Friday, June 29, 2018

Markets crawl higher as trade issues remain worrisome

Dow shot up 60 (at session lows), advancers over decliners 3-2 & NAZ rose only 6.  The MLP index gained 2+ to the 263s & the REIT index rose 1+ to the 353s.  Junk bond funds remained about even & Treasuries were flattish.  Oil climbed to the 74s (more below) & gold inched up 1 to 1252.

AMJ (Alerian MLP Index tracking fund)

 Live 24 hours gold chart [Kitco Inc.]

3 Stocks You Should Own Right Now - Click Here!

The majority of US companies report having increased investment opportunities as a result of the Tax Cuts & Jobs Act, a new survey found, & many businesses plan to spend more money on growth.  8 in 10 execs said tax reform has allowed them to make strategic investments that were not possible in the past, according to a new study from PwC, which polled 404 c-suite leaders. 78% of respondents said the new law has made doing business in the US more attractive.  What do companies plan to do with their savings from tax reform?  PwC found that 80% planned to invest in growth initiatives such as R&D or M&A, while 87% planned to invest in their workforce, from hiring to raising wages or expanding benefits.  More than 2/3 of respondents want to put their savings toward corp finance, while 65% said they would invest in customers thru their operations & pricing.  Nearly 1/3 of execs said the Tax Act would potentially cause them to make geographic changes in where they do business.  According to a recent study from the Bureau of Economic Analysis (BEA), US companies repatriated more than $300B back to the country in Q1, up from just $38B one year ago.  US Treasurer Jovita Carranza said the tax reform benefits for companies extend beyond new investments.  “It’s not only about employment and investments, but it’s also earnings that are going to be strengthened and that’s really important,” Carranza said.

Tax reform savings: Where companies are investing

Canada announced $B in retaliatory tariffs against the US in a tit for tat response to the Trump administration's duties on Canadian steel & aluminum.  Prime Minister Trudeau's gov released the final list of items that will be targeted beginning on Sun.  Some items will be subject to taxes of 10 or 25%.  "We will not escalate and we will not back down," Canadian Foreign Minister Chrystia Freeland said.  The taxes on items including ketchup, lawn mowers & motor boats amount to $12.6B.  "This is a perfectly reciprocal action," Freeland added.  "It is a dollar for dollar response."  Freeland said they had no other choice & called the tariffs regrettable.  Many of the US products were chosen for their political rather than economic impact.  For example, Canada imports just $3M worth of yogurt from the US annually & most comes from one plant in Wisconsin, the home state of House Speaker Paul Ryan.  The product will now be hit with a 10% duty.  Another product on the list is whiskey, which comes from Tennessee & Kentucky, the latter of which is the home state of Rep Senate leader Mitch McConnell.  Freeland also said they are prepared if Pres Trump escalates the trade war.  "It is absolutely imperative that common sense should prevail," she said.  "Having said that our approach from day one of the NAFTA negotiations has been to hope for the best but prepare for the worst."  Trump has explained the steel & aluminum tariffs by saying imported metals threatened the United States' national security — a justification that countries rarely use because it can be so easily abused.  He is also threatening to impose another national security-based tariff on imported cars, trucks & auto parts.  That threat could be a negotiating ploy to restart talks on the North American Free Trade Agreement.  Freeland said there are no grounds for further US tariffs in response to Canada's actions.  Canadians are particularly worried about auto tariffs because the industry is critical to Canada's economy.  Freeland said such tariffs would be "absurd" because the North American auto industry is highly integrated & parts made in Canada often go to cars manufactured in the US & then sold back to Canadians.  "Any trade action is disruptive on both sides of the border," Freeland added.  Freeland said an "intensive phase" of NAFTA renegotiations will resume quickly after the Sun elections in Mexico.  "I don't think we'll see any reaction from the Trump administration.

Canada announces final list of retaliatory tariffs

US consumer sentiment rose slightly in the final reading for Jun, hampered by fears of rising trade tensions.  The index increased to 98.2, below an expected 99.2.  Chief Economist for The Univ of Mich survey Richard Curtin said 1-in-4 consumers spontaneously cited the potential negative impact of tariffs on the domestic economy.  Curtin said the primary concerns were a downpace in economic growth & rising inflation.  "While tariffs may have a direct impact on only a very small portion of overall GDP, the negative impact could quickly generalize and produce a widespread decline in consumer confidence," Curtin added.  Still, consumers expected declines in the unemployment rate & higher wage gains in the year ahead.  The index hit 98 in May, slumping since Mar when it reached its highest level since 2004 with a reading of 101.4.  The survey considers 500 consumers' attitudes on future economic prospects, including personal finances, inflation, unemployment, gov policies & interest rates.

