Market gains pared in the PM on profit taking

Dow advanced 113 (but off session highs), advancers over decliners better than 2-1 & NAZ added 44.  The MLP index rose 1+ to the 279s & the REIT index remained up 6+ to the 354s.  Junk bond funds crawled higher & Treasuries inched up in price.  Oil sank to the 68s (more below) & gold went up 2 to 1223.

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US workers saw the largest increase in wages & benefits since 2008 (just prior to the stock market selloff), according to a new report from the Labor Dept.  The employment cost index, a gauge of total compensation for civilian workers, increased 0.6% in Q2.  The cost of pay & benefits jumped 2.8% in the 12-month period ended in Jun, the highest yearly growth rate in nearly a decade.  Wages alone gained 2.8% over the past 12 months, which also reflected a near 10-year high.  Growth in benefits outpaced wages in Q2.  Wages were up 0.5% & benefits, which cover health care, retirement plans & other items, jumped 0.9%.  That marks the fastest pace in 4 years.  Meanwhile, private workers fared better than the public sector.  Total compensation in the private industry rose 2.9%, while gov workers saw a 2.3% increase.  In a separate report, the Commerce Dept said the price index for personal consumption expenditures rose 2.2% year-over-year in Jun, another sign that inflation is trending higher.  The Federal Reserve plans to raise rates 2 more times in 2018, bringing the annual total to 4, to counter rising inflation.

US workers see biggest pay, benefit increase in 10 years

Pres Trump has indicated to staff that he won't try to shut down the federal gov before the midterm elections to try to win more money for a wall at the US-Mexico border, administration officials said.  Despite Trump's recent public threats that he saw "no problem" in shutting down the gov to secure backing for one of his key campaign promises, 2 officials said Trump recognized the political cost of a shutdown before the Nov elections & had assured staff he wouldn't provoke a fiscal crisis until after Election Day.

Trump indicates pre-election shutdown unlikely

Procter & Gamble (PG, a Dow stock & Dividend Aristocrat), reported quarterly earnings that topped expectations, though fell short on sales.  The revenue miss is likely to do little to allay investors concerns regarding continued shrinking market share amid increased competition from private label brands & upstart companies.  The maker of everyday household goods like Pantene hair products, Crest toothpaste & Charmin toilet paper reported net sales of $16.5B, less than the $16.54B anticipated.  It reported organic sales growth, which strips out the impact of currency & other adjustments, of 1%, less than the 2.3% anticipated. 

• Adjusted earnings: 94¢ vs 90¢ the forecast
• Revenue:        $16.50B vs $16.54B forecast

The Gillette shaving business continues to be a weak spot for the company, with net sales dropping 3% in its grooming business for the qtr.  PG blamed weakness in the business on "investments to improve consumer and customer value." The unit has seen increased competition over the past few years from cheaper rivals like Harry's.  "I do want to be very open about — we expect the competitive environment to stay very heavy for a while," CEO David Taylor said.  "We're going to address in each market online or offline what it takes to grow, because we clearly have the superior products."  "There is uncertainty and will be volatility with these pricing moves. They will negatively impact consumption. We'll have to adjust as we go, and as we learn," CFO Jon Moeller said.  More broadly, the Cincinnati company's profit margins were squeezed, hurt by rising commodity costs, shipping expenses & foreign exchange rates.  EPS was 73¢, down 14.9% from 84¢ in same qtr last year,  After accounting for restructuring costs, impact of tax act & costs to pay down early debt & the dissolution of a joint venture, core EPS was 94¢, an increase of 11% over the same qtr.   For fiscal 2019, the company said it is anticipating organic sales growth of 2-3% & it expects its core EPS to grow 3-8% up from its 2018 core EPS of $4.22.  The stock went up 61¢.
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Procter & Gamble's sales come up short as competition eats into its business

