise due to lack available properties.  The median price for an existing single-family home reached $315K in Aug, up 11.7% from last year.  The median price of a new home sold in Aug was $313K.  All 4 regions of the US saw more contract signings for the 3rd straight month.

More Americans sign contracts to buy homes in August

Gold futures finished lower in the session, contributing to a loss for the month as prices responded to a strengthening $ that was been weighing on commodity prices.  The bullion, however, tallied an 8th straight quarterly gain, buoyed by haven demand for the precious metal.  Dec gold retreated $7 (0.4%) to settle at $1895 an ounce.  For the month, gold lost 4.2%, but advanced 5.2% over the 3-month period ended in Sep, tracking the most-active contract.  Gold futures had earlier briefly risen to trade back above $1900 shortly after data showed the pace of US private sector job growth in Sep was the strongest in 3 months.  Private-sector employment rose by 749K jobs, Automatic Data Processing reported.  The gov will release its Sep jobs report on Fri.  Meanwhile, the record decline in the US economy in Q2 was lowered slightly to a 31.4% annual pace, from a previous reading of 31.7%.

Gold prices fall for the month, but tally an 8th quarterly gain in a row

The record decline in the US economy in the early stages of the coronavirus pandemic was modified slightly to a 31.4% annual pace — setting the stage for a big rebound in Q3.  The decline in GDP, the official score card for the US economy, was previously put at 31.7% during the April-Jun.  The economy has been engaged in a comeback since the start of the summer, & GDP is expected to show a big snap-back rebound Q3.  Economists predict the US is likely to expand at a record 25% annual clip during the Jul-Sep time frame.  Q3 GDP will be released at the end of Oct.  Even a rebound of that size, however, will leave the economy in a shrunken state compared with before the advent of the coronavirus pandemic in Mar.  Many think a full recovery could take a few years.  GDP is a checkup of sorts for an economy, measuring consumer spending, business investment, gov outlays & other contributors to an expansion or a contraction.  Previously GDP had never shrunk by more than 10% on an annualized basis in any qtr since the gov began keeping track after World War II.  Consumer spending, the main engine of the economy, contracted by a slightly revised 33.2% annual clip in the spring.  Business investment in structures & equipment each sank by a more than 30% rate in the 2nd qtr, both record declines.  The level of inventories fell by a $206B annual rate in Q2, little changed from the prior estimate.  Federal spending jumped by a revised 16.4%.  The gov spent Ts to help households & businesses get thru an economic lockdown that shuttered many companies & severely depressed growth, putting Ms out of work.  Inflation as measured by the Federal Reserve's preferred PCE price index declined by a 1.6% annual rate, compared to prior -1.8% reading.  Most other figures in the GDP report were little changed.  Q2 is water under the bridge.  The just-about-to-end Q3 is in some ways also water under the bridge.  It's sure to turn out to be a strong one because the economy reopened & Ms returned to work.  What matters now is how fast the US grows in the final 3 months of the year, an outcome that could shape the nature of the recovery in the longer run.  While there are signs growth has slowed, the economy has also proven more resilient than most forecasters expected.  That’s a potentially good omen.

U.S. economy’s historic contraction in second quarter tweaked to 31.4% 

Prolonged closures at Disney's (DIS), a Dow stock, theme parks & limited attendance at its open parks has forced the company to lay off 28K employees across its parks, experiences & consumer products division.  In a memo sent to employees, Josh D’Amaro, head of parks at DIS, detailed several “difficult decisions” the company has had to make in the wake of the coronavirus pandemic, including ending its furlough of thousands of employees.  Around 67% of the 28K laid off workers were part-time employees.  The company declined to break down the layoffs by individual park locations.  While the theme parks in Florida, Paris, Shanghai, Japan & Hong Kong have been able to reopen with limited capacity, both California Adventure & Disneyland have remained shuttered in Anaheim, California.  The company has been hemorrhaging money since the outbreak began.  In Q2, it reported a loss of $1B in operating income due to the closures of its parks, hotels & cruise lines.  In Q3, the company reported a steeper loss of $3.5B.  The stock was off 1.21.
If you would like to learn more about DIS, click on this link:

Disney to lay off 28,000 employees as coronavirus slams its theme park business

Dallas Fed Pres Robert Kaplan said that it is likely appropriate to keep interest rates anchored near zero for up to 3 years to aid the US economic recovery from the coronavirus pandemic.  “I think we’re going to need to keep the Fed funds rate at zero ... for the next probably 2½ to three years years,” Kaplan said.  ” It could be that long that until we get on track, to have weathered the crisis and are on track to meet our full employment and price stability goals.”  Earlier this month, the Federal Reserve's policymaking committee voted to keep short-term rates targeted at 0%-0.25%, where they have been for for the last 6 months & indicated they would remain there until inflation rises consistently.  Kaplan was one of 2 members to vote against the policy action, but he stressed today it is due to his desire for the central bank to have more leeway to its monetary approach.  “My dissent is about making commitments beyond that point. I think beyond that point, I’d rather see us keep some flexibility,”  He said, while noting the Fed's new policy of average inflation targeting is likely to mean lower interest rates even as unemployment rate falls.  “I don’t know if that’s going to be appropriate. Historically, it wouldn’t have been,” added Kaplan,. “With the new framework and our inflation targets, I think we’re going to be more accommodative than we have been in the past, but I don’t know if we want to be committing to keeping rates at zero until we meet these targets.”  To be sure, Kaplan emphasized he continues to believe in the accommodative stance the central bank has adopted in response to the pandemic.  “Obviously, we’re doing extraordinary actions, not just the Fed funds rate but also what we’re doing with the 13(3) programs and asset buying, but we need to because it’s a crisis,” Kaplan said, referring to the emergency lending enabled under the 13(3) powers of the Federal Reserve Act.  However, Kaplan cautioned there are limits to what the central bank can do for the US economy, contending more stimulus from Congress to make up for lost income is necessary.

Dallas Fed’s Kaplan: Near-zero interest rates may be needed for up to 3 years

US oil futures settled higher after US gov data showed a 3rd consecutive weekly decline in domestic crude supplies.  Prices, however, still suffered their first monthly decline since Apr as concerns persist about the global economic outlook & its impact on demand.  The Energy Information Administration reported that US crude inventories fell for a 3rd straight week, down by 2M barrels last week.  That compared with an average climb of 1.9M barrels expected, while the American Petroleum Institute yesterday had reported a fall of 831K barrels.  The EIA data showed crude stocks at the Cushing, Okla., storage hub rose by 1.M barrels for the week.  West Texas Intermediate crude for Nov rose 93¢ (2.4%) to settle at $40.22 a barrel.  Prices based on the front-month contracts saw monthly fall of 5.6%, but ended 2.4% higher for the qtr after they had posted gains in each of the last 4 months.  The Dec Brent crude, which became the front month at the end of the session, tacked on 74¢ (1.8%) at $42.30 a barrel.  Nov Brent crude, which expired at the end of the day's regular trading, edged down 8¢ at $40.95 a barrel.  Based on the front months, Brent prices were down 9.6% for the month & posted a quarterly loss of 0.5%. 

Oil prices settle higher as U.S. supplies fall a third week

House Speaker Nancy Pelosi & Treasury Secretary Steve Mnuchin failed to strike a coronavirus stimulus deal during a more than 90-minute meeting.  The pair will continue discussions as they try to craft an elusive 5th relief package that could pass both chambers of Congress, the California Dem said.  Meanwhile, House Dems plan to vote on their $2.T rescue legislation later today — a largely symbolic action as Senate Majority Leader Mitch McConnell has already opposed the plan.  The House speaker said she & Mnuchin had an “extensive conversation” & “found areas where we are seeking further clarification.”  Entering the talks, Mnuchin said the White House & Dems had found common ground on issues including direct payments, small business loans & airline aid. But reports indicate they still need to resolve disputes over state & local gov aid & liability protections for businesses, among other topics.

Pelosi, Mnuchin fail to reach stimulus deal but will continue talks as House pushes ahead with vote

Soo much for one more stimulus package.  Of course, negotiations began with significant challenges.  Tomorrow trading will begin with the weekly jobless claims report which will likely be drab..  For what it's worth, there was buying into the close.  The Dow finished the month falling 700 & NAZ was down about 600.

Dow Jones Industrials

Markets rally on stimulus hopes

Dow soared 421 to session highs, advancer over decliners about 3-1 & NAZ gained 127.  The MLP index was fractionally higher to 111 & the REIT index went up 2+ to the 248s.  Junk bond funds inched higher & Treasuries were sold while stocks rallied.  Oil rose in the 39s & gold added 1 to 1904.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil39.67