Consumer sentiment gains slightly in June, but falls below expectations

Oil prices rose as US sanctions against Iran threatened to remove a substantial volume of crude from world markets at a time of rising global demand.  West Texas Intermediate (WTI) crude ended the session up 70¢ (1%) at $74.15, its best closing price since Nov, 2014.  WTI hit a session peak of $74.46.  Brent crude was up $1.60 (2.1%) at $79.45, after earlier rising as high as $79.70.  Iran is the 5th-largest oil producer in the world, pumping about 4.7M barrels per day (bpd), almost 5% of world's oil, much of it to China & other energy-hungry nations such as India.  The US gov wants to stop Tehran exporting oil to cut off a vital supply of finance & hopes other big oil producers in OPEC & Russia will make up for the deficit.  But the world oil market is already tight & many analysts along with big investors think strict enforcement of US sanctions against Iran will push up prices sharply.  But the world oil market is already tight with unplanned disruptions in Canada, Libya & Venezuela removing supply. 

Oil hits new multi-year high as market tightens on lost supply

NIKE (NKE), a Dow stock, reported earnings & sales that topped expectations for the fiscal Q4 & announced a new, 4-year $15B share repurchase program.  The company said it saw a "return to growth in North America," which has lately been a sluggish spot for sales following a handful of retail bankruptcies.  Revenues, meanwhile, were up double digits in intl markets during the latest period, as NKE reaped the benefits of a handful of new product launches.  The retailer reported EPS of 69¢, compared with 60¢ a year ago.  Excluding one-time items, EPS was 69¢, a nickel ahead of expectations.  Total sales climbed 13%  to $9.8B, again ahead of a forecast for $9.4B.  The digital business alone was up 41% during the qtr.  "Fueled by a complete digital transformation of our company end-to-end, this year set the foundation for the company's next wave of long-term, sustainable growth and profitability," CEO Mark Parker said.  Part of the latest strategy to win back sales in the US includes selling more directly to consumers (thereby improving gross margins), making bigger investments in women's footwear & apparel, piloting a test with Amazon (AMZN) to rid the marketplace of counterfeit goods & partnering with subscription service Stitch Fix.  Tje company has also been focused on adding experiences to stores & scaling new merchandise.  A new React cushioning technology in its sneakers has been one big hit, for example.  Its business, much like that of its peers in the athletic footwear & apparel industry, has been particularly stronger outside of North America of late.  In areas such as Greater China, for example, there's still more room to grow.  During the latest qtr, sales excluding currency changes climbed 3% in North America, 10% in Europe, the Middle East & Africa, 25%  in Greater China & 13% in Asia Pacific & Latin America.  Footwear sales were up 8% overall, apparel sales climbed 15%, while equipment sales dipped 3%.  "Our new innovation is winning with consumers, driving significant momentum in our international geographies," Parker added.  The stock jumped 8 (11%).
If you would like to learn more about NKE, click on this link:

Nike sales top estimates as retailer sees 'return to growth' in US

The Dow finished down modestly for the month, thanks to selling in the PM.  It also posted a loss for the month.  Indications on the economy & attitudes by execs & consumers continue to be generally positive, but unknowns about where the prospect of higher tariffs take global trade are making investors nervous.  The Dow continues to be stuck in its sideways trading zone.

Dow Jones Industrials

Markets rise on last day of trading in Q2

Dow bounced back 256, advancers over decliners about 3-1 & NAZ gained 61.  The MLP index was steady at 261 & the REIT index inched higher in the 352s.  Junk bond funds hardly budged & Treasuries were steady today.  Oil rose over 64 & gold added all of 1 to 1252.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil74.12

GC=FGold 1,252.00

3 Stocks You Should Own Right Now - Click Here!

Today marks the last full-trading day of Q2.  Markets were influenced by geopolitics with trade & tariffs taking center stage while oil saw a big rally as the US moved to increase sanctions on Iran while Venezuela's production challenges continued.  As of today, the Dow was on track to close fractionally higher this qtr & even though the gain will likely be less than a full %, it will be the biggest gain for the Dow since Q4-2017.  For the month of Jun, the Dow is on track to finish at a loss. The S&P 500 Index could close up 2.9% this qtr, & if so, it would be the largest one qtr point & percentage gain since Q4-2017.  The top performing sector of the S&P 500 should be energy, which was up by more than 10% currently.  Consumer discretionary & info tech stocks were also big gainers.  So far, financials & industrial were laggards.  The solid showing in the tech sector is apparent when looking at NAZ.  It is on track to finish up over 6%, its largest one qtr point gain since Q1-2017.  The NAZ has posted gains for 8 consecutive qtrs.  The Russell 2000 Index, which is comprised of small cap companies could finish the quarter up over 7.5%, its largest one qtr percentage gain since Q4-2016.

