Friday, July 20, 2018

Markets little changed while assessing new tariff threats

Dow declined 6, decliners slightly ahead of advancers & NAZ was off 5.  The MLP index fell 2+ to the 271s & the REIT index lost 3+ to 50.  Junk bond funds fluctuated & Treasuries were sold, taking the yield on the 10 year Treasury up to 2.89%.  Oil rose to 70 (more below) & gold recovered 6 to 1230.

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Pres Trump said the stock market rally since his election victory gives him the opportunity to be more aggressive in his trade war with China & other countries.  “This is the time. You know the expression we’re playing with the bank’s money,” he said.  The pres has a big cushion.  The S&P 500 is up 31% since Trump's win on Election Day.  The market's gain has slowed this year as the administration has implemented new tariffs on countries, with the benchmark index up 4.9% YTD.  Trump added the market would likely be much higher if he didn't escalate the trade issues with China & the rest of the world.  “We are being taking advantage of and I don’t like it,” he said. “I would have a higher stock market right now. … It could be 80 percent [since the election] if I didn’t want to do this.”  The pres added that he is willing to slap tariffs on every Chinese good imported to the US should the need arise.  "I'm ready to go to 500," Trump said.  The reference is to the $ amount of Chinese imports the US accepted in 2017 — $505.5B  to be exact, compared with the $129.9B the US exported to China, according to Census Bureau data.  So far in the trade war between the 2 largest economic powers in the world, the U.S. has slapped tariffs on just $34B of Chinese products, which China met with retaliatory duties.

Trump says stock market gains since election give him opportunity to wage a trade war: 'We’re playing with the bank's money'

Pres Trump is worried the Fed will raise interest rates 2 more times this year, a White House official said .  Aides to the pres, however, are telling Trump the central bank is conducting policy properly.  The central bank already has approved 2 increases this year.  In Jun, officials indicated in their individual economic projections that there were 2 more increases in store before the end of 2018, likely in Sep & Dec. Trump this week criticized the Fed & Chair Jerome Powell for the increases adopted in Mar & Jun, saying that tightening monetary policy is threatening to thwart the economic recovery.  Trump said he was "not thrilled" that the Fed was raising rates & thus causing upward pressure on the $.  In a tweet today, he added that "tightening now hurts all that we have done."  The fed funds futures market, where traders bet on Fed's moves in the months ahead, is indicating an 89% chance of a rate hike in Sep & a 63%  chance of a Dec move.  An aide said that Trump understands that the Fed is independent & that he is merely expressing an opinion.  The aide added that Trump is being told by his confidantes that the central bank is moving properly & that it would be best to let monetary policy play out.  Currency markets reacted sharply to presidential Fed criticism.  The $ index, which measures the US currency against a basket of its global peers, fell 0.8%, on track for the worst performance in Jul.  Longer-dated gov bond yields rose on the day, with the 30-year bond crossing 3% for the first time since Jun 26.  Response on the short end of the curve was more muted, with the 3-month bill down slightly & the 2-year yield rising modestly.

Trump worries that Fed will raise rates two more times this year, White House official says

General Electric (GE) said Q2 profit fell 30% from last year because of weakness in its power division.  GE reaffirmed its financial outlook for the year, saying it continues to expect full-year EPS of $1-1.07.  Earnings in the latest period were fueled by GE's aviation & health-care businesses, while the company said its power market continues to be challenging, with orders down 26% from the same period last year.  CEO John Flannery said that GE's review of its businesses is "now complete."  "GE is moving forward to implement the strategy and structure we laid out in June," Flannery said.  For Q2, the company posted EPS of 7¢, down from 10¢ a year earlier.  On a continuing basis, EPS was 8¢ in the latest period, falling from 12¢.  On an adjusted basis, EPS was 19¢, higher than the 17¢ than expectations.  Total revenue rose 3% to $30.1B, greater than the $29.31B expected.  The aviation, transportation & health-care divisions all saw profit growth, continuing to turn in steady results.  But the conglomerate's power & oil & gas units reported profits were down 58% & 39%, respectively, from last year.  The results for both of the struggling business units were better than expected, despite the declining profits.  The stock dropped 62¢.
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General Electric shares fall after profit drops 30%

