Tuesday, March 20, 2018

Markets gain, led by energy

Dow rose 116 (but off the highs), decliners over advancers 5-4 & NAZ went up 20.  The MLP index fell 2 to the 242s & the REIT index was off 3 to the 328s.  Junk bond funds slid lower & Treasuries were sold (the yield on the 10 year Treasury is up to 2.88%).  Oil added 1+ to the 63s (more below) & gold lost 8 to 1309.

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Stocks edged higher, led by energy-related companies, as equity markets struggled to shrug off weakness in technology.  Gov bond yields increased as investors braced for higher US borrowing rates.  Oil climbed to a 2-week high as output curbs by OPEC & its allies continued to deplete the remnants of a global supply surplus, helping to lift the shares of companies.  Facebook's (FB) mounting Cambridge Analytica data crisis continues to weigh on tech shares & draw the ire of politicians on both sides of the Atlantic.  Investors are struggling to rediscover their bullishness in the wake of the tech setbacks & with the Federal Reserve rate decision a day away.  Reports that the White House plans to impose tariffs worth as much as $60B on Chinese products as part of a battle over safeguarding intellectual property added to caution.  It would be the latest phase of Pres Trump's protectionist agenda & threatens to increase market fears of a trade war.

Stocks Struggle to Shake Tech Selloff; Yields Rise: Markets Wrap

Germany expressed doubt about whether the EU will be exempt from potentially damaging steel & aluminum tariffs, as the bloc's top trade official headed to DC for last-ditch talks.  "We are skeptical, but will hope to the end that there is a good solution," Deputy Foreign Minister Michael Roth said.  Expressing concern about Trump's "dogmatic and ideological decision," Roth said that "we are at the moment — and the clock is ticking — a long way from a sensible solution."  His comments came as EU Trade Commissioner Cecilia Malmstrom headed to DC to seek an exemption from the tariffs for the entire 28-nation bloc.  Malmstrom tweeted that she "will insist that EU as a whole is excluded from tariff measures. We should work together to address overcapacity in steel and aluminum."  Trump's tariffs will enter force on Fri.  He has temporarily exempted big steel producers Canada & Mexico, provided they agree to renegotiate a North American trade deal to his satisfaction.  The EU has drawn up a list of "rebalancing" duties worth some €2.8B ($3.4B) to slap on US products if it is not exempted.  EU leaders will discuss the tariffs Thurs, hoping to avert a trade war while remaining determined to press on with free trade deals with the Mercosur countries of South America & Mexico.  "We must prepare for all possible scenarios," EU Council Pres Donald Tusk said to the leaders, exhorting them to remain an example to the global trading system rather than revert to protectionism.  "As the world's biggest trading power, the EU's response will be responsible and reasonable," he added.  The EU rejects Trump's assertion that the tariffs are needed for national security & sees them as protectionist measures.  Most EU countries are US allies in the world's biggest security organization, NATO.

Germany doubts EU will be exempt from Trump steel tariffs

Chinese Premier Li Keqiang appealed to DC to "act rationally" & avoid disrupting trade over steel, technology & other disputes.  He promised Beijing will "open even wider" to imports & investment.  "No one will emerge a winner from a trade war," said Li, the #2 Chinese leader, at an annual news conference held during the meeting of China's ceremonial legislature.  Li made no mention of a possible Chinese response if Pres Trump raises import barriers over trade complaints against Beijing, but other officials say Pres Xi Jinping's gov is ready to act.  Trump is expected to announce tariff hikes as early as this week on $B of Chinese goods from clothing to electronics, despite warnings by US business groups that might hurt American companies & consumers.  That has prompted fears Beijing might retaliate by cutting Chinese purchases of American jetliners, soybeans & other goods.  "What we hope is for us to act rationally rather than being led by emotions," said Li.  "We don't want to see a trade war."  Commerce Minister Zhong Shan said last week that China will "resolutely defend" its interests.  The premier said its investments are based on market principles & "China will remain a responsible long-term investor."  China & the US have one of the biggest global trading relationships but the flow is lopsided.  Americans buy Chinese goods worth $3 for every $1 of goods they sell to China.  Beijing reported a trade surplus of $276B with the US last year (2/3 of its global total).  The gov reports different figures that put the gap at a record $375B.  Li promised more market-opening & other reforms as Xi's gov tries to make its cooling, state-dominated economy more productive.  He said Beijing will make it easier to start a business & will open more industries to foreign & private competition.  "If there is one thing that will be different from the past, that will be that China will open even wider," said Li.  Beijing plans to "further bring down overall tariffs," with "zero tariffs for drugs, especially much-needed anti-cancer drugs," the premier said.

China's premier appeals to US to 'act rationally' over trade

Ford (F) announced that it will soon launch a device that brings Wi-Fi connectivity & other technology upgrades to older models.  FordPass SmartLink, will allow owners of 2010-2017 Ford models to equip their vehicles with wireless hotspots, remote key fob through a mobile app, vehicle health information & location tracking.  SmartLink will launch nationwide through Ford dealers beginning mid-2018.  It will cost $16.99 a month for 24 months, plus installation, to purchase the plug-in device & receive telematics services.  Smartphone controls & Wi-Fi connectivity have only been available in newer Fords that feature built-in modems.  Ford said all of its new vehicles will come with wireless connectivity by 2019.  The stock was off a penny.
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Ford will turn older cars into Wi-Fi hotspots

Crude advanced to a 3-week high as the OPEC-led alliance of major oil producers accelerated the time line for curbing a worldwide supply glut & futures climbed over 2%.  Global crude supplies will come into balance with demand by the end of Sep, sooner than previous forecasts, according to the special committee appointed by the OPEC-led group to oversee their historic accord.  Concerns that Pres Trump may toughen sanctions against Iran, OPEC's #3 producer, also fanned the rally.  Record US crude production, coupled with mounting levels of stored supplies in American tanks & terminals, has so far forestalled any major price breakouts.  Futures have traded in less than a $4-range this month.  Meanwhile, Saudi Arabian Crown Prince Mohammed bin Salman said during a White House meeting with Trump that he sees a "stable" oil market ahead, adding that the kingdom has an 84-year supply of crude.  West Texas Intermediate for Apr delivery, which expires today, advanced $1.34 to settle at $63.40 a barrel, the highest level in a month.  The more-active May futures contract rose $1.41 to end the session at $63.54.  Brent for May settlement surged $1.37 to settle at $67.42 on the London-based ICE Futures Europe exchange.  The global benchmark crude traded at a $3.88 premium to WTI for the same month.  In the US, crude stockpiles probably expanded by 3.25M barrels last week, according a recent survey (ahead of a gov report scheduled to be released tomorrow).  Inventories held at the key Cushing, Oklahoma, pipeline hub probably rose by 200K barrels last week.  Last week’s inventory report showed crude stockpiles rose in the US for a 3rd straight week & production hit a record high.

This rally, if that's what you call it, is very suspicious.  Tech stocks did not have a meaningful rebound as FB remains under pressure with a ton of problems.  With growing tensions on the intl trade front, results after the Fed meeting tomorrow & the gov shutdown deadline on Fri,  there is plenty to worry investors.  As in the morning, market breadth was negative & 11 of the Dow stocks declined.  Tomorrow, a lot will ride on the outcome of the FOMC meeting & followup announcement.

Dow Jones Industrials

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