Wednesday, May 23, 2018

Markets decline on China trade talk worries

Dow dropped 93, decliners over advancers about 5-4 & NAZ fell 15. The MLP index was off a fraction to the 268s & the REIT index hardly budged in the 331s.  Junk bond funds fluctuated & Treasuries were purchased, taking the yield on the 10 year Treasury down to 3.04%.  Oil was lower in the 72s & gold retreated 2 to 1289.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil71.97

GC=FGold  1,288.30

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Stocks fell, with concerns that trade talks have stalled & doubts about a summit between Pres Trump & North Korean leader Kim Jong Un weighing on investor sentiment.  Stocks retreated on yesterday as Pres Trump reignited trade jitters when he said he was unhappy with the recent discussions with China.  The Dow slipped 178 (0.7%) to 24,834 & the S&P 500 fell 8.  The retail sector is front & center today with earnings reports from due from leading retailers.  In commodities, gold & oil futures were lower.  The Energy Information Administration will release its latest inventory update later today.

Trade concerns weigh on equities

Pres Trump said the US will likely use a “different structure” when it comes to crafting a trade deal with China.  "Our Trade Deal with China is moving along nicely, but in the end we will probably have to use a different structure in that this will be too hard to get done and to verify results after completion,” Trump tweeted.  The pres told reporters yesterday he wasn't pleased with the way trade talks were going with Beijing, despite announcing the nation agreed to buy “massive amounts” of farm and agricultural products from the US.  “We have a long way to go, but I want it to go fairly quickly,” Trump said.  Trade talks with China come as the world's 2 largest economies seek to avoid a trade war.  DC & Beijing have threatened to impose 10s of $B worth of tariffs on each other's exports in recent months.  However, tensions have eased lately, as Trump instructed the Commerce Dept earlier this month to help Chinese telecom company ZTE, which suspended its main operations after the administration banned US businesses from providing it with supplies, get “back into business, fast.”  Negotiators from the 2 nations announced last Sat they created a framework for addressing trade imbalances, with China agreeing to purchase more American-made goods.  Representatives from both countries also held negotiations earlier this month, with US officials demanding China cuts its trade surplus by $200B, lower tariffs & advance technology subsidies.

US-China trade deal now likely to be done using a 'different structure,' says Trump

China's gov has pledged to work conscientiously with DC on resolving a sprawling trade dispute ahead of a visit by Commerce Sec Wilbur Ross to Beijing.  China's Commerce Ministry said it welcomes imports of "high-quality and competitive" American products following promises to buy more American farm goods & energy.  The ministry's statement gave no details of possible new initiatives but promised to "conscientiously implement" the joint statement by China & the US issued Sat in which Beijing agreed to "substantially reduce" America's trade deficit with China.  China did not commit to cut the gap by any specific amount.  The Trump administration had sought to slash the deficit by $200B.

China pledges to work seriously with US ahead of Ross' visit

Target (TGT), a Dividend Aristocrat, posted a smaller-than-expected increase in Q1 profit, pressured by continued investments in its supply chain & online operations even as sales rose, sending its shares tumbling.  The results showed that its price cuts & heavy investments to ward off competition on the internet & brick-&-mortar rivals have continued to hurt its profitability.  The company's operating income margin weakened to 6.2% from 7.1% the same period a year ago.  Gross margins remained under pressure at 29.8% compared to 30% during the same period last year.  The key measure had hit a 20-year low of 26.2% during Q4.  Q1 same-store sales came in slightly higher than estimates, rising 3% (analysts expected a 2.9% increase).  TGT has poured $B into its online business & delivery options to keep up with similar moves at competitors.  Margins have come under heavy pressure from the costs of shipping more items more quickly directly to customers.  It cut its next-day delivery fee for household essentials to $2.99 from $4.99 last week & waived it altogether for customers paying with a company credit card.  Online sales rose 28%, up from the 21% rise during the same period a year ago but falling short of the 29% rise during Q4.  The company has also been focusing on doubling the number of small-format stores with a narrower selection of products aimed at urban buyers, aggressively promoting its products and keeping grocery prices low to compete with rivals.  Excluding items, EPS was $1.32, missing the estimate of $1.39.  Sales rose to $16.78B, topping the estimate of $16.63B.  The stock lost 3.93 (5%).
If you would like to learn more about TGT, click on this link:

Target 1Q sales jump, profit falls short of estimates

Trade talks are stuck in the mud.  That was to e expected given the abundance of complicated issues.  In addition, talks with North Korea are fuzzy presently & that situation could make US-China trade negotiations more complicated.  TGT earnings suggest retail earnings reports will not bring out the bulls.  The Dow is back to 24.7K after failing to break thru the 25K ceiling last week.

Dow Jones Industrials

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