Thursday, May 24, 2018

Markets retreat after Trump calls off North Korea summit

Dow slumped 202, decliners over advancers about 2-1 & NAZ & lost 41.  The MLP index fell 3+ to the 264s & the REIT index gained 3+ to the 334s.  Junk bond funds hardly budged & Treasuries were purchassed, taking the yield on the 10 year Treasury to 2.97%.  Oil dropped 1, gong under 71, & gold rose 15  to 1305 after North Korea the summit was cancelled.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil70.83

GC=FGold  1,304.60

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Pres announced next month's scheduled summit in Singapore with North Korean leader Kim Jong Un has been canceled.  “Based on the tremendous anger and open hostility displayed in your most recent statement, I feel it is inappropriate, at this time, to have this long-planned meeting,” Trump wrote in a letter to Kim.  The summit was scheduled to take place on Jun 12 & would have been the first time the 2 leaders met in person.  Stocks fell after the news broke.

Trump scraps North Korea summit, Wall Street slides

New applications for unemployment benefits increased more than expected last week, but remained below a level consistent with a healthy labor market.  Initial claims for state unemployment benefits rose 11K to a seasonally adjusted 234K for the latest week, the Labor Dept said.  The forecast called for claims slipping to 220K.  Claims have held below the 300K mark, which is associated with a strong jobs market, for 168 consecutive weeks, the longest such stretch since 1969.  The labor market is viewed as being close to or at full employment, with the jobless rate near a 1-year low of 3.9%.  The unemployment rate is within striking distance of the Federal Reserve's forecast of 3.8% by the end of this year.  Tightening labor market conditions and rising inflation will likely keep the central bank on track to increase interest rates next month.  Minutes of the Fed May 1-2 policy meeting showed most officials believed "that if incoming information broadly confirmed their current economic outlook, it would likely soon be appropriate ... to take another step in removing policy accommodation."  The 4-week moving average of initial claims, viewed as a better measure of labor market trends as it irons out week-to-week volatility, increased 6K to 219K last week.  The number of people receiving benefits after an initial week of aid increased 29K to 1.74M in the latest week.  The 4-week moving average of continuing claims fell 23K to 1.75M, the lowest level since 1973.  The 4-week average of continuing claims fell 97K between the Apr-May survey periods.  The unemployment rate fell 2-tenths of a percentage point in Apr after being stuck at 4.1% for 6 straight months.

US weekly jobless claims increase more than expected

The Federal Reserve needs to raise interest rates about 4 more times before it reaches an equilibrium level, Dallas Fed Pres Robert Kaplan said.  Kaplan said the Fed still has work to do before it can say that it has its benchmark funds rate at a level that is considered "neutral" for growth.  "My own view is we should be raising rates until we get to neutral," he added.  "We should do it gradually. I'm not prepared to say yet I want to go above neutral."  The release of the minutes yesterday moved markets, likely on commentary out of the meeting summary that indicated the policymaking FOMC, of which Kaplan is a nonvoting member, is willing to let inflation run a bit hotter than normal as the economy continues in recovery phase.  That could mean the Fed will take a more dovish approach to policy, holding off on raising rates even if inflation climbs above the FOMC's 2% target.  Kaplan said he is in the camp that would be willing to let conditions heat up a bit.  "I want to run around 2, and if we got a little bit above it and I thought it would be short-term and not long-term, I could tolerate it," he said.  "If I thought it would persist I think it would affect my policy views."  On top of the increase already approved in Mar, market participants widely expect the Fed to hike its benchmark rate a qtr-point in Jun, followed by another move in Sep.  However, traders have sharply pared back expectations for a 4th move in Dec.  Last week the market saw chances of a 4th increase above 50%.  That fell to just above 40% today.  Fed officials have been discussing where they might reach a "neutral" rate that is neither stimulative nor restrictive.  Kaplan said he estimates that is between 2.5-2.75%, compared to the 1.5-1.75% current target range.  Separately, Kaplan said he is watching conditions in emerging economies such as Turkey & Argentina & the effects that Fed rate increases have in those parts of the world.  He said that Fed tightening could trigger restraints on capital flows.  "If that get pronounced enough, that could lead to a rapid tightening in conditions in the United States, which in turn could slow the economy," he added.

Fed's Kaplan sees another four rate hikes or so before central bank finishes its job

US home sales dropped more than expected in Apr as a shortage of properties for sale continued to weigh on the market.  The National Association of Realtors said that existing home sales fell 2.5% to a seasonally adjusted annual rate of 5.46M units last month.  The retreat in existing home sales comes after 2 straight months of increases.  Such sales account for about 90% of home sales.  The  forecast called for existing home sales to decline 0.2% last month.   On a year-on-year basis, existing home sales fell 1.4% in Apr.  The US unemployment rate is now at a 17-year low, but a lack of housing inventory has hampered sales.  This has also pushed up home prices, keeping many first-time buyers out of the market.  Mortgage rates are also at a 7-year high.  The number of previously owned homes for sale increased 9.8% to 1.80M units in Apr, but housing inventory was down 6.3% from one year ago.  Supply has declined for 35 consecutive months on a year-on-year basis.  "Home sales are stuck and they are not breaking out," NAR Chief Economist Lawrence Yun said.  "With the interest rate rising ... it is burdening consumers on housing costs."  At the Apr sales pace, it would take 4.0 months to clear the current inventory, down from 4.2 months a year ago.  The median house price increased 5.3% from one year ago to $257K in Apr, marking the 74th straight month of year-on-year price gains.

Existing home sales drop 2.5% in April 

Trump said that "tremendous anger and open hostility displayed in your most recent statement," was behind the cancellation.  The stock market did like the sound of that!  Dow is back to to its sideways motion in the mid 24Ks.

Dow Jones Industrials

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