Tuesday, April 10, 2018

Markets surge on easing trade tensions with China

Dow jumped up 428 (but 100 below the highs), advancers over decliners 3-1 & NAZ advanced 143.  The MLP index soared 7+ to the 246s & the REIT index continued in the 326s.  Junk bond funds were bid higher & Treasuries drifted a little lower.  Oil rose 2+ to the 65s (more below) & gold went up 4 to 1344.

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Stocks surged following conciliatory comments from Pres Trump & Chinese Pres Xi Jinping aimed at releasing some pressure from a trade dispute between the world's biggest economies.  Treasuries fell with the $.  All major US equity indices spiked higher in PM trading & were up more than 1.5% after Trump praised Xi's “kind words on tariffs and automobile barriers.”  In a keynote address today before the Boao Forum for Asia, China's leader backed free trade & dialog to resolve disputes & pledged to open the nation's banking & auto manufacturing sectors.  With the newly friendly tone, investors are now weighing whether fears of an outright trade war have become overblown.  That in turn is reinvigorating faith in the synchronized global-growth story ahead of earnings season, even after a Federal Reserve official cautioned that the spat won't be resolved soon.

Stocks Rally After Trade Tiff Eases

Last month, word leaked out that American Airlines (AAL) had broken off negotiations with Airbus about converting its A350 order to the smaller, cheaper A330neo.  This was a strong indication that the carrier was nearing a deal to expand its Dreamliner fleet instead.  Boeing (BA, a Dow stock) & AAL announced an order for 47 Dreamliners, consisting of 22 787-8s & 25 787-9s.  This will more than double the size of its 787 fleet, & it continues a recent surge of order activity for the Dreamliner.  This gave BA a big advantage over Airbus, because AAL already operates the 787-8 & the 787-9. By contrast, it doesn't have any A330neos or A350s today.  The order adds on to the 20 787-8s & 15 787-9s already in AAL's fleet, as well as the 7 additional 787-9s it has on order for 2018 & 2019.  Deliveries of the 22 787-8s are set to begin in 2020.  These aircraft will be used to replace 24 767s, which are nearing retirement age.  Meanwhile, the 25 787-9s are scheduled to arrive beginning in 2023.  They will replace some of the older 777-200ERs, as well as its 9 A330-300s.  This seems to imply that AAL has decided to hold on to its A330-300s longer than it had previously planned.  As of a few months ago, they were all scheduled to exit the fleet in 2020.  BA brought in 94 net orders for its 787 aircraft family last year, easily its best result since 2013.  However, BA needs to average closer to 150 orders annually for its plan to build 14 787s per month to be sustainable for more than a handful of years.  BA stock shot up 12.23.
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Boeing Reels in a Huge Order From American Airlines Group, Inc.

US wholesale prices increased 0.3% in Mar, driven higher by the largest increase in food costs in nearly 4 years.  The Labor Dept said that the Mar gain in the producer price index, which measures inflation pressures before they reach the consumer, followed a 0.2% rise in Feb & a 0.4% jump in Jan.  Food prices at the wholesale level surged 2.2%, the biggest increase since Apr 2014, with many categories showing gains.  Energy costs, however, fell 2.1% as gasoline prices dropped 3.7%, the largest monthly decline since last May.  Over the past 12 months, wholesale prices have risen 3%, the fastest annual pace since last Nov & another sign that inflation pressures have started to increase after years of being dormant.  Rising food prices are tied to weather that affected crops, but analysts still believe the report shows that inflation pressures are beginning to increase.  Core inflation, which excludes volatile food & energy prices, was up 0.3%  in Mar & 2.7% over the past 12 months.  The Federal Reserve last month increased its benchmark interest rate by a qtr-point & signaled that it expected to raise rates a total of 3 times this year, the same number of rate hikes it delivered in 2017.  However, many economists believe that stronger economic growth & a rise in inflation pressures will end up pushing the Fed to slightly accelerate its pace of rate hikes to 4 increases this year.

Wholesale prices up 0.3 pct in March, a hint of inflation

The number of retailers defaulting on loans hit a record high in Q1, a new report shows, affirming many chains in the sector are still struggling under suffocating debt loads & changing business needs. There were 28 total defaults by corps in the latest period, Moody's Investors Service found, compared with 23 defaults during the same period a year ago.  9 of the 28 defaults were by retailers.  Many retailers are still grappling with the debt load left behind from the private equity buyout boom several years ago.  Meanwhile, all retailers are faced with the expensive task of investing in e-commerce, a business that without the right store footprint can eat into profits.  The latest retail defaults' come from Claire's Stores, which just filed for Chapter 11 bankruptcy last month & Sears Holdings.  The department store recently completed a distressed debt exchange, which Moody's considers a default.  "Stresses in the retail sector have weighed on the operating earnings of department stores, discount stores and drug stores in particular," said Sharon Ou, VP & senior credit officer at Moody's.

Retail defaults hit record high in first quarter, Moody's says

US wholesale inventories increased a bit less than initially estimated in Feb, but still suggested that inventory investment would contribute to economic growth in Q1 after being a drag on output in the prior period.  The Commerce Dept said that wholesale inventories rose 1.0% instead of the 1.1% jump it reported last month.  That was the biggest increase since Oct 2013.  Stocks at wholesalers increased 0.9% in Jan.  The component of wholesale inventories that goes into the calculation of GDP, wholesale stocks excluding autos, surged 1.1% in Feb.  Inventory investment subtracted 0.53 percentage point from Q4 GDP growth.  The economy grew at a 2.9% annualized pace in the Oct-Nov period.  A report last week showed manufacturer inventories increased 0.3% in Feb after rising 0.4% in Jan.  Wholesale auto inventories dipped 0.1% in Feb, matching Jan's fall.  There were increases in inventories of furniture, lumber & computer equipment.  Sales at wholesalers rebounded 1.0% in Feb after slumping 1.5% in Jan.  Sales of motor vehicles jumped 1.4% in Feb after gaining 0.3% in the prior month.

US wholesale inventories increase solidly in February

Oil prices rose, extending strong gains from the previous day, as investors grew more optimistic that a trade dispute between the US & China may be resolved without greater damage to the global economy.  Brent crude futures were up rose 3% at $70.73 a barrel, while WTI crude futures rose 2.9% to $65.28 a barrel.  The oil price has risen by nearly 4.5% in the last 2 trading days.  Pres Xi Jinping promised to open China's economy further & lower import tariffs, in a speech that struck a conciliatory tone on the trade tensions between China & the US.  Equities & industrial commodities rose, while safe-havens such as gold & US Treasuries came under pressure, reflecting confidence among traders & investors that a trade war is increasingly unlikely.  Concerns of a prolonged trade dispute between the world's 2 biggest economies & uncertainty over the supply & demand balance of global oil markets have made for volatile trading in the last few weeks.  Oil briefly rose above $70 two weeks ago, after Saudi Arabia vowed it would keep an agreement in place to limit supply into next year.  But the US decision to impose tariffs on $50B of Chinese goods a week later sent the price to a 2-week low.

Oil rises 3% as shadow of trade war recedes

Investors are feeling more comfortable about reduced trade tensions between the US & China.  However stock trading in the last couple of months shows that feelings can come & go quickly.  Zucherberg is testifying before the Senate & that must be going well.  Facebook (FB) stock is up over 7.  But there are still plenty of stories coming out of DC which can move stocks.  Gold, negative bets on stocks, is still in demand.

Dow Jones Industrials

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