Monday, October 19, 2020

Markets fall on fading hopes for a stimulus bill

Dow sank 410 (near session lows), decliners over advancers better than 5-2 & NAZ dropped 192.  The MLP index was off 1+ to the 116s & the REIT index fell 5 to the 349s.  Junk bond funds fluctuated & Treasuries continued weak.  Oil finished lower, remaining under 41, & gold was steady at 1905 (more on both below).

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US housing remains red-hot & that's good news for the nation's builders benefiting from record low-interest rates & those individuals leaving big cities for the suburbs.  Builder confidence, in the market for newly built single-family homes, rose to a reading of 85 from 83 in Sep, the previous all-time high, according to the National Association of Homebuilders (NAHB).  “The housing market continues to be a bright spot for the economy, supported by increased buyer interest in the suburbs, exurbs and small towns,” said NAHB Chief Economist Robert Dietz.  Mortgage rates for a 30-year fixed-rate remain below 3% as the Federal Reserve keeps its foot on the stimulus pedal.  Yesterday, Federal Reserve Vice Chair Richard Clarida said that additional fiscal & monetary support would be needed to aid the struggling US economy, noting it could take another year before the economy returns to pre-pandemic levels.  Fed officials have indicated they'll keep current policies in place until the economy stabilizes from the COVID-19 hit which should further benefit the housing the market.

Homebuilder confidence hits record, helped by urban exodus

Chinese officials said that GDP expanded by 4.9% in Q3 from a year earlier, putting China's economy back toward its pre-coronavirus trajectory half a year after the pandemic gutted its economy.  The 4.9% growth figure for Q3 fell short of expectations but brings China’s trajectory closer in line with forecasts made at the beginning of the year for 2020 growth of 5.5-6%—forecasts made before the pandemic swept across the globe, killing more than 1M people & crushing the global economy.  The 3rd-qtr expansion builds on the 2nd qtr's 3.2% growth, which follows a historic contraction of 6.8% in the first t3 months of the year, when authorities locked down the central Chinese city of Wuhan in a bid to curb the fast-spreading virus.  The IMF is projecting China's economy to expand by 1.9% in 2020, putting it on track to be the only major world economy to grow this pandemic-hit year.  By contrast, the American economy is expected to shrink by 4.3%, while the eurozone is forecast to contract by 8.3%, the IMF said in its latest update this month.  The Q3 growth number offers further evidence of China's relative strength & moves the country's economy into positive territory for the first 9 months of the year, expanding 0.7% from a year earlier.

China's third quarter GDP expanded by 4.9% from year earlier: report

China  passed a law restricting exports of controlled items, allowing the gov to act against countries that abuse export controls in a way that harm's China's interests, according to state media.  The Xinhua news report did not name any target countries, but the US last month angered Beijing with curbs on exports to Semiconductor Manufacturing Intl, China's biggest chipmaker, & it has taken various steps against Huawei Technologies & other companies.  China & the US have clashed over issues including trade, human rights, technology & the new coronavirus, which was first detected in China.  The new Chinese law, passed by the National People's Congress Standing Committee, the country's top legislative body, will take effect on Dec 1, Xinhua said.  Controlled items include military & nuclear products, as well as other goods, technologies & services & relevant data, according to the National People's Congress.  It said the law was "formulated for the purpose of safeguarding national security and interests."  In Aug, China's commerce ministry issued a revised list of technologies that are banned or restricted for export.

China passes export-control law following US moves

Gold prices ended higher to start the week, with talk of a last-ditch effort to strike a deal by US lawmakers on a fresh round of fiscal relief before the presidential elections helping to drive buying appetite.  A weaker $ also provided support for bullion because weakness for the buck can draw interest in gold from buyers using currencies that are relatively weaker than the buck.  Dec gold rose $5 (0.3%) to settle at $1911 an ounce, after bullion posted a 1% weekly decline on Fri.  Investors have been attuned to the back-&-forth negotiations between House Speaker Nancy Pelosi & Treasury Secretary Steve Mnuchin on a new round of funds for American businesses & workers hard hit by the economic weakness caused by the COVID-19 pandemic  Pelosi spoke on Sat with Mnuchin but appeared to suggest that a deal before the presidential election was unlikely to be achieved if a fiscal deal isn't struck soon.  Additional relief, should it come, is viewed as bullish for gold which is being used by some as a hedge against govs dialing up spending & lowering interest rates to combat the pandemic that has seen more than 40M people infected across the globe.