Oil prices rose as a weakening $ & lower expected Aug oil exports from Saudi Arabia supported the market, overtaking concerns about US-China trade tensions & supply increases.  Despite today's gains, crude futures posted a 3rd consecutive weekly decline as supply increases pulled prices lower during the course of the week.  The expiring West Texas Imtermediate (WTI) crude contract for Aug delivery ended the session up $1 (1.4%) to $70.46 a barrel, while the more heavily traded Sep contract was trading 10¢ higher at $68.34.  Brent oil was 47¢ higher at $73.05 a barrel.  Crude futures got a boost as the $ slumped on comments from Pres Trump that China and Europe are manipulating their currency & the Federal Reserve is hurting economic growth by raising interest rates.  A weaker greenback typically supports oil prices because it makes crude, which is sold in $s, more affordable to holders of other currencies.  Prices are also finding some support after OPEC's largest oil producer, Saudi Arabia, said it would temper its exports next month.  There was also bullish news from American oilfields, where US energy companies this week cut oil rigs by the most since Mar.  Drillers cut 5 oil rigs in the week to Jul 20, bringing the total count down to 858.  However, trade tensions continued to weigh on the market, providing a ceiling for any gains.  Trump said he was ready to put tariffs on all $500B of imported goods from China.  Lower oil demand in the US & China caused by an economic slowdown from their trade dispute would likely weigh heavily on markets.

US crude rises $1, settling at $70.46, but posts 3rd straight weekly loss

Stocks pretty much drifted sideways in the PM without a lot of exciting new news.  This gives traders an excuse to go home early.  However the tariff news is exciting, because nobody knows where it will lead & that will pick up next week.  After all was said & done, the Dow finished up 38 for the week.   019 

Dow Jones Industrials

Markets try to climb higher after more tariff threats

Dow went up 28, decliners ahead of advancers 5-4 & NAZ gained 26.  The MLP index fluctuated in the 73s following yesterday's big rise & the REIT index lost 3+ to 350.  Junk bond funds drifted lower & Treasuries were weak.  Oil was steady in the 69s & gold added 5 to 1229 from bargain hunting.

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CL=FCrude Oil69.71

GC=FGold  1,228.70
 +4.70 +0.4%

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Stocks opened mostly lower after Pres Trump tweeted that China & the EU were hurting the American economy by cheapening their currencies & lowering their interest rates.  Investors also appeared concerned by the intensifying trade war between the US & Beijing.  The Trump tweet complained about the value of the $ compared to the €, which rose against the greenback by 0.6%.  He also tweeted that bad trade deals are hurting American farmers.  Meanwhile, Microsoft (MSFT), a Dow stock, hit an intraday record high after a stronger-than-expected quarterly report.  In Europe, stock indices turned moderately positive after initially declining.  In Asia stock indices opened lower but then closed positive as investors anticipated China's central bank will strengthen the yuan.  Yesterday, Trump said he does not agree with the Federal Reserve's interest rate increases this year after Chair Jerome Powell took over for Janet Yellen earlier this year.  “I put in a very good man in the Fed,” Trump said, referring to Powell.  “I don’t necessarily agree with it because he’s raising interest rates.”  The Fed has raised rates 2 times this year & policy makers expect 2 more rate hikes before the end of 2018.  Testifying before Congress this week, Powell reiterated the economy is humming along & should continue to do so.  Also yesterday, a slew of lukewarm quarterly earnings reports starting with Dow stocks American Express (AXO) & Travelers (TRV) as well as a deal to toughen foreign investment regulations.

US stock market struggles as Trump rips EU, China

Pres Trump said he was poised to impose tariffs on $500B of goods from China, threatening to escalate the current trade clash with the Asian nation.  “We’re down a tremendous amount,” Trump said about trade imbalances with China.  “I’m ready to go to 500.”  Earlier this month, the US imposed tariffs on $34B of Chinese imports.  In return, China levied taxes on the same value of US products.  The US then disputed the retaliatory tariffs at the World Trade Organization on Mon, along with those the EU, Canada, Mexico & Turkey imposed in response to new US duties on steel & aluminum.  When asked about the stock market possibly falling if the US imposes such a large amount of duties, Trump said: “If it does, it does. Look, I’m not doing this for politics.”

Trump threatens China again with $500B tariff slap

Microsoft is poised to set a record high as the software giant booked stronger-than-expected quarterly results after gaining 22% this year.  Adjusted EPS was $1.13, beating the estimate by 5¢.  Both profit & revenue in the period ending on Jun 30 exceeded estimates, as did the company's projection for cloud sales in the current qtr.  CFO Amy Hood pledged that commercial cloud margins would improve overall & for each of the products that make up the area, including Azure, Office 365 & cloud-based customer software.  The most recent quarterly report provided further evidence that MSFT can increase cloud sales & compete with Amazon’s (AMZN) massive industry cloud lead.  Microsoft has successfully come from behind to exceed Amazon’s cloud revenue, and that gap is only increasing in Microsoft’s favor,” Mark Sami, VP of MSFT & Cloud Solutions said.  “This is a result of Microsoft not only owning a majority of enterprise customers’ data centers but also being the only major cloud player that allows these enterprise customers to co-exist in both their on-premises environments and the new cloud offerings through a hybrid solution offering,” he added, predicting that MSFT's cloud market share will continue to grow & impress investors.  The stock rose 2.91.
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Microsoft is winning, shares hit new record

