Monday, April 16, 2018

Markets rise after Trump talks taxes

Dow shot up to 212, advancers over decliners continued at 5-2  & NAZ went up 49.  The MLP index surged 10+ to the 258s & the REIT index was higher in the 323s.  Junk bond funds gained ground & Treasuries were flattish (more below on their recent rising prices).  Oil dropped 1 to the 66s & gold added all of 1 to 1349.

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Federal Reserve Bank of NY Pres William Dudley said the central bank will stay on its gradual path of raising interest rates unless inflation moves up by “an appreciable margin.”  “I don’t think we know exactly how many more rate hikes we are going to do this year,” Dudley said.  “As long as inflation is relatively low, the Fed is going to be gradual. Now, if inflation were to go above 2 percent by an appreciable margin, then I think the gradual path might have to be altered.”  At their policy session in Mar, most Fed officials favored either 3 or 4 rate hikes in 2018, including the move they executed at that meeting.  Dudley said “three or four seemed like a reasonable expectation this year.”  He will retire in Jun after more than 9 years at the helm of the NY Fed & be succeeded by John Williams, who currently heads the San Francisco Fed.

Fed's Dudley Sees More ‘Gradual’ Hikes Unless Inflation Jumps

US retail sales rose by more than expected in Mar in the first gain in 4 months, suggesting consumer demand regained steam on the back of tax cuts & refunds.  Receipts advanced 0.6% following a 0.1% drop in the previous month, according to the Commerce Dept.  That compared with the estimate for a 0.4% increase.  The retail control-group sales, which are used to calculate GDP & exclude food services, auto dealers, building-materials stores & gasoline stations, gained 0.4% , matching estimates.  The improvement in demand went beyond a bump in auto sales, as consumers went shopping at furniture & home stores along with electronics & appliance sellers.  The results underscore that the declines from Dec-Feb were more of a pause following a post-hurricane spending binge.  That supports the Federal Reserve's view that such weakness was transitory, as well as the central bank's outlook for 2 or 3 more interest-rate increases this year following a qtr-point hike in Mar.  8 of 13 major retail categories showed increases.  Sales at health & personal-care stores rose 1.4%, the most in 2 years.  Auto sales rose 2%, the most since Sep.  A report last week showed purchases of cars & light trucks rose to a 17.4M annualized rate in Mar, the fastest this year.  Weaker sales categories included building-materials stores, which fell 0.6%; apparel stores, down 0.8% & sporting goods, hobby, book & music stores, off 1.8%, the most since Dec.  Consumer optimism has held at relatively high levels thanks to factors including job-market strength, rising wages & lower taxes.  Refunds from 2017 returns may have also given retail sales a boost in Mar.  Even with the bounceback, consumer spending probably expanded at a slower pace in Q1.  Control-group sales rose at a 1% annualized rate over the last 3 months, compared with 7.6% in the 3 months thru Dec.

Facing a possible US tariff hike, one of China's biggest ball bearing makers, Cixin Group, is weighing plans to rush shipments to American customers before the increase makes its sales unprofitable.  The company in the eastern city of Ningbo is among exporters of goods from motorcycle parts to electronics that are scrambling to cope with Pres Trump's higher duties by shipping early, raising prices or finding new markets.  The 25% increase would turn Cixin's profits to losses in the US market, which takes 30% of its exports, according to Wang Liqiang, a company manager.  "We are considering manufacturing as many ball bearings as possible for the U.S. market before the imposition of tariffs," said Wang.  "We can do it by working overtime."  Some companies are looking at ways to hide their Chinese origin by shipping goods through other countries.  "Maybe customers will buy from South America, and then South America sells to the U.S.," said Yvonne Yuan, a sales manager for Shenzhen Tianya Lighting, a manufacturer of LED bulbs.  Trump says higher duties on $50B of Chinese goods are meant to punish Beijing for stealing or pressuring foreign companies to hand over foreign technology.  The plan targets goods US officials say benefit from improper Chinese policies including machinery, industrial components & aerospace, telecoms and other technology.  Trump left time to negotiate.  A public comment period runs thru May 11, with a hearing scheduled May 15.  Economists & Chinese officials say the tariff hike's overall impact on China should be limited.  But for exporters that depend on the US market, the potential costs are alarming.  Knock-on effects could greatly increase the impact, Moody's Investors Service researchers said in a report.  It said that Chinese manufacturers that supply inputs to targeted sectors would see reduced demand & more pricing pressure, spreading the effects of tariffs deeper into the Chinese economy.  Manufacturing & processing of metals & metal products, as the key input sectors for technology-product manufacturing, would be hurt the most.  Chinese exporters supply most of the world's mobile phones, personal computers, televisions, toys & other light manufactured goods from thousands of factories.  They are flexible & resourceful but many are struggling with higher costs & slowing demand.  China's total exports last year rose 7.9%, down from the heady double-digit rates of the past decade.  The US buys about 20% of China's exports.  But Americans are especially important to exporters because they buy electronics & other high-value goods, including many targeted by Trump's tariffs.  Some exporters already are reeling from previous US tariff increases of up to 500% on washing machines, solar modules & some metal products, meant to offset what the Trump administration says are improper subsidies that allow them to sell at unfairly low prices.

