Dow dropped 103 (but off the lows), advancers over decliners 5-4 & NAZ inched up pennies. The MLP index went up 3+ (along with higher oil prices) to 265s & the REIT index fell fractionally to the 341s. Junk bond funds remained lower & Treasuries were about even. Oil rose in a volatile session (more below) & gold added 2 to 1281.
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.17236399986518913)
Fed's Bostic says economic optimism has 'almost completely faded' because of trade fears
Only a few months ago, the global economy appeared to be humming, with all major nations growing in unison. Now, the world's fortunes are imperiled by an unfolding trade war. As the Trump administration imposes tariffs on allies & rivals provoking broad retaliation, global commerce is suffering disruption, flashing signs of strains that could hamper economic growth. The latest escalation came on Fri, when Pres Trump announced fresh tariffs on $50B in Chinese goods, prompting swift retribution from Beijing. As the conflict broadens, shipments are slowing at ports & airfreight terminals around the world. Prices for crucial raw materials are rising. At factories from Germany to Mexico, orders are being cut & investments delayed. American farmers are losing sales as trading partners hit back with duties of their own. Workers in a Canadian steel mill scrambled to recall rail cars headed to the US border after Trump this month slapped tariffs on imported metals. A Seattle customer soon canceled an order. The Trump administration portrays its confrontational stance as a means of forcing multinational companies to bring factory production back to American shores. Trump has described trade wars as “easy to win” while vowing to rebalance the US trade deficits with major economies like China & Germany. His offensive may yet prove to be a negotiating tactic that threatens economic pain to force deals, rather than a move to a full-blown trade war. Americans appear to be better insulated than most from the consequences of trade hostilities. As a large economy in relatively strong shape, the US can find domestic buyers for its goods & services when export opportunities shrink. Even so, history has proven that trade wars are costly while escalating risks of broader hostilities. Fears are deepening that the current outbreak of antagonism could drag down the rest of the world. Before most trade measures fully take effect, businesses are already grappling with the consequences — threats to their supplies, uncertainty over the terms of trade & gnawing fear about what comes next. After 2 years of expansion, airfreight traffic was flat over the first 3 months of the year, according to the Intl Air Transport Association. Dips have been especially pronounced in Europe & Asia. Container ships, the workhorses of global commerce, have seen no growth in freight since last fall in seasonally adjusted terms, according to a key index. A gauge of world trade tracked by Oxford Economics in London, recently registered its weakest showing since early 2017. “Let us not understate the macroeconomic impact,” the managing director of the IMF, Christine Lagarde, warned this past week about trade conflicts. “It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe and Germany.” Threats to trade are emerging just as the global economy contends with other substantial challenges. The Trump administration's decision to reinstate sanctions on Iran has lifted oil prices, adding pressure to importers worldwide. Europes's economy is weakening, with Germany, the continent's largest economy, especially vulnerable. Central banks in the US & Europe are withdrawing the cheap money they sent coursing through the global financial system after the crisis of 2008, lifting borrowing costs. The Trump administration has embroiled the US in increasingly acrimonious conflicts with huge trading partners. The US last year imported more than $600B in goods & services from Canada & Mexico, the 2 other nations in the North American Free Trade Agreement, a deal Trump has threatened to blow up. Americans bought more than $500B in wares from China & another $450B from the EU. Collectively, that amounts to nearly 2/3 of all American imports.
Just the fear of a trade war is straining the global economy
US crude rises 1.2%, settling at $65.85, as the market awaits OPEC meeting
Buying in the PM limited losses. The Dow is still struggling to hold above the 25K level while tech stocks are doing fairly well on NAZ. However the chart below shows that the Dow continues to trade sideways as it has done for most of this year. The prospects for getting back to 26K are melancholy with the dark cloud of tariffs hanging over the trading scene.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
Fears over a potential trade war are dampening the
prospects for above-trend economic growth, Atlanta Fed Pres Raphael
Bostic said. At a time when most economists have substantially boosted their outlooks for GDP gains, particularly in Q2, the central bank official cautioned that the enthusiasm could be misplaced. "I began the year with a
decided upside tilt to my risk profile for growth, reflecting business
optimism following the passage of tax reform. However, that optimism has
almost completely faded among my contacts, replaced by concerns about
trade policy and tariffs," Bostic said. The White House has been in a battle against China as well as multiple other trading partners as Pres Trump seeks to reduce the difference between imports & exports. The administration has leveled tariffs against imported steel & aluminum & a slew of other prospects, with China in particular retaliating. In
addition, the pres has threatened to pull the US out of NAFTA in
favor of seeking unilateral agreements. Financial markets have been volatile as the trade tensions have grown & Bostic said that fear is flowing over into the broader economy. "Perceived uncertainty
has risen markedly," he said. "Projects already under way are
continuing, but I get the sense that the bar for new investment is
currently quite high. 'Risk off' behavior appears to be the dominant
sentiment among my contacts." Bostic also said he agrees with the 0.25 percentage point interest rate hike the FOMC approved last week, though he said he's not sure about the path of increases ahead. He added that he does not seen
signs of aggressive wage growth, with companies opting to train their
own workers & investing in automation rather than hiring new employees
at higher pay. "We want to ensure that
the economy is not overheating, but we also do not want monetary policy
to become too restrictive and threaten to choke off the expansion,"
Bostic added. The Atlanta Fed maintains
a widely followed economic tracker called GDPNow that is estimating 4.8% growth rate for Q2.
