Thursday, March 29, 2018

Markets advance after a turbulent quarter

Dow soared 254, advancers over decliners almost 4-1 & NAZ shot up 114.  The MLP index jumped up 3+ to the 239s (although its dreary chart continues) & the REIT index gained 6+ to the 328s.  Junk bond funds went up & Treasuries also rose.  Oil rose to nearly 65 & gold was off 1 after yesterday's plunge.

AMJ (Alerian MLP index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Pres Trump said he may delay a revamped trade deal he reached with South Korea this week until after the nuclear confrontation with North Korea is resolved.  “I may hold it up until after a deal is made with North Korea,” Trump said at a speech in Richfield, Ohio.  “You know why? Because it’s a very strong card and I want to make sure everyone is treated fairly and we’re moving along very nicely with North Korea.”  White House officials didn't immediately respond to requests to clarify Trump's intentions & the South Korean embassy in DC didn't immediately respond.  Moments before he suggested he would delay the renegotiated agreement, Trump hailed it as “a wonderful deal” & criticized the existing trade agreement with South Korea as “a horror show.”  Trump & South Korean Pres Moon Jae-In are planning separate meetings with North Korea's Kim Jong Un in the coming weeks.  Kim made a surprise visit to China this week & met with Pres Xi Jinping.  China's official news agency said today that Kim would be willing to give up his nuclear weapons & hold a summit with the US.  The renegotiated trade deal, announced this week, doubled to 50K the number of cars each US automaker can sell in South Korea without meeting local safety standards.  Under the terms, the US also will extend a 25% tariff on pickup-truck imports until 2041.  The tariff was set to expire in 2021 under the existing trade agreement, which came into force in 2012.  Meanwhile, South Korea agreed to limit its steel exports to the US to about 2.7M tons of year, in exchange for relief from the 25% tariff Trump announced earlier this month.  Many of the details of the revised trade deal & the steel quota were previously disclosed by South Korea.

Trump Says He May Hold Up South Korea Trade Deal

Stocks jumped, with tech shares leading the way, as equity markets moved toward the end of a tumultuous qtr on a high note.  Treasuries rose while the $ slipped.  Gains in the S&P 500 were led by energy companies & chipmakers, & were helped by a recovery in Amazon (AMZN) after a White House spokeswoman said Trump isn't planning to take action against the company after he accused it of not paying taxes.  The 10-year Treasury yields fell below 2.75% after data showed US consumer spending lagged behind income growth for a 2nd month in Feb.  Volumes were subdued ahead of a long weekend.  The S&P 500 was set to end Q1 down less than 1%, marking the first quarterly loss for the gauge since 2015.  The $ had its 5th straight quarterly decline & oil for its 3rd consecutive quarterly gain.  The arrival of the holiday will be a relief for many investors following a roller coaster start to the year in which stellar global equity gains gave way to a volatility blowup in Feb & a technology-led rout in recent days.  

China warned the US on not to open Pandora's Box & spark a flurry of protectionist practices across the globe, even as Beijing pointed to US goods that it could target in a deepening Sino-US trade dispute.  China could target a broad range of US businesses from agriculture to aircraft, autos, semiconductors & even services if the trade conflict escalates, the official China Daily newspaper said.  Pres Trump's move last week to slap up to $60B in tariffs on some Chinese imports has since provoked a warning from Beijing that it could retaliate with duties of up to $3B of US imports.  China's biggest US imports are aircraft & related equipment, soybeans & autos, with the total bill about $40B last year.  "The malicious practices of the United States are like opening Pandora's Box, and there is a danger of triggering a chain reaction that will spread the virus of trade protectionism across the globe," a commerce ministry spokesman said.  The official line from China continues to be stern even as Beijing says it is all for dialogue & negotiations.  The feedback from US & Chinese officials on the nature & extent of trade talks remains mixed.  Chinese customs data shows the US accounted for just $2.6% (1%) of China's total semiconductor imports last year by value, with suppliers in South Korea, Taiwan & Japan commanding a bigger share.  But a source in the US semiconductor industry said US companies have slightly more than 50% of China's market for chips, though export data does not reflect that because much of the product is sent offshore for low value added processing.  The source said the US semiconductor industry had not asked the Trump administration to urge China to buy more US chips & had been told by senior US officials that the US gov had not made such a request to Beijing.  "We don't need China to buy more chips," the source said, adding that US industry was concerned about being targeted by Chinese non-tariff barriers.  "It's more about (Chinese) subsidies, IP protection, and cyber rules," the source said, referring to concerns over Chinese retaliation.  China has long said it would like to import more US high-tech goods, including high-end chips, but has been stymied by US export controls set on national security grounds.  The Trump administration is accusing Chinese firms of stealing intellectual property & forcing US firms to share commercial secrets, allegations that China denies.