Chinese exporters scramble to cope with Trump tariff hike

Bank of America (BAC) profits rose to a record $6.9B last qtr thanks in part to the new tax law & higher interest rates.  EPS rose to 62¢ from 45¢ in the same period a year ago.  Analysts had been expecting 59¢.  Like its competitors, BAC reported a sharp drop in its tax bill, which helped boost profits.  While pretax income rose by roughly $1B, the amount it paid in taxes fell roughly $500M in the qtr.  The bank estimates that the tax law cut its effective tax rate by 9 percentage points.  This season will give investors & the public their first good look into how the new tax law is impacting corp America.  Banks are among the first to report results at the beginning of each quarter.  Higher interest rates benefited the bank as well.  The Federal Reserve has steadily raised interest rates, allowing banks to charge customers more to borrow.  In BAC's consumer banking division, its largest business by revenue & profit, net interest income rose 13% from a year earlier.  The bank also grew loans & deposits.  While higher interest rates should translate into better interest rates for savers, most of the benefits have gone to the banks, not account holders.  The bank  paid just an average of 0.30% on its interest-earning deposits last qtr, up from 0.09% a year earlier.  Total revenue was $23.13B, up from $22.25B in the same period a year earlier.  The stock rose 14¢.
If you would like to learn more about BAC, click on this link:

Bank of America 1Q profits rise to record $6.9 billion

The 2-year Treasury yield hit its highest level in nearly a decade, leaving investors questioning what this could signal for America's economy in the longer term.  The short-term Treasury yield rose to 2.386% earlier today, the highest level on record since Aug of 2008.  Meanwhile, the 1--year Treasury yield also rose to a 3-week high at 2.86%.  Yields move inversely to bond prices.  The move came as the US & Russia avoided any direct conflict in Syria following airstrikes by Western nations on Sat.  But, the sell-off in bonds left some investors feeling nervous that it could spell trouble for the US economy.  Every time the short-term yield comes closer to the 10-year, in what market participants describe as "flattening of the yield curve," there are worries that an economic recession could be on the horizon.  This is because higher short-term yields suggest that inflation & interest rates are expected to remain low for a while.  A flattening of the yield curve has preceded financial crises in the past, including the dotcom bust & the financial crisis of 2008.  However, some market experts believe that this is no longer the best way to assess risk of a recession.  A steepening of the yield curve traditionally means that market players expect higher inflation & thus higher interest rates from the US central bank.  It also indicates an expectation of a stronger economy.

Two-year Treasury yield hits a near 10-year high despite Syria tensions

Trump was in FL talking about taxes, always good for traders to hear.  Economic data continues to be strong.  Sentiment from consumers & business leaders (from big & small businesses) remains excellent.  The benefits of the new lower taxes are working into the economy.  Meanwhile uncertainty remains high.  The 2 biggest hurdles are how new tariffs will affect the US & global economies & nervousness about the Mideast.  The Dow rose today because traders are not worried.  One nagging worry is that gold is still in demand.

Dow Jones Industrials

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