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.

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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

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