Gold prices end higher as investors focus on talks on coronavirus relief

Oil futures finished with a modest loss, failing to find much support as an OPEC+ committee reiterated its commitment to output cuts & said it “encouraged” some producers to fully compensate for production above their quotas.  Prices had briefly moved higher shortly after Saudi Arabia's energy minister said OPEC+ will do “what is necessary” to rebalance the oil market.  Oil traders also monitored accelerating COVID-19 infections in the US & Europe & the potential loss of energy demand, adding pressure to prices.  Saudi Energy Minister Prince Abdulaziz bin Salman said that the OPEC & its allies (OPEC+) has shown that it has the “flexibility” to adapt to changes in the oil market & will “do what is necessary in the interest of all.”  OPEC+ must comply with 3 key principles: “predict, prevent and be proactive” in the oil market, said Prince Abdulaziz, in his opening statement for the Joint Ministerial Monitoring Committee.  The group must base decisions on the best available data & information, & always be forward looking in its decision making, he added.  West Texas Intermediate (WTI) crude for Nov, the front-month contract, fell 5¢ to settle at $40.83 a barrel.  The Nov contract expires at the end of tomorrow's session.  The most-active Dec WTI contract lost 6¢ to $41.06 a barrel.  Dec Brent, the global benchmark, fell 31¢ (0.7%) to $42.62 a barrel.

Oil ends lower even as OPEC+ committee reiterates output-cut pledge

Those guys in DC are demonstrating "all talk but no action."  Talk is cheap, especially in DC.  They could not figure out how to put together a bill because is all politics.  There is likely not enough time to come up with a bill before the election, so the buyers stayed home.  Any relief bill will have to wait until after the election & that is highly uncertain.  More earnings are coming which could bring back buyers.

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Mixed markets while investors monitor stimulus talks

Dow was off 23, advancers over decliners 3-2 & NAZ added all of 3.  The MLP index rose 1+ to the 118s & the REIT index fell 1 to the 353s.  Junk bond funds were little changed. & Treasuries drifted lower in price.  Oil climbed above 41 & gold went up 5 to 1911.

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CL=FCrude Oil40.86
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Speaker Nancy Pelosi set a 48-hour deadline for the White House to reach an agreement on a new round of coronavirus stimulus before the election, saying that she is still "hopeful" despite no agreement yet in the package's language.  "The 48 only relates to if we want to get it done before the election, which we do," Pelosi said.  "But we're saying to them, we have to freeze the design on some of these things. Are we going with it or not and what is the language? I'm optimistic because, again, we’ve been back and forth on all of this."  Both Pelosi & Treasury Secretary Steve Mnuchin agreed to Dem language with "minor" edits for a national coronavirus testing plan last Thurs.  However, a Sat update by Pelosi''s deputy chief of staff, Drew Hamill, revealed that both she & Mnuchin have not reached an agreement on language that would ensure the plan would include contact tracing & "additional measures to address the virus’ disproportionate impact on communities of color."  "There remains an array of additional differences as we go provision by provision that must be addressed in a comprehensive manner in the next 48 hours," Hamill added.  "Decisions must be made by the White House in order to demonstrate that the Administration is serious about reaching a bipartisan agreement that provides for Americans with the greatest needs during the pandemic."  While she acknowledged that most of the changes were a "light touch," Pelosi said about 55% of the language for testing & tracing was removed from the plan entirely.  "The tracing part is so important, because communities of color had been disproportionately affected by this," Pelosi added.  "We had pages and pages of how you would do this in the minority community. They crossed it all out."  In terms of reaching a deal before Election Day, Pelosi reaffirmed that any chance of a breakthrough will "depend on the administration."  Pelosi's comments yesterday come as the window of opportunity to pass new stimulus legislation before the election is relatively slim after Dems & Reps objected to the White House's current proposal of $1.8T.  Pres Trump has said that he would be willing to reach a deal above that offer, but accused Pelosi of holding the stimulus up to help Dems in the election.  In the meantime, Senate Majority Leader Mitch McConnell says a vote will be held this week on a "targeted" bill, which would include money for schools, liability protection for businesses, & boosted unemployment benefits.  The Treasury Dept spokesperson said that talks between Mnuchin & Pelosi will continue today.