Fed's Bostic says economic optimism has 'almost completely faded' because of trade fears
Only a few months ago, the global economy appeared to be humming, with all major nations growing in unison. Now, the world's fortunes are imperiled by an unfolding trade war. As the Trump administration imposes tariffs on allies & rivals provoking broad retaliation, global commerce is suffering disruption, flashing signs of strains that could hamper economic growth. The latest escalation came on Fri, when Pres Trump announced fresh tariffs on $50B in Chinese goods, prompting swift retribution from Beijing. As the conflict broadens, shipments are slowing at ports & airfreight terminals around the world. Prices for crucial raw materials are rising. At factories from Germany to Mexico, orders are being cut & investments delayed. American farmers are losing sales as trading partners hit back with duties of their own. Workers in a Canadian steel mill scrambled to recall rail cars headed to the US border after Trump this month slapped tariffs on imported metals. A Seattle customer soon canceled an order. The Trump administration portrays its confrontational stance as a means of forcing multinational companies to bring factory production back to American shores. Trump has described trade wars as “easy to win” while vowing to rebalance the US trade deficits with major economies like China & Germany. His offensive may yet prove to be a negotiating tactic that threatens economic pain to force deals, rather than a move to a full-blown trade war. Americans appear to be better insulated than most from the consequences of trade hostilities. As a large economy in relatively strong shape, the US can find domestic buyers for its goods & services when export opportunities shrink. Even so, history has proven that trade wars are costly while escalating risks of broader hostilities. Fears are deepening that the current outbreak of antagonism could drag down the rest of the world. Before most trade measures fully take effect, businesses are already grappling with the consequences — threats to their supplies, uncertainty over the terms of trade & gnawing fear about what comes next. After 2 years of expansion, airfreight traffic was flat over the first 3 months of the year, according to the Intl Air Transport Association. Dips have been especially pronounced in Europe & Asia. Container ships, the workhorses of global commerce, have seen no growth in freight since last fall in seasonally adjusted terms, according to a key index. A gauge of world trade tracked by Oxford Economics in London, recently registered its weakest showing since early 2017. “Let us not understate the macroeconomic impact,” the managing director of the IMF, Christine Lagarde, warned this past week about trade conflicts. “It would be serious, not only if the United States took action, but especially if other countries were to retaliate, notably those who would be most affected, such as Canada, Europe and Germany.” Threats to trade are emerging just as the global economy contends with other substantial challenges. The Trump administration's decision to reinstate sanctions on Iran has lifted oil prices, adding pressure to importers worldwide. Europes's economy is weakening, with Germany, the continent's largest economy, especially vulnerable. Central banks in the US & Europe are withdrawing the cheap money they sent coursing through the global financial system after the crisis of 2008, lifting borrowing costs. The Trump administration has embroiled the US in increasingly acrimonious conflicts with huge trading partners. The US last year imported more than $600B in goods & services from Canada & Mexico, the 2 other nations in the North American Free Trade Agreement, a deal Trump has threatened to blow up. Americans bought more than $500B in wares from China & another $450B from the EU. Collectively, that amounts to nearly 2/3 of all American imports.
Just the fear of a trade war is straining the global economy
Oil prices rose in volatile trade as this
week's OPEC meeting raised the specter of production increases & as
investors assessed the impact of a trade dispute between the US & China. West Texas Intermediate (WTI) crude ended the session up 79¢ (1.2%) to $65.85, after earlier touching a 2-month low at $63.59 per barrel. Brent crude futures rose $1.88 (2.6%) to $75.32 per barrel. The US crude discount to
Brent widened to as much as $9.73 a barrel, after narrowing Fri.
China's trade restrictions could leave the growing volumes of US crude
from shale without a buyer, traders said. While the volumes would
ultimately get shipped elsewhere, absent China the price could be
depressed. Brent hit a 3½-year high above
$80 a barrel in May but has since eased back on reports that top
suppliers Saudi Arabia & Russia will increase production. OPEC & allied
oil producers including Russia meet on Jun 22 in Vienna. Russia &
OPEC kingpin Saudi Arabia are pushing for higher output. Over the weekend, Russian Energy Minister Alexander Novak indicated
the countries, which have cut production, would now consider increasing
output 1.5M barrels per day (bpd) in Q3 only. Yet any output increase
agreement could be muted because other OPEC members including Iraq said
last week that production cuts should be maintained because prices still
need support. Adding extra pressure are global trade tensions. Pres Trump last week pushed ahead with tariffs on $50B of Chinese imports, starting on Jul 6. China retaliated by imposing import duties on US products & suggesting that crude oil tariffs were planned. US oil exports have boomed in the last 2 years as shale oil
production has surged, with China becoming one of the biggest buyers.
US crude rises 1.2%, settling at $65.85, as the market awaits OPEC meeting
Buying in the PM limited losses. The Dow is still struggling to hold above the 25K level while tech stocks are doing fairly well on NAZ. However the chart below shows that the Dow continues to trade sideways as it has done for most of this year. The prospects for getting back to 26K are melancholy with the dark cloud of tariffs hanging over the trading scene.
Dow Jones Industrials
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