Markets hesitate with rising uncertainty on trade talks

Dow lost 13, advancers over decliners 4-3 & NAZ gained 31.  The MLP index was about even in the 271s & the REIT index fell 1+ to the 343s.  Junk bond funds fluctuated & Treasuries were slightly higher.  Oil went up to the 65s (more below) & gold added 4 to reach 1301.

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Beijing offered to buy 10s of $B worth of US goods if the US abandons plans to hit Chinese imports with hefty tariffs, but the offer may be dead-on-arrival as the Trump administration signals it plans to move ahead with the levies later this month.  A gov source familiar with the trade discussions said that Beijing said it would purchase almost $70B worth of US goods, including agricultural products like soybeans & corn, as well as energy products like coal, natural gas & oil.  The deal, however, is conditional on the Trump administration's commitment to abandon its plans to slap tariffs on $50B worth of Chinese imports.  Those terms could make the offer a dud in DC, considering the Trump administration has signaled it plans to move forward with the tariffs later this month.  One major point of contention between the 2 countries has been the more than $370B trade deficit the US has with China.  Pres Trump wanted Beijing to reduce that amount by $200B by 2020.  China is looking to up its import of US goods as a way to offset that trade imbalance.  The US has also pushed for broader economic reform, particularly where intellectual property law is concerned.

China offers deal to purchase $70B in US goods, wants Trump to drop tariffs

A group of Rep & Dem senators plan to introduce as soon as today legislation that would force Pres Trump, or any pres, to obtain congressional approval before imposing tariffs on national security grounds, a senior senator said.  Rep Senator Bob Corker, chairman of the Foreign Relations Committee, said legislation would be introduced by tomorrow at the latest that would pare back the pres's authority under Section 232 of the Trade Expansion Act of 1962.  The measure came after Trump decided last month to open a trade investigation into whether auto imports had damaged the US auto industry, which could lead to tariffs of up to 25% on "national security grounds."

Corker: U.S. lawmakers plan to introduce bill seeking to control Trump on tariffs as soon as today

Oil prices clawed back gains after Brent crude hit its lowest in close to a month following a report that the US gov had asked Saudi Arabia & other major exporters to increase oil output.  West Texas Intermediate shrugged off the report, ending the session up 77¢ (1.2%) at $65.52, rallying from a nearly 2-month low of $64.22 earlier in the session.  Brent crude futures were up a nickel to $75.34 a barrel, climbing back from a session low of $73.81.  The contract fell 2% the previous day.  The US gov has unofficially asked Saudi Arabia & some other OPEC producers to raise oil output, OPEC & industry sources said.  Earlier on today, it was reported that the US gov had asked them to increase oil production by about 1M barrels per day (bpd).  The US request was widely known among oil market watchers.  Treasury Sec Steve Mnuchin said last month that the US held discussions with "various parties" to pump more to offset a drop in Iranian exports due to renewed US sanctions.  OPEC meets in Vienna on Jun 22 to decide whether the group & non-OPEC producers, including Russia, should raise output to make up for any supply shortfall from Iran & Venezuela.  Saudi Arabia & Russia already had been discussing raising OPEC & non-OPEC oil output by around 1M bpd.  Global oil supply has tightened with the OPEC-led production cuts that began in early 2017.

US crude rises 1.2%, settling at $65.52, shrugging off report US asked OPEC to raise supply

Home prices increased 6.9% nationally in Apr 2018 from the same period last year & should rise an additional 5.3% over the next year, according to property data provider CoreLogic.  Further, the CoreLogic Market Condition Indicators (MCI) found that 40% of the 100 largest US metropolitan housing markets were overvalued as of Apr 2018.  The MCI analysis categorizes home prices in individual markets as undervalued, at value or overvalued, by comparing home prices to their long-run, sustainable levels.  An overvalued housing market is one in which home prices are at least 10% higher than the long-term, sustainable level, while an undervalued housing market is one in which home prices are at least 10% below the sustainable level.  As of Apr 2018, 28% of the top 100 metropolitan areas were undervalued & 32% were at value.  “The best antidote for rising home prices is additional supply,” CoreLogic said.  “New construction has failed to keep up with and meet new housing growth or replace existing inventory. More construction of for-sale and rental housing will alleviate housing cost pressures.”  The most recent Zillow Home Price Expectations Survey, a quarterly survey of more than 100 US real estate experts & economists, showed that almost ½ of the respondents expect a recession in 2020.  During the last recession, according to CoreLogic, housing prices fell by 33%.

Nearly half of the US housing market is overvalued

Trade talks are heating up & now Congress wants weigh in on the outcome.  Never a dull moment in DC.  The G-7 meeting this weekend should be eventful, far different that then prior ones.  Trade talks will dominate their attention.  With the increase in uncertainty, stocks are not sure where to go next.  However, techs remain strong, for the time being, with NAZ reaching another record.  On the other hand, the chart below shows the Dow continues on its bumpy road going nowhere.

Dow Jones Industrials