Tuesday, March 13, 2018

Markets decline in afternoon trading, led by tech shares

Dow slumped 171 (but off the lows), decliners over advancers 3-2 & NAZ sank 77.  The MLP index was fractionally lower to the 264s & the REIT index rose 1+ to the 329s.  Junk bond funds fell & Treasuries found buyers.  Oil went below 61 (more below) & gold added 6 to 1327.

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Optimism among CEOs of large US companies has reached a record high, a Business Roundtable survey showed.  Its index advanced to 118.6, highest since the survey began in 2002, from 96.8 in Q4 (readings above 50 indicate expansion).  The gauge of capital spending plans in the next 6 months rose to 115.4 from 92.7 & sales outlook jumped to 141.9 from 122.  The measure of hiring expectations increased to 98.5 from 75.7.  The latest quarterly report on the DC-based group's index is the first reading since Pres Trump & Rep lawmakers enacted tax cuts for corps & individuals.  The results underscore widespread optimism in the US economy as the fiscal stimulus, tight labor market & solid global growth provide tailwinds to the American recovery.  The survey came hours after a National Federation of Independent Business poll showed small businesses were the most optimistic in more than 3 decades.  The Business Roundtable (BRT) conducted the poll before Trump announced plans for tariffs on steel & aluminum imports.   Business groups that are longtime GOP allies, including the Business Roundtable & the Chamber of Commerce, opposed Trump's move.  “These results validate BRT’s advocacy of smart and inclusive economic policies,” JPMorgan (JPM), a Dow stock, CEO Jamie Dimon, who serves as chairman of the Business Roundtable, said.  “Put into action, the survey results translate into more jobs and opportunity for all Americans.”  CEOs expected economy to grow 2.8% in 2018, up from 2.5% projected last qtr.

U.S. CEO Optimism Hits Record as Tax Cuts Boost Spending Plans

Stocks seesawed as investors digested the latest shakeup at the White House & on the heels of a tame inflation reading.  Major news was the sudden departure of Sec of State Rex Tillerson. The former CEO of ExxonMobil (XOM), a Dow stock & Dividend Aristocrat, is out & will be replaced by CIA Director Mike Pompeo.  The news came shortly after the Labor Dept said its consumer price index rose 0.2% in Feb.  While the reading is in line with estimates, it is well below the 0.5% jump in Jan.  Concern that inflation will accelerate faster than expected has recently pressured the markets.  The Dow gave up triple digit gains & NAZ retreated after setting an intraday record high.  Investors are also keeping an eye on oil which declined to the $60 per barrel level as investors weighed how Tillerson's exit will impact policies around Iran & in the Middle East.

Investors digest Tillerson firing, inflation data

European Commission officials have been trying to understand whether proposed US tariffs on steel & aluminum will end up impacting their 28 member states.  Last week, the European Commissioner for trade, Cecilia Malmstrom, repeatedly insisted that she did not buy the American pretext for introducing tariffs, that of national security, in particular when applied to ostensible allies on this side of the Atlantic.  She said the European Commission would take its case to the World Trade Organisation in Geneva & push to have any US measures reversed.  She said me that Trump's position was "politically hard to understand, but also legally hard to make the case."  But after a long-scheduled weekend meeting with US Trade Representative Robert Lighthizer, Malmstrom used another bit of neat diplomatese, she described her discussions with Ambassador Lighthizer as having been "frank."  Translation: far from cordial.  And that should come as no surprise, after the Trump administration very suddenly signed off on tariffs of 25% on steel & 10% on aluminum, a move that not only roiled financial markets in the short-term, but may leave more lasting damage by upending the tradition of well-choreographed conversations on trade that have characterized US-Europe relations for the past decade.  So far, the US gov has not even been able to give its trading partners, including Europe, a set of guidelines that would allow them to win exemption.  When Trump tweeted yestserday that Commerce Secretary Wilbur Ross would be meeting with EU representatives soon, Commission officials minutes later said they had no idea what he was talking about, or whom.  Malmstrom addressed a trade forum yesterday with a thinly-veiled reference to the current incumbent of the White House, insisting that Europe would "stand up to bullies" & would not be intimidated by threats.  The EU says it is not prepared to open new trade negotiations in order to gain exemption for the tariffs.  Instead, the Commission has announced a 3-pronged strategy that is primed for use & which seems to have been well-received by both business leaders & politicians across Europe.

EU stands up in the battle against US ‘bullies’

Boeing (BA), a Dow stock, is doubling down on its landmark new strategy designed to muscle in on the business of maintenance providers by making its next jet the laboratory for in-house services that could radically alter the global business model for selling planes.  Unlike its last all-new design, the 787 Dreamliner, its proposed new mid-market plane will not bring a flood of revolutionary technical designs to the drawing board.  But it will give the plane maker a chance to test its new business approach of designing the plane so that it generates lucrative services revenues while also offering efficiencies to airlines over the aircraft’s decades-long lifespan.  Along with production costs, the new approach could help BA decide whether to invest the $15B or more in development needed to build the jet.  "If we decide to launch, it's a big investment and it's an investment that has to contemplate not only the product itself but all of our other strategic objectives," CEO Dennis Muilenburg said.  "So you can imagine we would want to look at this airplane through the lens of lifecycle value as we are growing our services business," he added.  The stock dropped 5.52.
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New Boeing jet to accelerate services shake-up

Oil slid amid concern that global demand might not absorb swelling US supplies.  Futures fell almost 2% to a session low of $60.27 a barrel, after fluctuating in the AM.  The US gov expects major shale regions to boost output by 131K barrels a day in Apr, spurring fears that surging supplies will undermine OPEC's efforts to clear a glut.  Sentiment is being soured further by a forecast increase in US inventories, a 3rd consecutive weekly gain.  Oil has struggled to recover losses from last month's broader market slump after topping $66 a barrel in Jan.  While a brighter economic outlook has underpinned demand expectations, expanding American production remains a challenge to OPEC & its allies, which are trying to prop up prices via output curbs.  West Texas Intermediate for Apr delivery traded at $60.46 a barrel, 90¢ lower & Brent for May settlement was down 70¢ at $64.26.  Production from shale regions will reach 6.95M barrels a day next month, the Energy Information Administration said in its monthly drilling report.  The Permian Basin is seen leading the way with an 80K-barrel increase.  Total American output has passed 10M barrels a day, beating a record set in 1970.  US crude inventories probably expanded by 1.9M barrels in the latest week before EIA data tomorrow & stockpiles at Cushing, Oklahoma, the delivery point for WTI futures, probably held steady after 11 straight weeks of declines.

Sellers returned in the PM.  The Qualcom (QCOM) news took the stock down 3.11 (5%) & that selling bled thru to the rest of tech shares on NAZ.  Unrest about Tillerson's added to anxiety in the stock market.  At the same time, 2 surveys of business execs were very encouraging.  Trading in the last 6 weeks has been very choppy & will likely continue with more changes coming in DC.

Dow Jones Industrials

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