Monday, May 21, 2018

Markets rise on easing China trade tensions

Dow soared 298 (closing near the highs), advancers over decliners better than 2-1 (relatively modest) & NAZ added 39.  The MLP index added 2 to the 269s & the REIT index finished in the 327s.  Junk bond funds just inched higher & Treasuries fluctuated with yields near highs made last week.  Oil gained 1 to the 72s & gold went up 1 to 1292.

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The effects of current US-Chinese talks to address the trade imbalance between the Chinese & US are beginning to emerge, Commerce Sec Wilbur Ross said.  But if those talks fail to resolve the problem, the US is ready to squeeze a virtual trigger of trade sanctions, known as Section 301 of the Trade Act of 1974, firing damaging economic consequences against China.  “The [Section] 301 is a cocked pistol that’s ready to be fired whenever it needs to be fired,” he said of the law that empowers the pres to impose trade sanctions on foreign countries.  “This is not a definitive agreement. This is what we hope will be a path forward,” he said. “If it doesn’t work the tariffs will go into effect. So nothing’s been lost at all.”  “It had some specific thoughts on specific products, which we’ll be trying to flush out and it covered lots of other things -- the intellectual property, forced technology transfers -- a whole gambit of things,” he added.  Sun, Treasury Sec Steve Mnuchin said the US trade war with China is "on hold." after the world's largest economies agreed to take steps to reduce the US trade deficit.  Meanwhile, Pres Trump, today, in a series of tweets said China has agreed to buy “massive amounts” of farm & agricultural products from the US & the trade barriers will “come down.”

China trade sanctions ‘ready to be fired’: Wilbur Ross

China's gov said it cannot guarantee that renewed trade tension with DC can be avoided after US Treasury Sec Steve Mnuchin declared a temporary truce in a spiraling dispute that prompted worries of a chilling of global commerce.  Mnuchin said yesterday the 2 sides were "putting the trade war on hold" following an announcement Beijing would "significantly increase" purchases of American farm goods, energy & other products & services.  But the 2 sides gave no indication of how much progress they had made toward ending the dispute over US complaints about market access & technology policy.  Mnuchin's comments showed both sides hope to avoid a "trade war," said a Chinese foreign ministry spokesman, Lu Kang.  However, he added, "Given the increasing interaction between the two countries, we cannot assure you they will not encounter more frictions or disputes in the future."  Pres Trump has threatened to raise import duties on Chinese goods worth up to $150B in response to complaints Beijing steals or pressures foreign companies to hand over technology in exchange for market access.  Chinese leaders issued their own $50B list of U.S. goods for possible retaliation.  The strains in the world's biggest trading relationship prompted fears other govs might respond by raising import barriers, chilling global commerce & economic growth.  Trump is pushing for Beijing to discard or scale back ambitious technology & industrial development plans DC complains will hamper market access and hurt foreign competitors.  Business people & economists say Communist leaders who see their development model as a success are unlikely to agree to more than minor changes.  On Sat, the 2 countries made no mention of those underlying American complaints.  Mnuchin said talks made "meaningful progress," but they gave no indication of how close they might be to an overall settlement.  Lu, the Chinese spokesman, said Beijing wants to preserve a relationship that benefits both sides.  "If the two governments can reach an agreement which is acceptable to both sides, the two governments should certainly abide by it," Lu said at a regular briefing.  "We believe this result will be welcomed by the peoples and business communities in the two countries, and the international community."

China says it can't guarantee no more trade tension with US

Treasury Sec Mnuchin said that he would be willing to bet that GDP can sustain at least 3% growth later this year.  "That's really been the focus. That's what everyone should be focused on. That's our scorecard," he said.  "We are well on our way to 3 percent or higher sustained growth," he predicted.  The Commerce Dept reported last month that US economic growth slowed in Q1, advancing at a 2.3% annual rate.  However, GDP in Q1 tends to be sluggish because of seasonal quirks.  Mnuchin said the stock market is reflecting an improving economy, adding he is "very bullish on stocks."  "There have obviously been various different world events and things that have created some volatility," he added.  "But the stock market is up an enormous amount since the election."  Since the 2016 election, as of the Fri close, the Dow was up more than 34% the S&P 500 was up over 26% & NAZ was up more than 41%.  Today after rising about 350 points (1.4%), the Dow eclipsed 25K for the first time since mid-Mar while the S&P & NAZ were up around 1%.  Stocks drew strength from Mnuchin's comments that the US-China trade war was "on hold" after negotiators setting up a framework for further discussions.  Today he said, "We've made very  meaningful progress."  "You combine this with tax cuts, and I think we're looking at very strong GDP growth for the rest of the year," he said.  Mnuchin had previously said the administration's long-term economic growth outlook of 3% would pay for the corp tax cuts & individual tax reforms that Congress passed in Dec & the pres signed into law.

Mnuchin: 'I'm very bullish on stocks' and sustained economic growth over 3%

A measure of the US economy from the Chicago Federal Reserve ticked higher in Apr from Mar as a stronger performance at factories & a healthy job market offset housing’s weaker contribution.  The Chicago Fed's index of national economic activity was a positive 0.34 last month, gaining from the upwardly revised positive 0.32 in Mar, though weaker than a downwardly revised positive 0.73 in Feb.  With the revision, the Feb result lost its ranking as the highest reading since 1999; now, it’s the strongest just since last Oct, when the index registered a positive 0.86, according to the St Louis Fed's FRED database. The index's less-volatile, 3-month moving average registered a positive 0.23 last month, up from a downwardly revised positive 0.11 in Mar.  The Chicago Fed index is a weighted average of 85 economic indicators, designed so that zero represents trend growth & a 3-month average below negative 0.70 suggests a recession has begun.  50 of the 85 individual indicators made positive contributions to the index in Apr, while 35 made negative contributions.  Production-related indicators, meaning factories, contributed positive 0.27 to the index in April, up from positive 0.19 in Mar.  Employment-related indicators contributed a positive 0.10 in April, up from positive 0.04 in Mar.  As Labor Dept data reported earlier this month, the unemployment rates fell to a 17-year low below 4%, while the US added 164K new jobs in Apr & hourly wage growth barely crept higher.  Meanwhile, the contribution of the personal consumption & housing category was a negative 0.05 in Apr from positive 0.02 in Mar.  Construction on new houses dropped 3.7% in Apr, previous gov data showed.  Housing starts had hit an 11-year high just a month earlier.

U.S. economy given boost from factories even as housing cooled in April: Chicago Fed

Philadelphia Fed Pres Patrick Harker said he currently sees 2 more interest rate hikes this year, but said it is possible he could support a 3rd increase.  Harker added that inflation does seem to be moving toward the central bank's 2% target.  He said that it was appropriate to moves rates up "judiciously."  Harker is not a voting member of the Fed's interest-rate policy committee this year.

Fed's Harker sees two, maybe three, more interest rate hikes this year, report

The bulls came out in force today, although market breadth was not impressive (always a disturbing sign).  And the tech stocks on NAZ lagged.  Today's rise was based on just talk.  Now actions need to deliver.  The Dow finished barely above 25K.

Dow Jones Industrials

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