Pfizer (PFE), a Dow stock, plans to increase research & development spending for the remainder of the year in a bid to accelerate the delivery of potential blockbuster treatments to market.  The drugmaker raised projections for spending on research to $7.7B to $8.1B from $7.4B & $7.9B previously.  PFE affirmed its expectation of 25-30 drugs from its pipeline to be approved thru 2022.  The company expects its business to be less affected by losses of exclusivity after 2020.  Spending plans were increased as its key branded treatments, including Eliquis, Ibrance & Xeljanz, continued to see strong growth in its latest qtr.  Sales of blood-thinner Eliquis grew 42% in Q2 from a year earlier to $889M.  Revenue from its innovative-health business rose 8% to $8.27B.  Overall revenue rose 4% to $13.47B, though currency movements provided a 3% lift.  However, PFE expects foreign exchange to turn into a headwind for the remainder of the year.  The company lowered its revenue target by $500M at the midpoint to between $53-55B, citing recent unfavorable currency moves.  The essential-health business, featuring off-patent brands & generics, continued to see sales fall in the latest qtr.  Sales of fibromyalgia treatment Lyrica dipped 3% to $1.22B.  The company lost exclusivity for Viagra at the end of last year & now faces pressure from generic brands.  Sales for Viagra fell 47% over the year to $185M.  EPS was 65¢.  Excluding one-time items, EPS was 81¢, ahead of estimates for 74¢.  The company said in Jul it plans to reorganize into 3 businesses -- innovative medicines, consumer health-care & established medicines -- as it determines the future of its over-the-counter medicines business.The stock rose 1.23.
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Pfizer to raise R&D spending to bolster pipeline

Oil prices fell, pushing crude benchmarks to their largest monthly decline in 2 years as OPEC's output appeared to reach a 2018 high in Jul.  West Texas Intermediate crude futures (WTI) ended trading down $1.37 (2%) at $68.76 a barrel, after rising more than 2% in the previous session.  Sep Brent crude futures fell 73¢ (1%) to $74.24 a barrel after rising nearly 1% yesterday.  The Sep contract expires later today & the more-active Oct contract was down $1.33 at $74.22.  For the month, WTI futures declined 7.3%, while Brent futures dropped 6.5%.  Both benchmarks posted the biggest monthly decline since Jul 2016.  A survey showed OPEC's output hit a 2018 high in Jul, reigniting concern about supply swamping demand.  The survey released yesterday suggests that OPEC increased production in Jul by 70K barrels per day (bpd) to 32.64M bpd, a high for the year.  Meanwhile, Russian energy minister Alexander Novak said last week that Russia's output will hit a new 30-year high of 11.02M bpd in 2018.  OPEC has pledged to offset the loss of Iranian supply as upcoming US sanctions have already started to cut exports from OPEC's 3rd-largest producer.  Pres Trump appeared to soften his approach to Iran, saying yesterday he would be willing to meet with Pres Rouhani without any preconditions.  Just a week ago Trump threatened on Twitter to unleash severe consequences on Iran.  Iranian officials rejected the proposal, urging Trump to first make up for withdrawing from the multilateral nuclear deal that the US had been a part of.

Oil posts worst monthly decline in 2 years, sinking 7.3% to end July at $68.76

The stock market finished the month on a plus note, but there was selling in the PM.  The Dow pulled back about 100 from its highs.  The Dow finished the month up more than 1K & near its highs since the selloff in late Jan.  The bulls still have major challenges extending this rally with so many unknowns, starting with US-China  trade.