China warns US not to open Pandora's Box, unleash trade ills on world

US consumer spending rose marginally for a 2nd straight month in Feb as households boosted savings, the latest indication the economy lost momentum in Q1.  The Commerce Dept said that consumer spending, which accounts for more than 2/3 of US economic activity, increased 0.2% last month after a similar gain in Jan.  Spending on long-lasting goods, such as motor vehicles, rebounded 0.2% after tumbling 1.5% in Jan.  Outlays on services rose 0.3%, matching the Jan increase.  The forecast had called for consumer spending increasing 0.2% in Feb.  There was also a moderation in monthly inflation readings after prices pushed higher in Jan.  The personal consumption expenditures (PCE) price index excluding the volatile food & energy components rose 0.2% last month after advancing 0.3% in Jan.  That lifted the year-on-year increase in PCE price index to 1.6%, the biggest gain since Feb 2017, from 1.5% in Jan.  The core PCE index is the Fed's preferred inflation measure.  It has been below the U.S. central bank's 2% target since mid-2012.  Economists believe the annual core PCE price index could accelerate to 1.9% in Mar as last year's weak readings drop out of the calculation.  The steady rise in inflation last month also helped curb consumer spending.  When adjusted for inflation, consumer spending was unchanged in Feb after falling 0.2% in the prior month.  That suggests a sharp slowdown in consumer spending in Q1 after it surged at an eye-popping 4.0% annualized rate in Q4.  The tepid consumer spending added to data on trade, housing & business spending on equipment that have left economists anticipating moderate economic growth in Q1.  The Atlanta Fed is currently forecasting GDP growth rising at a rate of 1.8% in Q1 after the economy grew at a 2.9% pace in Q4.  In Feb, personal income rose 0.4% & has now increased by the same margin for 3 straight months.  Wages increased 0.5% last month after climbing 0.6% in Jan.  Savings increased to $497.4B in Feb, the highest level since Aug 2017, from $471.3B in the prior month.  The saving rate rose to a 6-month high of 3.4% from 3.2% in Jan.

US consumer spending climbed modestly in February as savings rose to a 6-month high

McDonald's (MCD), a Dow stock & Dividend Aristocrat, citing the new US tax law & the tightening job market, is expanding its 3-year-old education benefits program, tripling the amount of money some workers can get each year to help pay for college or trade school tuition.  The fast-food company is also changing its eligibility rules, which it said will double the number of workers who qualify to 400K (about ½ the people who work at company restaurants in the US).  Other chains have given workers bonuses or boosted benefits because of the new tax law, which cut the corp tax rate.  MCD also hopes the expanded benefit will help attract & keep workers.  Large employers have had a hard time attracting & keeping workers because of historically low unemployment rates.  "There is a fight for talent all around the world," said CEO Steve Easterbrook.  Restaurant crew members will be able to get up to $2500 per year for tuition, an increase from $700.  Managers can receive up to $3000 per year, an increase from $1050.  The company has set aside $150M over 5 years to pay for the program.  The stock went up 6¢.
If you would like to learn more about MCD, click on this link:

McDonald's expands worker tuition benefits, citing tax law

Sorry about the mistake in the last post, this is that last day of trading in Q1 & tomorrow will be a day of rest.  This has been an unusually wild qtr.  After months, even years, of steady gains, wild swings in the stock market became common.  Tech stocks had been the leaders on the way & they continued to be leaders, only this time in high volatility.  When all was said & done, the Dow finished down 500 in Q1.  With growing uncertainties in the tech sector & new rules on tariffs & their impact on the global economy, Q2 is likely to be another very exciting qtr for stocks.  At the close the sank 50, whatever that means.

Dow Jones Industrials

Higher markets after consumer data for March

Dow rose 132, advancers over decliners about 4-1 & NAZ bounced back 39.  The MLP index was up 1+ to the 238s & the REIT index jumped up 6 to the 238s.  Junk bond funds edged higher & Treasuries found limited buying.  Oil inched up in the 64s & gold slid back another 2, to 1327.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil64.56

GC=FGold  1,328.20
-1.80 -0.1%

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Consumer sentiment in Mar reached the highest level since 2004 as a solid labor market & growth expectations offset concerns about tariffs & stock-market volatility, a Univ of Mich survey showed.  The sentiment index rose to 101.4 (est 102) from 99.7 in Feb (preliminary Mar reading was 102).  Current conditions gauge, which measures Americans' perceptions of their finances, advanced to a record 121.2 (prelim 122.8), from 114.9 in Feb.  Expectations measure decreased to 88.8 (prelim 88.6), from 90 in Feb.  Consumers saw inflation rate in the next year at 2.8% after 2.7% the prior month.  57% of households reported recent financial progress, matching the 1998 all-time high.  For durable goods, 21% said they favored buying in advance of expected price hikes, the highest level since 1990. 