GC=FGold   1,891.60

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Private employers hired at a faster-than-expected pace in Sep, indicating the nation's pandemic-ravaged labor market is continuing to recover from the coronavirus crisis, according to the ADP National Employment Report.  The report showed that companies created 749K new jobs last month, topping the 650K-job increase expected.  “The labor market continues to recover gradually,” Ahu Yildirmaz, VP & co-head of the ADP Research Institute, said.  “In September, the majority of sectors and company sizes experienced gains with trade, transportation and utilities; and manufacturing leading the way. However, small businesses continued to demonstrate slower growth."  Sep hiring was spread across most industries, with the biggest gains taking place in manufacturing, which added 130K; trade, transportation & utilities, up 186K, & health care & social assistance, which added 101K.  Leisure & hospitality, one of the industries hit hardest by the crisis, added 92K workers.  Professional & business services increased by 78K & construction added 60K.  Large businesses led industries by size with the addition of 297K jobs last month at firms that employ more than 500 workers.  Medium-sized businesses added 259K jobs & small businesses added 192K employees.  While the data is typically a good indicator of what to expect in the more closely watched jobs report from the Labor Dept, the ADP figure has regularly missed the gov's count since the pandemic began in mid-Mar.  In Jun, for instance, ADP initially said private employers added 2.37M jobs -- well below the 4.8M reported by the gov.  It also said the economy lost 2.7M jobs in May, while the Labor Dept reported a gain of 2.5M.

US private employers add 749,000 jobs in September, topping expectations

China's factory activity expanded at a faster pace in Sep helped by a return to exports growth after several months of shrinking sales, bolstering a steady recovery for the economy as it rebounds from the coronavirus shock.  The official manufacturing Purchasing Manager's Index (PMI) rose to 51.5 in Sep from 51.0 in Aug, data from the National Bureau of Statistics (NBS) showed, & remained above the 50-point mark that separates growth from contraction.  Analysts expected it to pick up slightly to 51.2.  A private survey, also released on the day, painted a similar picture of the manufacturing sector gaining momentum backed by stronger overseas demand.  China's vast industrial sector is steadily returning to the levels seen before the pandemic paralyzed huge swathes of the economy, as pent-up demand, stimulus-driven infrastructure expansion & surprisingly resilient exports propel a recovery.  The official PMI, which largely focuses on big & state-owned firms, also showed the sub-index for new export orders stood at 50.8 in Sep, improving from 49.1 a month earlier & snapping eight months of declines.  The signs of stronger overseas demand were also highlighted in the Caixin/Markit Manufacturing Purchasing Managers' Index(PMI), which focuses more on small & export-oriented firms.  Its gauge for new export orders rose at the fastest pace in over 3 years.  Recently, economic indicators ranging from trade to producer prices have all suggested a further pick up in the industrial sector.  Profits at China's industrial firms extended robust growth in Aug to the 4th month, official data.  Domestic demand also shows signs of broadening, with industrial output accelerating the most in 8 months in Aug & retail sales growing for the first time this year.

China's factory activity accelerates at solid pace in Sept on boost from overseas demand

Treasury Secretary Steve Mnuchin said he will talk to House Speaker Nancy Pelosi about coronavirus stimulus again today & is “hopeful” about the prospects of a deal.  “I say we’re going to give it one more serious try to get this done and I think we’re hopeful that we can get something done,” he said.  “I think there is a reasonable compromise here.”  The Treasury secretary added that he aims to find an “understanding” with Pelosi on a broad relief package by tomorrow.  He added an offer he expects to bring to the speaker — a counter to the $2.2T aid bill the House could vote on this week — will resemble the roughly $1.5T bipartisan House Problem Solvers caucus proposal put forward earlier this month.  Pelosi previously rejected that plan. The legislation included $450 per week in enhanced unemployment benefits during an 8-week transition period, another round of $1200 direct payments & more Paycheck Protection Program small business loan funding, among other provisions.  The Trump administration & Dem leaders have failed to forge a consensus on what to include in a 5th coronavirus relief package as the outbreak ravages American lives & livelihoods.  Before Mnuchin & Pelosi renewed talks in recent days, doubts had grown about Congress' ability to pass new aid before the election.

Mnuchin ‘hopeful’ White House and Democrats can strike a stimulus deal

Investors are optimistic about another stimulus bill & Sep data for the economy.   The first estimate for Q3 GDP data should be reported in about a month & is expected to show a strong recovery from the depths of the depression in Q2.

Dow Jones Industrials

Tuesday, September 29, 2020

Markets retreat ahead of the presidential debate

Dow fell 131 on a choppy day while in the red, decliners over advancers about 3-2 & NAZ was off 32.  The MLP index rose 1+ to 110 & the REIT index fell 3 to the 346s.  Junk bond funds hardly budged & Treasuries edged higher.  Oil dropped 1+ to 39 & gold rebounded 18 ton 1900.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]