Small companies rule the second quarter

US consumers only modestly increased their spending in May despite improved incomes, as year-over-year inflation posted its largest increase in over 6 years.  Personal consumption expenditures, a measure of household spending on everything from gasoline to coffee machines, increased a seasonally adjusted 0.2% in May from the prior month, the Commerce Dept reported.  Personal income, reflecting Americans' pretax earnings from salaries & other sources including investments, rose 0.4% in May.  The forecast called for a 0.4% rise in both incomes & spending.  Americans moderated their spending in May after 2 strong months of growth, as the 0.2% increase was the weakest since Feb.  Apr's spending was revised to a 0.5% increase from a earlier 0.6% reading, while Mar spending was revised higher to 0.6%.  Consumer spending accounts for more than 2/3 of US economic output.  The report showed inflation firmed.  The price index for personal consumption expenditures, the Fed's preferred inflation measure, rose 0.2% in May & was up 2.3 % from a year earlier.  Excluding volatile food & energy costs, prices rose 0.2% in May from Apr & 2% from a year earlier.  Both year-over-year inflation measures posted their largest increase in more than 6 years, since Mar 2012.  The Fed targets 2% year-over-year inflation & has been raising short-term interest rates to prevent the economy from overheating.  Officials voted earlier this month to increase their benchmark federal-funds rate by a qtr percentage point to a range of 1.75-2.00%.  Officials have penciled in 2 further qtr-point rate increases for 2018.  The Commerce Dept said lower spending on services like household utilities in May was partially offset by more spending on goods, particularly on recreational goods & vehicles.  Outlays for goods rose 0.4%.  Spending on durable goods - expensive items like cars & appliances - rose 0.1%, while spending on services also rose 0.1%.  Today"s report followed a strong reading on the labor market in May.  Earlier this month, the Labor Dept said US employers added 223K jobs last month & the jobless rate in May ticked down to a seasonally adjusted 3.8%, the lowest since 2000.  Average hourly earnings edged up 2.7% from a year earlier.

U.S. consumer spending rose 0.2% in May

While the White House's chief economic adviser wouldn’t go as far as to say that President Trump's steel & aluminum tariffs are a negotiating tactic to gain leverage for a free trade system, he did acknowledge that the pres has a vision of free & open trade.  “As someone who has followed this for a very long time, the world trade system is broken. China is probably the biggest offender, but others are guilty, too,” Larry Kudlow, director of the National Economic Council, said.  “We should be able to do business. We should be able to come through with successful deals.”  The pres spurred what some say is akin to an intl trade war with traditional American allies – Canada, Mexico & the EU – as well as with China when he announced the tariffs in Feb.  Since then, Trump has pushed forward with tariffs, including a 25% tariff on $50B  worth of Chinese goods containing “industrially significant technologies.”  His decision brought swift retribution, with Beijing responding in kind by slapping tariffs worth $34B on 545 American goods.  Its tariffs, in total, will be worth about $50B.  Trump has repeatedly argued that tariffs will eliminate the $370B trade deficit with China & stop Beijing's theft of US intellectual property, which he's said costs the US B$ each year.  In May, China agreed to “significantly reduce” the deficit by boosting the number of American goods it buys.  “The system is broken. The tariff walls and the non-tariff barriers and the subsidies have gone up around the world,” Kudlow said.  “And his vision has always been a free trade vision. But to get there -- as he said in the G-7 meetings -- let’s be tariff free, let’s be non-tariff, barrier free.’