Consumer Sentiment in U.S. Surges to Highest Level Since 2004

Commerce Sec Wilbur Ross said there’s too much “hysteria” among investors about the risks to the economy of Pres Trump's trade policy, arguing higher tariffs will have a trivial effect on the nation's rate of inflation.  “I would recommend that investors act rationally, and by that I mean judge this administration by the actual performance that it creates,” Ross said.  “Don’t judge it by some sort of hallucination about some sort of bogeyman out there that could be a problem. I think people are altogether too hysterical and I think that calmness is a much more useful investment tool than hysteria.”  The Trump administration is preparing to propose a list of Chinese products to be hit with tariffs.  Trump announced last week that the US will impose duties on about $50B in Chinese goods to punish Beijing for what DC sees as widespread violations of American intellectual property.  US Trade Representative Robert Lighthizer has until Apr 6 to release the list.  Earlier in Beijing, Commerce Ministry spokesman Gao Feng said China won't submit to unilaterally coerced negotiations & doesn't rule out any options to defend its interests.  US tariffs set a bad precedent & cast a shadow on the global economy, he said & reiterated that Beijing hopes the US will solve disputes via dialogue.  Ross said separate tariffs on steel & aluminum won't raise prices that much for consumers.  “You’re talking about a fraction of a penny on a can of beer,” he said.  “The total amount of the tariffs, if you assume they’re fully passed through to our economy, it’s something under one half of one percent. Big deal.  This economy is not so fragile that a fraction of a percent is going to upset either the market or the economy.”  “Rational investors work with the numbers and try to think through what are the real implications, not what is some wild fantasy,” Ross added.

Wilbur Ross Says Investors Are ‘Too Hysterical’ About U.S. Trade Policy

Stocks were mixed, with technology shares lagging behind broader indexes, as markets limped toward the end of tumultuous qtr.  Equities in Europe also rose following a mixed session in Asia.  The S&P 500 edged higher as the tech-heavy NAZ 100 fluctuated.  Amazon (AMZN) fell, reversing a premarket gain, after Donald Trump accused the company of not paying taxes in a tweet.  Treasuries rose while the $ fell after data showed US consumer spending lagged behind income growth for a 2nd month in Feb.  The Stoxx Europe 600 Index headed for a 3rd day of gains, with automakers leading the way.  Volumes were subdued, with many traders wrapping up ahead of a long weekend.  The arrival of the holiday weekend will be a relief for many investors following a roller coaster qtr in which stellar global equity gains gave way to a volatility blowup in Feb & a technology-led rout in recent days.  Most Western markets are set to close on Fri & many European countries are also out on Mon.  Both the benchmark index for global stocks and the S&P 500 Index are set to end the qtr down about 2%.  West Texas oil edged higher & gold fluctuated after yesterday's plunge.

U.S. Stocks Mixed as Amazon Sinks, Dollar Weakens: Markets Wrap

US filings for unemployment benefits unexpectedly fell last week to the lowest level since 1973, further evidence that the labor market remains tight, according to the Labor Dept.  Jobless claims decreased 12K to 215K (est 230K) & continuing claims rose by 35K to 1.87M in the latest week.  The 4-week average of initial claims, a less-volatile measure than the weekly figure, fell to 224K from the prior week's 225K.  Claims at the lowest level in 45 years underscore a persistent shortage of qualified workers that has made employers reluctant to dismiss staff.  Applications for jobless benefits below the 300K tally, typically considered consistent with a healthy labor market.  Other aspects of the job market remain robust, with payrolls continuing to exceed expectations & an unemployment rate near the lowest since late 2000.  Steady employment will help to sustain consumer spending, the biggest part of the economy.  Unemployment rate among people eligible for benefits held at 1.3%.

U.S. Jobless Claims Decline to Lowest Level Since Januade ary 1973

Today & tomorrow should be quiet days for stocks (whatever that means).  Going into the holiday weekend (NYSE will be closed Mon) price fluctuations are not considered significant.  However there is plenty of excitement out there starting with the goings on in DC.  Tariffs & trade issues are huge & this is only the first phase of changes coming that will impact business around the world.  Presently the Dow is hovering around 24K, far below recent records above 26K made in late Jan.  The chart below remains glum.

Dow Jones Industrials