Wednesday, March 21, 2018

Mixed markets await Fed's rate decision

Dow lost 32, advancers over decliners 3-2 & NAZ went up 4.  The MLP index recovered to 2+ to the 244s (shown in its ugly chart below) & the REIT index was off fractionally to the 327s.  Junk bond funds did little & Treasuries retreated, taking the yield on the 10 year Treasury up to 2.9%.  Oil jumped up to the 64s & gold added 9 to 1321.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil64.21

GC=FGold  1,319.60

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Stocks swung between gains & losses, the $ weakened & Treasuries steadied as traders await the Fed's first policy decision since Jerome Powell took the helm.  The S&P 500 fluctuated, while the Dow & NAZ edged lower.  Leisure companies & banks were among the biggest losers in the Stoxx Europe 600 Index, following a mixed performance in Asian equities.  An index tracking the $s value against trading partners dropped the most in 2 weeks.  Gold climbed & oil advanced on renewed tension between producers Saudi Arabia & Iran.  Investor focus today will turn to Powell's first FOMC meeting as Fed chairman, with close scrutiny of whether monetary policy might become more hawkish under his tenure.  Shares in technology-related firms remain on the back foot due to the spillover from the crisis engulfing Facebook (FB).  CEO Mark Zuckerberg will address employees on Fri.  European bonds fell & the £ extended its advance after data on stronger wage growth & before a Bank of England policy meeting.  The 3-month $ London interbank funding rate continued its advance, rising to 2.27%, the highest since Nov 2008.  Yields on UK 10-year gov bonds extended their gain after data showed wages are rising in Britain at their fastest pace since the end of 2016.

Stocks Fluctuate, Dollar Drops Before Fed Meeting: Markets Wrap

Sales of previously-owned US homes rose more than expected in the first gain in 3 months, indicating that job gains and tax cuts are supporting demand despite low supply, National Association of Realtors data showed.  Contract closings increased 3% M/M to 5.54M annual rate (est 5.4M), from unrevised 5.38M.  The median sales price rose 5.9% Y/Y to $241K.  Inventory of available properties declined 8.1% Y/Y to 1.59M (lowest for Feb in data going back to 1999).  The results indicate that even with a low supply of homes for sale & rising borrowing costs, demand is being driven by a strong labor market & steady income gains.  At the same time, first-time buyers are still struggling to purchase, as the group accounted for 29% of sales in Feb, down from 32% a year earlier.  “There’s no letup in home-price growth, another testament to the solid, strong housing demand in the marketplace,” Lawrence Yun, NAR chief economist, said.  “If prices were weakening that may be signaling a possible turning point but we are not really seeing that.” Inventory conditions remain “very tight,” he added.  Single-family home sales increased 4.2% last month to an annual rate of 4.96M.

U.S. Existing-Home Sales Rebound Even as Inventory Remains Tight

Deere (DE), the world's largest maker of agricultural equipment, is concerned that rising trade tensions between the US U& other countries could affect sales of its signature green-&-yellow tractors & combines.  While US tariffs on imports of steel & aluminum will have a financial impact on the company, DE is "much more worried" about possible trade retaliation targeting American agricultural products, CEO Sam Allen said.  "If China no longer buys U.S. soybeans or Mexico no longer buys U.S. corn, that would be really bad for our customers and that would be much more impactful on us," he said.   Allen's comments came hours before a report that China is considering tit-for-tat tariffs aimed at US products including agricultural exports.  About 1/3 of US agriculture is exported, Allen said.  That trade flow could be in jeopardy if Pres Trump follows through on repeated threats to quit the North American Free Trade Agreement, or if China imposes tariffs or quotas.  Any curbs on US export earnings risk stifling a rebound in farmers' incomes just as signs emerge of a recovery in agricultural commodity prices.  "After four years of record harvests, for the first time we’re seeing a potential reduction" in supply as a result of Argentina's drought, Allen said.  "We can already see global grain reserves going down and they don’t have to go down much further for commodity prices to go up."  As for the metals used to manufacture DE machines, the import tariff is concerning because American mills will be able to increase prices significantly, Allen said, adding that steel could rise by roughly 30% in a short period of time.  Still, it won't be possible to asses the cost impact until the US gov provides more details on the tax rules to see if countries such as Canada and Mexico are affected, he added.  The stock fell 1.07.
If you would like to learn more about DE, click on this link

Deere Is Concerned About Retaliation Against U.S. Agriculture

Not too much for the markets to do until Powell speaks.  Since this is his first speech, everybody will be listening very closely to every word.  A qtr point increase in the Fed interest rate is widely expected.  Many are expecting the Fed to raise its projection to 4 increases this year from 3 previously announced.  That will be a major negative for investors who are addicted to low interest rates, hoping they will last forever,  More fallout is coming from the hike in  tariffs which are expected to begin in a couple of days.  Funding for the federal budget needs to be approved by Fri.  That looks like it will involve a massive increase in spending with only limited cuts in agency budgets, not good for the long term.

Dow Jones Industrials

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