Tuesday, May 8, 2018

Markets drift lower ahead of Trump's decision on Iran

Dow fell 57, decliners modestly ahead of advancers & NAZ gave back 19.  The MLP index
& the REIT index added 1+ to the 336s.  Junk bond funds crawled higher & Treasuries were sold, taking prices lower.  Oil lost 1 to the 69s following recent strength & gold dropped 7 to 1307.

AMJ (Alerian MLP Index tracking fund)


Crude Oil69.88


Gold  1,307.00

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Moves by the Fed & other major central banks to raise interest rates after a long period of keeping them low should not be disruptive to the global economy, Federal Reserve Chairman Jerome Powell said.  Powell added that the role US monetary policy plays in driving global financial conditions & capital flows is often exaggerated.  The pickup in both global growth & commodity prices have played bigger roles in the recent recovery of capital flows to emerging market economies than any policy moves by central banks, he said.  "Monetary stimulus by the Fed and other advanced economies played a relatively limited role in the surge of capital flows to (emerging market economies) in recent years," Powell said.  "There is good reason to think the normalization of monetary policies in advanced economies should continue to prove manageable for" emerging economies.  After keeping its benchmark interest rate at a record low near zero for 7 years following the 2008 financial crisis, the Fed began gradually increasing the rate in Dec 2015 & made a 6th qtr-point move in Mar.  Many private economists believe the Fed will raise rates again in Jun & will hike rates a total of 3 or 4 times this year.  Powell said he did not dismiss the risks as the Fed, the ECB & other major central banks raise rates.  "Some investors and institutions may not be well positioned for a rise in interest rates, even one that markets broadly anticipate," he said.  "And, of course, future economic conditions may surprise us, as they often do."  But he stressed that the Fed planned to do what it could to minimize disruptions by communicating policy changes clearly & well in advance.

Fed's Powell: Rate hikes should not upend the global economy

China's trade surplus with the US widened to $22.19B in Apr, from $15.43B in Mar, customs data showed.  For Jan-Apr, China's trade surplus with the US was $80.4B.  The world's 2 largest economies have threatened each other with 10s of B$ worth of tariffs in recent months, leading to worries that DC & Beijing may engage in a full-scale trade war that could damage global growth & roil markets.  The Trump administration has drawn a hard line in trade talks, demanding a $200B cut in the Chinese trade surplus with the US, sharply lower tariffs & advanced technology subsidies.

China's trade surplus with U.S. widens to $22.19B in April

Pres Trump said he will discuss trade with Chinese Pres Xi Jinping, as both sides continue talks after failing to reach a consensus at talks in Beijing last week.  Trump announced the planned telephone call today in a post on Twitter, just days after a US delegation returned from discussions in Beijing last week with no agreement on a long list of US demands & ahead of more negotiations next week.  Trump, calling Xi "my friend," pledged in the post that "good things will happen" on trade.  Next week, China's top economic official, Vice Premier Liu He, is scheduled to visit DC to resume negotiations sparked by the administration's threat to impose tariffs on up to $150B of Chinese imports.  Tariff threats have roiled US & other stock markets in recent weeks amid fears a trade war between the world's 2 economies will impact global markets.  Last week, a 7-member US delegation returned to WC & briefed Trump on their meeting with Chinese counterparts.

Trump to discuss trade with China's Xi as talks continue

Not much going on in the stock market.  Traders are waiting for Trump to talk about Iran relations in a couple of hours.  His call to Pres Xi in China also has the potential to move stock market.  As shown in the chart below, the Dow continues to slosh around above 24K & memories of the market rally keep fading.

Dow Jones Industrials

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