Pelosi sets 48-hour deadline to reach stimulus deal before Election Day

Pres Trump hinted he might intervene if Rep senators don't support a second coronavirus stimulus package worth Ts of $s, during an interview with Charles Benson of WTMJ4 Milwaukee on Sat.  "You have put $1.8 trillion on the table. Will there be more money by Election Day? Do you have a deal?" Benson asked.  Trump replied: "I want the money by tonight, but Nancy Pelosi doesn't want to approve it because she thinks it's good politically for her not to approve it... She wants to bail out poorly run Dem states. And we don't want to do that. I don't think she wants to approve it anyway. I think even if we gave her the money for the poorly run Democrat states, I don't think she'd approve it anyway."  Benson asked if Trump was getting any resistance from GOP senators & the pres said he "will take care of that problem in two minutes."  "If I had something that would be good, I think I could quickly convince the Republicans to do it," he added.  "They're ready to do it, but Nancy Pelosi does not want to do it. I mean, I wish your governor would call up Nancy Pelosi and say, 'do it.' She wants to hold it until after the election and I think it's bad for the Democrats. But I'm ready willing, and able. If they sent a bill over, I am ready, willing, and able. And I wanted a higher number than [Pelosi] wanted."  When pushed for a specific number, all Trump would say is that it would be more than Pelosi's proposal.

Trump ready to step in on stimulus, says Pelosi doesn't want a deal

Atlanta Federal Reesrve Pres Raphael Bostic saidthat he's "concerned" the road to recovery from the coronavirus pandemic may be uneven for different sectors of the US economy.  Though Bostic acknowledged that the US is "recovering and rebounding in a very robust way" in some areas, he warned thatrestaurants, & small businesses in minority & lower-income communities, in particular, are "seeing much more difficult situations."  "[The coronavirus] has put a wedge in our economy. And for all those who have been in more precarious situations, it's made them even more precarious," Bostic said.  "Those that have been in distress are in much more distress, while others are not really feeling that at all. And I think it's important to recognize that whatever people are experiencing, there are a lot of other Americans out there who are struggling and are on the edge."  "Those segments where we're not seeing that recovery, that's really what I'm concerned about as we move forward," he added.  Bostic said he believes that the Federal Reserve can support the Black community & other minority communities that are struggling with racial inequities by being more willing to talk about the situation.  "First of all, we have to acknowledge that there's a problem and we have to be willing to talk about it," Bostic added.  "You know, my institution has for a long time not been willing to be out in front to talk about the importance of racial inequalities. I actually think that that's been a mistake. And what we're seeing is many more of my colleagues jumping up and being willing to talk about this."  In terms of policy action, Bostic believes that the the US needs to create opportunities for better schooling & training & ensure that all Americans have access to capital & can participate in the economy.  Bostic is set to be a voting member of the FOMC in 2021; the FOMC makes key decisions on interest rates & economic growth.  

Atlanta Fed president 'concerned' about uneven economic recovery

The goings on in DC are confusing for everybody.  Both sides are stuck in their ways & it doesn't look like anybody is interested in compromise.  Maybe the status of close elections will get somebody to agree to changes.  Meanwhile the virus keeps fighting back hard, making it difficult for some states to reopen.

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Friday, October 16, 2020

Markets edge higher after favorable retail sales data

Dow went up 112 (but 200 below session highs), decliners over advancers 4-3 & NAZ was off 42.  The MLP index fell 2+ to the 117s & the REIT index slid back 1+ to the 354s.  Junk bond funds were little changed & Treasuries continued weak.  Oil slid back pennies, still under 41, & gold declined 4 to 1904 (more on both below).

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Senior White House economic adviser Larry Kudlow said it would be "almost impossible" to execute a coronavirus relief package before the Nov election, even if Congress overcame a monthslong impasse & struck a deal.  "Maybe some of it could be executed," he said.  "But you certainly couldn't get a grand, large deal."  Instead, Kudlow urged lawmakers to reallocate $300B in unused CARES Act funds & use it to extend boosted unemployment benefits, reopen the Paycheck Protection Program and provide airlines with another $25B bailout.  "All they have to do is appropriate it," Kudlow said. "It takes legislative and political will to do it."  Kudlow's comments came one day after Pres Trump said thet he was considering upping his offer for a coronavirus relief package above the White House's current $1.8T proposal.  "I would," he continued.  "Absolutely, I would. I would say more. I would go higher. Go big or go home, I said it yesterday."  “Nancy Pelosi doesn’t want to give anything. She thinks it helps her with the election,” the pres continued.  “And I don’t think so. I think it hurts her with the election because everyone knows she’s holding it up. We’re not holding it up. She’s holding it up.”  But Senate Majority Leader Mitch McConnell contradicted the pres just a few hours after he proposed raising his spending offer, rejecting a deal that costs more than $1.8T.