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Steel production has rebounded alongside the recovery in automotive production this qtr, Cleveland Cliffs (CLF) CEO Lourenco Goncalves said.  US automakers are sprinting to re-stock showrooms & get back on production schedule after plants were shut down earlier this year as the country took action to slow the spread of a novel coronavirus.  “We have been through a very profitable quarter and very strong in terms of the recovery of demand particularly in automotive,” he added.  The US economy quickly fell into a recession as businesses closed up & unemployment shot up across the country, but autos demand, much like demand in the housing market, has been one of the unexpected stronger parts in the economic recovery.  Plants of Detroit's Big Three automaker are now operating at near full-speed to get back on production schedule & deliver new cars to dealerships as the holiday season approaches.  SUVs & pickup truck sales have picked up particularly well among consumer purchases.  CLF is the largest US producer of iron ore pellets, which are used in the production of steel.  The company announced it would purchase the US assets of ArcelorMittal, the world's largest steelmaker, for about $1.4B.  The stock was up a penny.
If you would like to learn more about CLF, click on this link:

Steel production recovered as auto plants resumed operations, Cleveland-Cliffs CEO says

Dems unveiled their latest relief package ahead of renewed negotiations with Treasury Secretary Steve Mnuchin.  The new package, which is being referred to as the updated HEROES Act, proposes to restore popular assistance programs such as the $600 weekly federal unemployment benefit boost & another round of stimulus payments.  Yet to trim the legislation cost from the proposed $3.4T to $2.2T, Dems cut funding for state, local & tribal gov support, as well as reduced funding to the Postal Service.  Other areas saw a slight expansion, including child care & education funding.  The updated HEROES Act provides another round of stimulus payments of up to $1200 to individuals earning an adjusted gross income of up to $75K & $2400 for couples earning up to $150K, as well as an additional $500 per dependent, which includes full-time students below age 24 & adult dependents.  The new legislation restores the $600 weekly enhanced federal unemployment payments thru Jan 2021.  Dems also aim to provide a transition period at the end of Jan 2021 to prevent unemployment benefits from abruptly ending before Mar 31.  The bill also extends the Pandemic Unemployment Assistance program, which specifically covers business owners, self-employed Americans, gig workers & independent contractors who are not typically eligible for unemployment, thru Jan 2021.  Dems are proposing a new program called Pandemic Emergency Unemployment Extension Compensation, which would provide up to 13 additional weeks of federally financed unemployment benefits to any individual who exhausts state or federal unemployment benefits before Jan 31, 2021.  The bill also earmarks $925M to assist states in processing unemployment insurance claims.

What the latest $2.2 trillion stimulus bill from Democrats includes

Global confirmed deaths topped 1M, while US hospitalizations have plateaued after falling for months.suggestinig that the country could see more deaths & illness as it heads toward winter.  In North Dakota, the 7-day average of new cases climbed to a record.  Boris Johnson apologized after wrongly explaining his own gov's coronavirus rules, & responded to reports of concern among colleagues by saying he is heathier than he was before getting the virus in Mar.

Federal Reserve Bank of Dallas Pres Robert Kaplan said he dissented at the central bank's Sep meeting so that future policy makers wouldn't be forced to keep rates near zero.  “I would like future committees to have the flexibility to adapt to those future economic conditions so they can use their best judgment in deciding on the appropriate stance of monetary policy,” Kaplan wrote in a letter published today.  The letter outlines his rationale for dissenting as well as his views on the economy & energy markets.  Kaplan also said he's skeptical about the benefits of additional forward guidance right now.  He sees the economy contracting 3% this year & growing 3.5% next year.  The core personal-consumption inflation rate will rise 1.6% at the end of this year & 1.8% by the end of next year.  The unemployment rate will fall to 5.7% by the end of 2021.  Kaplan was one of 2 dissenting voters at the Fed's Sep 15-16 meeting, where policy makers took a more dovish tone. They signaled rates would stay near zero thru 2023 & adapted their post-meeting statement to reflect their new strategy of allowing inflation to rise above 2% after periods of under-performance.  Minneapolis Fed Pres Neel Kashkari dissented in favor of waiting for a rate hike until “core inflation has reached 2% on a sustained basis.”  Kaplan said he expects it'll be appropriate to keep interest rates near zero until the economy is on track to achieve maximum employment & inflation averaging 2% over time, which will take until late 2022 or “sometime in 2023.”  As the economy approaches those benchmarks, keeping rates near zero may mean that policy actually becomes more accommodative, he wrote.

Policymakers Should Have Freedom to Lift Rates, Kaplan Says

The dropped over over 200 in the AM, but a few buyers returned in the PM to trim the loss.  There was not a lot of excitement on the news front.  Improvement in consumer confidence should be a plus for business going forward & the article about CLF is a reminder that steel, an important industry in the economy, is bouncing back to some degree. Going into the last day of trading in Sep, the Dow is down 1K for the month & the NAZ pulled back 700 (the red hot index all year) 

Dow Jones Industrials