Stocks began the day lower, but buying returned bringing the popular averages into the black.  That's called a nervous advance.  Earnings remain encouraging with the dark clouds of trade wars keeping many investors on the sidelines.  Going into a weekend, stocks may not change much in the PM.

Dow Jones Industrials

Thursday, July 19, 2018

Markets retreat on earnings and a strong dollar

Dow dropped 134, but advancers over decliners about 3-2 amp; NAZ fell 29.  The MLP index shot up 6+ to the 274s & the REIT index climbed 3+ to the 353s.  Junk bond funds slid lower & Treasuries were in demand after Trump's comments about the Fed (more below).  Oil remained higher, going to the 69s, & gold pared losses, down 5 to 1222.

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Peter Navarro, one of Pres Trump's top trade advisors, said that China is in a "zero-sum game" with the rest of the world when it comes to trade.  He argued that the US needs to protect its interests in rapidly developing technologies.  "This is our future," Navarro said, citing artificial intelligence, robotics & high-tech industries – all of which are Chinese priorities for the next decade, as well.  "Unfortunately, it's a zero-sum game now between China and the rest of the world, and what we need to do as a country is to work with the rest of the world" to ensure prosperity & high stock markets, he added.  Navarro is known for his hawkish economic stances on China. Under Trump, the US has engaged in an escalating trade war with China, as both nations have imposed and threatened B$ of tariffs on each other's products.  "We have to defend ourselves," Navarro said, citing alleged Chinese theft of US intellectual property on technology.  "They're attacking our crown jewels. They make no bones about it."  Recently, Trump threatened to impose new tariffs on $200B of products from China as the US pushes the Asian country to take a harder line on protecting intellectual property, particularly for technology.  Larry Kudlow, Trump's top economic advisor, said yesterday that Chinese Pres Xi Jinping was holding up progress & refusing to budge over his country's trade policies. In turn.  China's Foreign Ministry denounced Kudlow'' remarks as "bogus" & "beyond imagination.

Trump trade advisor Peter Navarro: 'Zero-sum game' between China and the rest of the world

The Commerce Dept is holding 2 days of hearings on whether the US should raise tariffs on vehicles built in Europe & sold in the US. The US currently has a $32B auto trade deficit with Europe, meaning Americans buy $32B more in European cars than US automakers sell back to consumers in the EU.  Automakers such as BMW & Mercedes also built vehicles in US factories, especially popular crossovers & SUVs.  Reports have recently surfaced that the EU is prepared to lower tariffs on US imports.  The Trump administration has threatened to raise tariffs on cars imported from Europe from 2.5%  to 20%.  It already has placed tariffs on $34B in Chinese imports.

Commerce department opens hearings on auto tariffs

Auto executives pushed back on the Trump administration's proposal to dramatically raise tariffs on auto imports from the EU.  Industry executives, testifying at the Commerce Dept hearing, warned against the tariffs.  They said new tariffs would hurt US jobs, raise prices for consumers & invite the EU to retaliate with import taxes of its own.  "We are the leading export sector in the U.S. economy," said former Missouri Gov. Matt Blunt, who is currently pres of the American Automotive Policy Council, adding that China & Europe each receive about 250K US-made vehicles each year.  "That is a number that can grow," he added.  Japanese automaker Toyota (TM) said employees from 10 of its US assembly plants were protesting the tariffs in DC.  TM exports 8 of its US-made models to 31 countries.  The US currently imposes a 2.5% tariff on cars imported from Europe.  Pres Trump has said he wants to raise that to 20%.  There already is a 25% tariff on imported pickup trucks that dates back several decades.  The administration has justified raising the tax penalties by invoking Section 232 of the Trade Expansion Act of 1962, which gives the administration the ability to investigate the potential effect of imports on national security & curb those that pose a threat.  Using national security to penalize automotive imports is highly unusual, but Commerce Secretary Wilbur Ross has said that national security is connected to US economic security.  Ross said in opening remarks today that it is "too soon" to determine whether the US will raise tariffs.  Commerce Dept officials expressed some concern about the nation's roughly $32B auto trade deficit with Europe, meaning Americans buy $32B more in European cars than US automakers sell back to EU consumers.  The Trump administration has already imposed tariffs on B$ of imports from China, including vehicles & parts.  Labor officials from the United Auto Workers union testified that a "comprehensive investigation" into the US trade deficit with other countries is "long overdue," & said that trade has hurt American workers in many ways over the last several decades.  Industry analysts from the Center for Automotive Research said in a recent paper that tariffs on US imports of automobiles & automotive parts will raise prices of all new vehicles $455-6875 apiece, "depending on the level of tariff or quota, where the vehicle was assembled, and whether the policy provides exemptions for automotive trade with Canada and Mexico."  Several foreign automakers from Japan, Germany & other countries, operate plants in the US where vehicles are made for both the US market & for export to other countries

