Thursday, May 31, 2018

Lower markets after US adds new tariffs on EU, Canada and Mexico

Dow sank 191, decliners over advancers 3-2 & NAZ went up 4.  The MLP index was about flat in the 267s & the REIT index jumped up 4+ to the 341s (not seen since the end of Jan).  Junk bond funds were little changed & Treasuries had tiny gains in prices.  Oil dropped 1+ to 67 & gold added 2 to 1309.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil67.30-0.91 -1.3%

GC=FGold  1,307.30
+0.80 +0.1%

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The White House announced that it would end a 2-month exemption for the EU, Canada & Mexico from the 25% steel & 10% aluminum import tariffs announced in Mar, once again pointing to national security concerns as a primary motivating factor.  Commerce Secretary Wilbur Ross said that slow progress on the NAFTA renegotiation is another reason why Canada & Mexico will now be subject to the import tariffs.  The tariffs will go into effect on the trio of countries at midnight.  The decision sparks new concerns of a trade war with 3 of the Americas's most important trading partners.  When asked about the possibility of escalating tensions, Ross said it would be up to the other countries to respond in kind to the decision.  He also said the administration is eager to stay at the negotiating table with all 3 countries.  3 other countries that were exempted from the initial tariff implementation – Argentina, Australia & Brazil – will be subject to arranged limitations on the volumes of steel & aluminum they can ship, instead of facing the import levies.  Meanwhile, the commerce secretary said he plans to go to China for trade talks tomorrow, another country with which the US has developed an extremely tense relationship over trade differences.

EU, Canada, Mexico exemptions from US tariffs removed

US consumer spending increased more than expected in Apr, a further sign that economic growth was regaining momentum early in Q2, while inflation continued to rise steadily.  The Commerce Dept said that consumer spending, which accounts for more than 2/3 of US economic activity, jumped 0.6% last month, the biggest gain in 5 months.  Data for March was revised up to show spending rising 0.5% instead of the previously reported 0.4% increase.  The forecast called for consumer spending advancing 0.4%.  Spending was boosted by purchases of gasoline & other energy products.  Nondurable goods purchases increased 0.9% & outlays on services rose 0.5%, lifted by demand for household utilities.  Prices continued to gradually rise.  The personal consumption expenditures (PCE) price index excluding the volatile food & energy components increased 0.2% for the 3rd straight month.  That left the year-on-year increase in the core PCE price index at 1.8%.  The core PCE index is the Federal Reserve's preferred inflation measure.  The central bank has a 2% inflation target.  Economists expect the annual core PCE price index will breach the Fed's target in the coming months.  The Fed is expected to raise interest rates next month.  It increased borrowing costs in Mar & has forecast at least 2 more rate hikes for this year.  Moderate inflation also helped support consumer spending last month.  When adjusted for inflation, consumer& spending rose 0.4% in Apr after increasing 0.5% in the prior month.  That suggests an acceleration in consumer spending after it grew at a 1.0% annualized rate in Q1, the slowest pace in nearly 5 years.  The solid consumer spending added to data on trade & industrial production that have left economists anticipating a pickup in economic growth in Q2.  Gross domestic product estimates for Q2 are above a 3.0% rate after growing at a 2.2% pace Q1.  In Apr, personal income rose 0.3% after rising 0.2% in Mar.  Wages increased 0.4%.  Savings fell to $419.6B last month from $445.7B in Mar & the saving rate dropped to 2.8% from 3.0% in Mar.

US consumer spending records biggest gain in five months

China's gov said it reserves the right to retaliate if DC goes ahead with proposed investment controls Beijing said violate global trade rules.  The Commerce Ministry's comment came as the 2 sides prepared for weekend talks in Beijing on American complaints about China's trade surplus & Beijing's promise to buy more American goods.  The White House announced plans this week to restrict Chinese investment in the US & purchases of high-tech goods.  It renewed threats to impose 25% tariffs on $50B of Chinese goods in response to complaints Beijing steals or pressures foreign companies to hand over technology.  Such curbs would violate the "rules and basic spirit" of the World Trade Organization, said a Commerce Ministry spokesman.  "The Chinese side will carefully evaluate the U.S. measures and reserves the right to take corresponding measures," he said at a regular briefing.  Meanwhile, the ministry said a team of more than 50 American officials was meeting with Chinese officials to prepare for the talks due to start Sat involving Commerce Secretary Wilbur Ross.

China reserves right to retaliate for US investment curbs

Trade tensions are rising, making traders nervous.  Talks have just begun in recent weeks & many more will be needed to resolve all the issues.  The Dow is back under 24.5K & the outlook is gloomy.  Testing 24K may be the next major test for the Dow.

Dow Jones Industrials

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