Trump wants ‘free and open trade’, but tariffs have an end goal: Kudlow

Japan's gov warned that a higher US tariff on auto imports could backfire, jeopardizing hundreds of thousands of American jobs created by Japanese auto-related companies, raising prices for US consumers & devastating the US & global economy.  Japan submitted a position paper to the Dept of Commerce.  In May, Trump ordered the dept to conduct an investigation to determine if higher tariffs on foreign-made vehicles & auto parts were justified on national security grounds.  The move outraged Japanese automakers, which have invested B$ in US plants that directly employ tens of thousands of workers.  Any trade restrictions, if imposed, would increase costs for US consumers & "could seriously affect" the jobs, the report said.  It added the measures would put a brake on global trade, seriously disrupt the market and put global free trade "at great risk."  It said US automakers would lose competitiveness & export markets would shrink, affecting US auto-related industries in & outside the country, & "eventually undermine the entire U.S. economy."  Japan said up to 624,K people could lose their jobs in the US if a 25% tariff were levied on automobiles & auto parts & other countries took retaliatory measures.  Already hit by increased US steel & aluminum tariffs, Japan has told the World Trade Organization it may levy retaliatory tariffs on US goods totaling about ¥50B ($450M) a year.  Japan alleged that "broad trade restriction measures on automobiles and auto parts in the name of security raise serious questions about the compliance with the WTO agreements."  Possible rebalancing or retaliatory measures from other countries could also damage US manufacturing & agricultural industries, it said.  The report added Japanese auto-related companies have played a vital role in contributing to the growth of the US manufacturing base since the 1980s.  They have created over 1.5M jobs across America & produce about 3.8M cars in the US.  Japanese companies have invested over $48B in the US, sustaining jobs, developing human resources & competitiveness, & contributing to American society like any US company, the report said.

Japan to US: Auto tariff would damage US, world economy

It looks like trading will close the qtr on a positive note.   But it has been a very volatile time for the stock market, especially for investors who have gotten used to a pretty much a rally mode for years with only minor dips along the way.  Trade wars conducted by announcements & retaliation to those announcements could last for some time.  That would make for a bumpy road ahead.

Dow Jones Industrials

Thursday, June 28, 2018

Markets rebound, led by bank and tech stocks

Dow rallied in the PM, finishing up 98, but 100 below the PM highs, advancers over decliners about 3-2 & & NAZ recovered 58 following yesterday's big loss.  The MLP index was flattish in the 261s & the REIT index climbed 2+ to the 252s.  Junk bond funds continued weak & Treasuries were slightly lower.  Oil went up in the 73s & gold lost another 8 to 1246, it's 4th straight loss.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

3 Stocks You Should Own Right Now - Click Here!

Importers of Iranian oil are facing pressure from the US to find another energy source or be hit with sanctions.  The Trump administration is threatening other countries, including close allies such as South Korea, with the sanctions if they don't cut off Iranian imports by early Nov, essentially erecting a global blockade around the world's 6th-biggest petroleum producer.  South Korea accounted for 14% of Iran's oil exports last year, according to the Energy Dept.  China is the largest importer of Iranian oil with 24%, followed by India with 18%.  Turkey stood at 9% & Italy at 7%.  A State Dept official told reporters that the "vast majority" of countries will comply with the US request.  A group from the State Dept & the National Security Council is delivering the pres's message in Europe but the group had not yet visited China or India.  Pres Trump announced in May that he would pull the US out of a 2015 agreement over Iran's nuclear program & would re-impose sanctions on Tehran.  Previously, the administration said only that other countries should make a "significant reduction" in imports of Iranian crude to avoid US sanctions.  European allies are expected to reluctantly go along to avoid sanctions.  The Trump administration is counting on Saudi Arabia & other OPEC members to supply enough oil to offset the lost Iranian exports & prevent oil prices from rising sharply.  The State Dept said the U.S will be talking in a week or so "with our Middle Eastern partners to ensure that the global supply of oil is not adversely affected by these sanctions."  Members of OPEC agreed over the weekend to boost oil production by about 600K barrels a day.  Iran exported about 1.9M barrels a day during Q1, according to OPEC figures.  It is the world's 7th largest oil exporter.

Threats from US put new pressure on Iranian oil importers

The first Guinness brewery in the US in decades is expected to open later this summer in Maryland.  The revived historic building in Relay, Maryland, will open Aug 3 for tours, taproom tastings & dining in its restaurant.  Ryan Wagner, a brand ambassador for the beer-maker, says the goal is to attract 300K visitors in the first year.  The brewery's marketing manager says the $80M project will create approximately 200 hospitality jobs.  Guinness says the brewery will be its first on American soil in over 63 years.  The company briefly owned a brewery in NY from 1949 to 1954.

