Friday, March 2, 2018

Markets sink again on talk about increasing US tariffs

Dow sank another 304, decliners over advancers about 5-2 & NAZ dropped 32.  The MLP index dropped a very big 4+ to the 254s.  Junk bond funds eased lower & the yield on the 10 year Treasury went up 3 basis points to 2.84%.  Oil eased below 61 & gold soared 18 to 1324.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil60.55

GC=FGold  1,323.90

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Stocks sank as Pres Trump ratcheted up his talk of a “trade war,” compounding investor concerns over a more hawkish Federal Reserve & the potential end to monetary stimulus in Japan.  Gold climbed while the $ weakened & Treasuries fell.  The S&P 500 dropped 1% & was on track for its worst week in a month, while the Dow lost more than 300  after Trump declared trade wars are "easy to win" in a tweet.  The Volatility Index continued its 4-day climb.  The Stoxx Europe 600 Index sank nearly 2% & headed for a 4th day of losses, while Germany's DAX Index reached its lowest level since Aug.  Japan led the retreat in Asia earlier, with the Topix Index tumbling after the Bank of Japan Governor mentioned for the first time a possible time frame for discussing an exit from its extraordinary easing program.  The ¥ surged to the strongest since 2016 & shares from Hong Kong to Australia declined.  Trump pushed back against a wave of criticism of the steel and aluminum tariffs he proposed yesterday, saying “trade wars are good.”  The possibility of the levies raises the prospect of tit-for-tat curbs on American exports & higher prices for domestic users, further clouding the outlook for economic growth at a time when central banks around the world are embarking on policy-tightening or approaching it.  Japan's comments were seen as further evidence the era of massive stimulus that boosted asset prices & slashed borrowing costs is coming to an end.  Earlier this week, Federal Reserve Chair Jerome Powell sparked speculation the central bank may quicken the pace of monetary tightening, a move investors worry could derail economic expansion.   Oil declined amid concerns about increasing US crude production & gold rallied.  The Volatility Index is up about 50% this week as traders anticipate more turmoil.

Market Plunge Continues After Trump Says Trade Wars Are ‘Good’

China expressed "grave concern" about a US trade policy report that pledges to pressure Beijing but had no immediate response to Pres Trump's plan to hike tariffs on steel & aluminum.  The report accused China of moving away from market principles & pledged to prevent Beijing from disrupting global trade.  "The Chinese side expresses grave concern," said the Commerce Ministry.  The ministry said Beijing has satisfied its trade obligations & appealed to DC to settle disputes thru negotiation.  However, there was no immediate response to Trump's announcement that he will increase duties on steel & aluminum imports.  Chinese officials have threatened to take "necessary measures" to defend their country's interests.  Beijing faces mounting complaints from the US, Europe & other trading partners that it improperly subsidizes exports & hampers access to its markets in violation of its free-trade commitments.  "The United States aims to hold countries that break the rules accountable for their actions," said a White House statement yesterday.

China criticizes US trade report but silent on tariff hikes

Consumer sentiment last month rose to the 2nd-highest level since 2004 & plentiful job opportunities buoyed Americans' spirits amid stock-market volatility, a Univ of Mich survey showed.  Sentiment index rose to 99.7 (est 99.5) from 95.7 in Jan. (the preliminary Feb reading was 99.9).  Current conditions gauge, which measures Americans' perceptions of their finances, advanced to 114.9 (prelim 115.1), from 110.5 in Jan.  The expectations measure increased to 90 (prelim. 90.2) from 86.3 in Jan.  The advance in confidence caps a week of buoyant data, although Trump's plan to impose tariffs on steel & aluminum imports rattled markets & poses a risk to growth.  Consumers are generally optimistic after the tax package ushered in $30B in one-time bonuses across dozens of companies & led to higher after-tax incomes.  Such sentiment was evident in the report, which said the biggest share of households since 1998 said their finances had improved over the past year & expected continued gains in the year ahead.  That should help underpin consumer spending, the biggest part of the US economy.  In addition, the most consumers since 1984 said they had heard positive news about economic developments, with 2/3 citing changes in tax policies & rising employment.  At the same time, opinions on the tax cuts split along partisan lines, with Reps having a very positive impression & Dems on net judging the policy as unfavorable.  Meanwhile, few consumers mentioned the stock market & those citing it as favorable were roughly on par with those who said it wasn't.  “Consumers based their optimism on favorable assessments of jobs, wages, and higher after-tax pay,” Richard Curtin, director of the consumer survey, said in a statement.  “Economic news heard by consumers continued to be dominated by the tax reform legislation and net job gains, which was untarnished by the consensus view that interest rates would increase and stock prices would remain volatile.”

Consumer Sentiment in U.S. at Second-Highest Level Since 2004

Trump is serious about his thoughts on revising intl trade relations & that is making investors nervous.  The Dow is back where it was on Feb 9 after falling an amazing 1K in the last 5 trading sessions.  Meanwhile the volatility index has shot up from about 16 to more than 24.  And gold bugs, negative thinkers on the stock market, have returned, driving higher gold prices.  REITS with their high yields have held up well after several months of selling.  Typically they have only minimal (if any) intl trade.  The Dow chart below is ugly.  Even strong economic & consumer data is only bringing back a few stock buyers.

Dow Jones Industrials

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