Tuesday, February 6, 2018

Markets rebound after selling at the opening

Dow recovered to up 187, decliners better than advancers 3-2 & NAZ went up 44.  The MLP index was fractionally higher to the 277s.  Junk bond funds bounced back & Treasuries finally rebounded, taking the yield on the 10 year Treasury down to 2.76%.  Oil slid lower in the 63s & gold lost 4 to 1331.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil64.24

GC=FGold  1,333.60

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US equity indexes climbed higher after a rocky start & the benchmark gauge for US share volatility reversed course after hitting a 2-year high.  Treasuries dropped & the $ rose.  The S&P 500 plunged over 2% at the open of trading before regaining ground.  The Dow declined more than 500 before it, too, recovered.  Both are now up on the day.  Earlier, the Stoxx Europe 600 Index slumped the most since Jun 2016 & Japan's Nikkei entered a correction as most of the shares on the 1000-plus member MSCI Asia Pacific Index declined.  Amid the sea of red, some safe-haven assets, including European bonds, traded higher.   Treasury yields swung before nudging higher.   What began with rising bond yields became a selloff across global equity markets, as investors feared the return of inflation & higher rates that could erode profitability for companies already trading at elevated valuations.  Traders are watching how the moves unfold from here, a sustained stock slump has the potential to undermine consumer & business sentiment, crimp borrowing & so start to curtail global growth.  Earlier in the day, the Volatility Index, a gauge of implied volatility for the S&P 500 Index over the next month, breached 50 to touch its highest level since the aftermath of China's devaluation of the yuan in 2015.  Since then, it has fallen to as low as 22.4.  Oil's 2-day slump subsided while metals fell.

U.S. Stock Rout Cools, Volatility Gauge Plunges

The US trade deficit widened to the biggest monthly & annual levels since the last recession, underscoring the inherent friction in Pres Trump's goal of narrowing the gap while enjoying faster economic growth.  The deficit increased 5.3% in Dec to a larger-than- expected $53.1B, the widest since 2008, as imports outpaced exports, Commerce Dept data showed.   For all of 2017, the goods-&-services gap grew 12% to $566B, the biggest since 2008.  The trend may extend into this year: Solid consumer spending & business investment, assuming they hold up amid the recent stock-market rout, will fuel demand for foreign-made merchandise.  While improving overseas growth & a weaker $ bode well for exports, Trump's efforts to seek more favorable terms with US trading partners remain a work in progress, & his tax-cut legislation may cause the deficit to widen further.  One theme of Trump's presidential campaign was a pledge to level the playing field for American workers.  In his first State of the Union address last week, Trump promised to “fix bad trade deals and negotiate new ones.”  The pres recently placed tariffs on imported solar panels & washing machines, sparking concern the US may prompt trade wars.  With 2 of Trump's main targets, China & Mexico, the imbalances worsened in 2017.  America's merchandise-trade gap with China, the world's 2nd-biggest economy, widened 8.1% in 2017 to a record $375B  The goods-trade deficit with southern neighbor Mexico increased 10% last year to $71B, the highest since 2007.  The administration is currently renegotiating the North American Free Trade Agreement with Mexico & Canada, & Trump has repeatedly threatened to withdraw from the pact.  US merchandise exports to China & Mexico in 2017 were the highest on record -- & so were imports.  For the full year, total US exports rose 5.5% to $2.33T, while imports climbed 6.7% to a record $2.9T.  Both showed the biggest gains since 2011.

U.S. Trade Deficit Is Wider Than Any Month or Year Since 2008

The number of US job openings declined in Dec to 5.81M from an upwardly revised 5.98M a month earlier, according to the Labor Dept's Job Openings & Labor Turnover Survey (JOLTS).  The forecast called for 5.96M after a previously reported 5.88M in Nov.

Job Openings in U.S. Fell in December After Upward Revision

St. Louis Federal Reserve Pres James Bullard said recent strength in the US labor market may not trigger faster price increases, a view that runs counter to investors' inflation fears currently pushing the stock market lower.  The US stock market has plunged since employment data on Fri showed strong job growth in January as well as surprisingly fast wage increases.  Investors now see a higher risk of inflation as well as faster rate increases by the central bank.  But Bullard, who does not have a vote on monetary policy this year although he participates in policy discussions, said inflation could stay low.   "I caution against interpreting good news from labor markets as translating directly into higher inflation," Bullard said.  "The empirical relationship between these variables has broken down in recent years and may be close to zero."  Bullard has been expressing doubt for months over how well economists understand what will ultimately lead inflation to make a sustained rebound.  However, he said recent gains in market-based measures of inflation expectations may give a signal of future inflation.  "The measures today are closer to being in line with the (Fed's) 2 percent inflation target, but remain a bit low," Bullard said.

Fed's Bullard says job market strength may not augur higher inflation

The Dow plunged below 24K in early trading.  It has recovered & is in the black as buyers returned.  At the lows, the Dow was down a massive 3K in 6 trading days.  Words can not describe this decline.  While buyers have returned, increased volatility can take the averages anywhere.  Brilliant analysis means little.  At least economic data continues to be good.  However major damage has been done to the long term market rally.  Newbees in the stock market who only know "up" need to adjust & that will be difficult.

Dow Jones Industrials

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