Thursday, May 3, 2018

Markets decline as Mnuchin beings trade talks in China

Dow tumbled 342, decliners over advancers 3-1 & NAZ gave back 88.  The MLP index was fractionally lower to the 255s & the REIT index lost 1 to 331.  Junk bond funds were mixed & Treasuries found buyers today.  Oil fell in the 67s & gold added 8 to 1313 while stocks were being sold.

AMJ (Alerian MLP Index tracking fund)


Crude Oil67.49
  -0.44 -0.7%


Gold 1,316.40

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Stocks declined, as Treasury Sec Steve Mnuchin arrives in Beijing for key trade talks.  According to Chinese state media, the country will stand up to US bullying if needed while also saying it is better to settle tariff disputes out around the negotiating table.  Investors also digested the latest economic data & corp earnings reports.  Stocks fell yesterday after the Federal Reserve said at the conclusion of its 2-day meeting that inflation was approaching the Fed's 2% target, adding to concern that the central bank will put the brakes on economic growth with an interest rate hike.  Today, there is a full plate of economic data.  Data releases included US trade deficit, which dropped as exports hit a record high, while US worker productivity increased modestly in Q1.  Commodities were mixed with gold higher & oil lower.

Stocks lower on trade concerns, Tesla leads tech sector lower

The US trade deficit narrowed sharply in Mar as exports increased to a record high amid a surge in deliveries of commercial aircraft & soybeans.  The Commerce Dept said the trade gap dropped 15.2% to $49B, the lowest level since Sep.  Data for Feb was revised slightly to show the trade gap widening to $57.7B, which was the highest level since 2008 (Lehman collapse), instead of the previously reported $57.6B.  The Mar decline ended 6 straight monthly increases in the trade deficit.  Economists had forecast the trade gap narrowing to $50B.  The politically sensitive goods trade deficit with China dropped 11.6% to $25.9B, which will probably do little to ease tensions between the 2 countries.  Pres Trump has threatened tariffs on up to $150B worth of Chinese goods to punish Beijing over its joint-venture requirements & other policies DC says force American companies to surrender their intellectual property to state-backed Chinese competitors.  China, which denies it coerces such technology transfers, has threatened retaliation in equal measure, including tariffs on US soybeans & aircraft.  Trump, who claims the US is being taken advantage of by its trading partners, has already imposed broad tariffs on imported solar panels & large washing machines.  He recently slapped import duties on steel & aluminum.  The deficit with Mexico vaulted 32.8% to a record $8.1B in Mar.  The US had a $0.3B surplus with Canada in Mar.  When adjusted for inflation, the trade deficit dropped to $62.1B from $69.0B in Feb.  The gov reported last week that trade contributed 0.20 percentage point to the Q1 2.3% annualized growth pace.  In Mar, exports of goods & services increased 2.0% to an all-time high of $208.5B, lifted by a $1.9B increase in shipments of commercial aircraft.  There were also increases in exports of soybeans, corn & crude oil.  Real goods exports were the highest on record.  Exports to China jumped 26.3% in Mar.  Imports of goods & services fell 1.8% to $257.5B, in part as the boost from royalties & broadcast license fees related to the Winter Olympics faded.  Imports of capital goods fell by $1.5B, weighed down by declines in imports of computer accessories, telecommunications equipment & semiconductors.  Imports of consumer goods decreased by $0.9B.  Crude oil imports dropped by $0.5B in Mar.  Imports from China fell 2.1% in Mar.

US trade deficit drops as exports hit record high

Steve Mnuchin arrived in Beijing for key trade talks, with Chinese state media saying China will stand up to US bullying if needed but that it was still better to hash things out around the negotiating table.  A breakthrough deal to fundamentally change China's economic policies is viewed as highly unlikely during the two-day visit, though a package of short-term Chinese measures could delay a US decision to impose tariffs on around $50B worth of Chinese exports.  The discussions, led by Mnuchin & Chinese Vice Premier Liu He, are expected to cover a wide range of US complaints about China trade practices, from allegations of forced technology transfers to state subsidies for technology development.  "Thrilled to be here. Thank you," Mnuchin told reporters upon arriving.  The US Embassy said the delegation planned to leave tomorrow evening.  They would meet the Chinese on both days, in addition to US Ambassador Terry Branstad.  In an editorial, the official China Daily said Beijing wanted the talks to produce "feasible solutions to put an end to the ongoing feud" & that they could go well if the US delegation genuinely wants to listen as well as talk.  China "will stand up to the US bullying as necessary.  And as a champion of globalization, free trade &and multilateralism, it will have strong support from the intl community," the paper added.  "The U.S. wants greater access to China's market, but it should not use trade actions as a battering ram to force China to open its doors. It is already in the process of opening them wider," the paper said.  In doing so, China expected DC to reciprocate & open its market to Chinese investments & competition.  Widely-read Chinese tabloid the Global Times, published by the ruling Communist Party's People's Daily, said it hoped the talks were the start of a resolution to the dispute.  "Washington and Beijing should be clear: neither side can scare the other down. Negotiations are the best way to resolve the problem."  The first round of threatened tariffs under the US gov "Section 301" intellectual property probe focused heavily on technology products benefiting from the "Made in China 2025" program to upgrade China's domestic manufacturing base with more advanced products.  US tariffs could go into effect in Jun following the completion of a 60-day consultation period.

Treasury Secretary arrives in Beijing for trade talks

The Institute for Supply Management said its manufacturing index fell to a 4-month in Apr to a reading of 56.8%, down from 58.8% in Mar.  The index has fallen 3 months in a row after hitting a cycle high in Jan.  Any reading above 50% indicates improving conditions.  The forecast called for a reading of 58%.

ISM nonmanufacturing index slows to four-month low in April

The latest earnings have been uninspiring & Mnuchin is beginning important trade talks in China.  Traders are nervous & have been selling stocks.  The longer term chart for the Dow below is dreary.  YTD The Dow is down more than 1.1K.

Dow Jones Industrials

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