Guinness brewery, 1st in US in decades, to open in August

Pres Trump is praising the groundbreaking for a $10B Foxconn plant in Wisconsin.  Trump said that what used to be a field about 30 miles (48 kilometers) south of Milwaukee in Mount Pleasant will become one of the largest developments ever built in the world at 20M square feet (1.9M square meters).  He says the decision by the Taiwan-based maker of LCD screens & assembler of Apple (AAPL, a Dow & NAZ stock), iPhones shows "America is open for business."  Thousands of construction workers are expected to build the plant, which will eventually employ about 13K people.  Trump & other officials including Gov Scott Walker & House Speaker Paul Ryan wielded gold-toned shovels at a ceremonial groundbreaking for the plant today.

The Latest: Trump praises groundbreaking of Foxconn plant

China eased restrictions on foreign investment in sectors ranging from agriculture to banking, as Beijing & DC continue to spar over a growing trade dispute.  But the move is seen as only a small step that’s unlikely to resolve the wider Trump administration assault on what the White House has characterized as China’s “unfair” trade practices.  China's National Development & Reform Commission published a new version of its negative list, which spells out industries where foreign investment is limited or prohibited.  The new rules, which take effect today, lift curbs on sectors including banking, automotive, heavy industry & agriculture. The move comes as Congress & the White House consider tougher restrictions on Chinese investment in the US, especially transactions involving American technology companies.  That discussion follows a series of Trump administration tariff threats on Chinese exports to the US, including duties on $50B worth of Chinese products.  China's top trading partners, including the US & EU, have criticized investment rules that leave Chinese firms largely free to invest their markets while China limits foreign firms' ability to enter the world's 2nd-largest economy.  The announcement was greeted with skepticism by critics of China's trade policies.  In addition to confirming already announced pledges to remove ownership limits on insurance companies & auto makers within the next 3-5 years, China is also easing or removing ownership caps on businesses including ship & aircraft manufacturing, power grids & new breeding of crops other than wheat & corn.  China first indicated in Apr that it would roll back a number of the foreign investment restrictions by the end of this year.  The changes announced today include an earlier pledge to allow 51% foreign ownership of brokerages & life insurers, & to lift that cap entirely by 2021.  Current rules limiting a single foreign financial institution's stake in a Chinese commercial bank to 20% will also be abolished on Jul 28.  The rule that investment by multiple overseas financial institutions in Chinese commercial banks must not exceed 25% will also be lifted.

China’s move to ease investment curbs leaves trade experts unimpressed

A super-strong economic growth rate expected in Q2 is not an argument for tighter Federal Reserve interest-rate policy, St Louis Fed Pres James Bullard said.  Some economists suggest the US economy could top 5% growth in Q2, the highest rate in 15 years.  Following a speech in St Louis, Bullard said the surge in growth is likely to be temporary & the economy's growth rate will likely be on a downward trend in 2019 & 2020.  So the Fed should not react with a “permanent rate hike” to a “temporary” increase in output, Bullard said.  The strong Q2 is also flattered by the quirks in the GDP data that continue to depress growth in the prior qtr.  The best way to view Q2 is to average it with the 2% growth seen in Q1, he said.  Bullard is one of 2 officials on the central bank that have been calling on the Fed to be cautious about hiking rates further.  The Fed's benchmark rate, now in a range of 1.75%-2%, is close to neutral, neither stimulating or dampening growth, he said.  Most other Fed officials think neutral is closer to 3%.  The median forecast of Fed officials is for 2 more rate hikes this year.  Bullard thinks the Fed's benchmark rate is “in a good position.”  “We’re in a good place. Maybe we don’t need to do very much,” he said.  Bullard said he didn't want the Fed to hike rates along a preconceived path.  Instead, the Fed should react to the incoming data.  He noted that market-based inflation measures remain “muted” & dismissed suggestions that there might be a sudden explosion of inflation from the low unemployment rate.  Bullard said that he was hearing “full-throated angst” from his contacts about the Trump administration's various on-going trade fights.  The concern was not limited to the agriculture sector.  Some businesses are using the uncertainty to raise prices on their business partners.  This is how the uncertainty over trade is now hitting the economy in “tangible” ways, he added.

Fed should not raise interest rates just because second-quarter GDP growth may surge: Bullard

The Dow has been retreating for more than 2 weeks, but this week it has been able to hold above the 24K floor.  Maybe better than plunging thru that resistance level, but that still spells "struggling."  This year it has not been able to shake the sideways trading zone of 24-25K.  There are signs of  foreign investments coming into the US, although it will take months, even years, to see whether new trade rules can help the US economy.  Q1 was weakish for GDP, as is typical.  Q2 results should be telling & early indications are favorable for numbers that show a rebound.  Meanwhile, the Dow is stuck in its rut.

Dow Jones Industrials