Why Kudlow says it's 'almost impossible' to execute stimulus deal before election

The Trump administration announced a deal with CVX & Walgreens (WBA), a Dow stock & Dividend Aristocrat, to administer coronavirus vaccines to the elderly & staff in long-term care facilities.  The vaccine will be free of charge & available for residents in all long-term care settings, including skilled nursing facilities, nursing homes, assisted living facilities, residential care homes & adult family homes, the Dept of Health & Human Services (HHS) said.  CVS & Walgreens will schedule & coordinate on-site clinic dates directly with each facility, HHS said.  The companies anticipate that3 total visits over 2 months are likely to be needed to administer both doses of vaccine to residents & staff.  “Protecting the vulnerable has been the number one priority of the Trump Administration’s response to COVID-19, and that commitment will continue through distributing a safe and effective vaccine earliest to those who need it most,” HHS Secretary Alex Azar added.  Centers for Medicare & Medicaid Services Administrator Seema Verma said the deal will ensure that nursing home residents, which have been hit hard by the virus, “are at the front of the line for the COVID vaccine and will bring their grueling trial to a close as swiftly as possible.”  The announcement comes the same day states must submit their draft plans to the federal gov on how they will distribute a coronavirus vaccine if & when one is approved for public use.  Most of the potential vaccines require 2 doses, although Johnson & Johnson's (JNJ), a Dow stock & Dividend Aristocrat, requires just one shot, & some of them need to be transported & stored at varying & specific temperatures.

Trump administration strikes coronavirus vaccine deal with CVS and Walgreens 

Gold prices ended with a loss on to log their first weekly decline in 3 weeks, as overall strength in US currency weighed on $-pegged metals.  Dec rose $2 to settle at $1906 an ounce after rising a smidgen yesterday when prices had touched an intraday low of $1892, highlighting fitful trade for bullion on the week.  For the week, however, gold was off a tad (essentially even) & followed gains in each of the previous 2 weeks.  Over the longer term, bullish precious metals investors are betting that gold will break out of a range around $1900 as concerns about a resurgence of the pandemic grows & as fiscal & monetary stimulus increases—a felicitous environment for bullion to rally further.  Gold prices failed to find much support even as data on US industrial production revealed a decline in Sep, for the first time in 5 months. Consumer sentiment in early Oct, meanwhile, rose to 81.2 , the best level seen during the pandemic, from 80.4 in Sep.

Gold prices post losses for the session and week

The US gov ran a record budget deficit of $3.1T in the fiscal year that ended in Sep.  The massive deficit reflected the gov's effort to support the economy ravaged by the coronavirus pandemic.  The 4 pieces of legislation passed by Congress this year to combat the recession was by far the largest fiscal response to an economic crisis since the depression of the 1930s.   By comparison, the deficit in fiscal year 2019 totaled $984B.  The 4 cornavirus financial relief bills, including the $1.7T CARES Act passed in Mar, were estimated by the Congressional Budget Office to cost $2.4T combined.  The last time the gov ran deficits anywhere near this big relative to the size of the economy was during World War II.  Total outlays were $6.55T in the latest fiscal year, while receipts totaled $3.42T.   Experts say that the gov will have to return to a sustainable deficit path, but that the tax hikes & spending cuts needed to accomplish this goal should be put off until the pandemic subsides.  In an outlook, the CBO said that the fiscal deficit will remain elevated over the next decade.  The lowest projected deficit over the next decade is $1.080T in 2027, according to the CBO.  Fed Chair Jerome Powell & top economists have urged the 2 parties in Congress to put aside their differences & pass more fiscal relief, but talks on another relief package have lost momentum.

U.S. federal budget deficit soars to record $3.1 trillion in 2020 

Oil futures lost ground, prompting prices to turn lower for the week, as an accelerating rise in COVID-19 cases in the US & Europe heightens worries about demand for crude.  West Texas Intermediate crude for Nov fell 58¢ (1.4%) to $40.38 a barrel, positioning prices for a weekly loss of 0.6%, based on the front month.  Dec Brent crude , the global benchmark, was off 67¢ (1.6%) to $42.49 a barrel & had a 0.8% weekly decline.  US data revealed that industrial production fell for the first time in 5 months, down 0.6% in Sep, surprising economists who expected more steady growth.  Oil prices did find some support during the week after Saudi Arabia & Russia reported reiterated their commitment to the production cut agreement between OPEC & their allies (OPEC+).

Oil falls as demand concerns set prices up for a loss on the week

The Dow had a solid gain until the last hour when sellers took it lower.  For the week, the Dow rose a meager 20.  It's back to where it was in Feb & within 1K of setting a new record even if another rescue package will have to wait until after the election (maybe later).

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