Automakers push back on EU tariff plan, saying there's no evidence imports affect national security

The EU is making a list of goods it could target as a way to retaliate against potential tariffs on European cars, an EU official said.  "If the U.S. would impose these car tariffs, that would be very unfortunate. We are preparing together with our member states a list of rebalancing measures there as well. And we have made that clear to our American partners," Trade Commissioner Cecilia Malmstrom said in Brussels.  "It is done in the same way as with steel and aluminum," she added.  Malmstrom's comments come after Pres Trump threatened to hike tariffs on European car imports to 20% from 2.5% last month.  They also come ahead of a meeting between Trump & European Commission Pres Jean-Claude Juncker in DC.  They are scheduled to meet next week to discuss trade between the US & Europe.  Earlier this week, it was reported that Juncker will likely convey to Trump the EU's willingness to lower auto tariffs between the 2 sides & other major car-exporting countries.  Tensions on the trade front between the US & Europe have risen lately.  The US has slapped charges on steel & aluminum imports coming from Europe, while the EU has retaliated with tariffs on $3.25B worth of US exports, including bourbon & motorcycles. 

The EU is making a retaliation list to strike back if the US hits European cars with tariffs

In a stinging & historically rare criticism, Pres Trump expressed frustration with the Federal Reserve & said the central bank could disrupt the economic recovery.  Presidents rarely intercede when it comes to the Fed, which sets the benchmark interest rate that flows through to many types of consumer debt.  Fed officials, including Chair Jerome Powell, have raised interest rates twice this year & have pointed to 2 more before the end of 2018.  Trump said he does not approve, even though he said he "put a very good man in" at the Fed in Powell.  “I’m not thrilled,” he added in an interview.  “Because we go up and every time you go up they want to raise rates again. I don't really — I am not happy about it. But at the same time I’m letting them do what they feel is best.”  “But I don’t like all of this work that goes into doing what we’re doing.”  Markets rected to these comments, with stocks, the $ & Treasury yields all falling.  The White House, in a statement, emphasized that Trump did not mean to influence the Fed's decision-making process.  "Of course the President respects the independence of the Fed. As he said he considers the Federal Reserve Board Chair Jerome Powell a very good man and that he is not interfering with Fed policy decisions " the statement said.  “The President’s views on interest rates are well known and his comments today are a reiteration of those long held positions, and public comments."  Trump helped usher thru a massive tax cut late last year that slashed the corp rate from 35% to 21% & lowered marginal rates across the board.  In return, there has been powerful stock market gains & an economy on pace to grow nearly 3% in 2018, well above its post-recession rate before he took office.  Powell has said he believes the economy is strong enough for the Fed to continue on its path of normalizing rates, which were held at a historically low level during the recovery.  Still, Trump said he’s concerned that the timing may be poor and that it will put the US at a “disadvantage” while the Fed's counterparts like the ECB & the Bank of Japan maintain loose monetary policy.  The pres acknowledged that his comments are unusual but said he doesn't care.  “Now I’m just saying the same thing that I would have said as a private citizen,” he added.  “So somebody would say, ‘Oh, maybe you shouldn’t say that as president.' I couldn’t care less what they say, because my views haven’t changed.”  “I don’t like all of this work that we’re putting into the economy and then I see rates going up,” he said.

Trump lays into the Fed, says he's 'not thrilled' about interest rate hikes

While Trump's comments that he wasn't thrilled with rate hikes were unsettling, the stock market took it all in stride.  Stocks continued to slosh around depressed levels.  Earnings from eBay (EBAY) & Dow stock American Express (AXP) were additional depressants.  The early reports tend to be the strongest while later ones lag.  The Dow closed just above 25K on Fri the 13th & has been little changed this week.  Investors have redirected their interest to Treasuries, but not gold.  Meanwhile tariff talks are stuck in the mud, as expected.

Dow Jones Industrials