Dow Jones Industrials

Markets advance on hopes for US China trade talks

Dow jumped up 105, advancers over decliners about 2-1 & NAZ recovered 16 after yesterday's selling.  The MLP index was fractionally lower to the 276s & the REIT index soared 6+ to the 354s.  Junk bond funds were mixed & Treasuries inched higher, taking the yield on the 10 year Treasury up to 2.96%.  Oil lost 1+ to the 68s on supply concerns & gold was off 1 to 1220.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

68.96

-1.17

-1.7%

GC=F

Gold

1,230.60

-0.90

-0.1%

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After pointing toward a cautiously higher open, stocks gained some momentum when the markets opened for business, with the Dow posting a triple digit advance.  The momentum came following a report around the opening bell that the US & China are pursuing talks to defuse the trade war.  Meanwhile, investors digested the latest earnings results & economic data while awaiting the Federal Reserve's interest rate decision.  Investors will also be watching the Fed, which begins a 2-day policy meeting.  It is widely expected that the central bank will announce tomorrow that it will keep interest rates unchanged.  Economic growth combined with rising inflation are likely factors that will keep the Fed on track for another 2 hikes this year.  Economic data released today included a reading on home prices & a check on spending & consumer confidence.  According to Case-Shiller, home prices retreated in May.  The gov reported that consumer spending rose in Jun.  Inflation, however, eased in Jun with the core PCE, the Fed's preferred inflation gauge, rising just 0.1%.  Commodities were mostly lower with a rising $ pressuring prices.  Most commodities are priced in $, therefore when the greenback climbs it makes commodities more expensive for holders of foreign currencies, thereby denting demand.  Stocks fell yesterday as tech shares posted their 3rd consecutive down day & Facebook (FB) fell into bear market territory.  The Dow fell 144 (0.6%) to 25,306 & the S&P 500 dropped 16 (0.6%) to 2802.  The tech-heavy NAZ was down 107, closing 1.4% lower at 7630.

Stocks gain momentum following report China and US considering trade talks

US consumer spending increased solidly in Jun as households spent more on restaurants & accommodation, building a strong base for the economy heading into Q3, while inflation rose moderately.  The Commerce Dept said consumer spending, which accounts for more than 2/3 of US economic activity, rose 0.4% last month.  Data for May was revised up to show consumer spending advancing 0.5% instead of the previously reported 0.2% increase.  Last month's increase in consumer spending was in line with expectations.  The data was included Q2 GDP report, which showed consumer spending accelerating at a 4.0% annualized rate during that period after a pedestrian 0.5% pace in Q1.  The economy grew at a 4.1% rate in Q2, almost double the Jan-Mar period's 2.2% pace & the strongest performance in nearly 4 years.  The Jun increase in consumer spending sets it on a higher growth path heading into Q3.  Consumer spending last month was boosted by spending at restaurants & on accommodation.  Spending on goods was unchanged after surging 0.9% in May.  Spending on services accelerated 0.6% after rising 0.3% in the prior month.  Prices continued to steadily rise last month.  The personal consumption expenditures (PCE) price index excluding the volatile food & energy components gained 0.1% after rising 0.2% in May.  That kept the year-on-year increase in the core PCE price index at 1.9% for a 3rd straight month.  The core PCE index is the Federal Reserve's preferred inflation measure.  The core PCE hit the central bank's 2% inflation target in Mar for the first time since 2011.  The moderate inflation helped to support consumer spending last month.  When adjusted for inflation, consumer spending rose 0.3% in Jun after a similar gain in May.  In Jun, personal income rose 0.4%, matching May's increase.  Wages gained 0.4% & the saving rate was unchanged at 6.8%.

US consumer spending increases solidly in June

The US & China are seeking to restart talks to avert a trade war, according to a report.  The report said representatives of Treasury Secretary Steve Mnuchin & Chinese Vice Premier Liu are talking privately.  Mnuchin said last week there continues to be "some quiet conversations" with China.  So far in the trade war between the 2 largest economic powers in the world, the US has slapped tariffs on just $34B of Chinese products, which China met with retaliatory duties.

US and China reportedly seeking to restart talks to avert trade war

Consumer confidence gained more than expected in Jul, but consumers remained concerned about future economic growth.  The Confidence Board's index increased to 127.4 in Jul, beating the forecast for 126.5.  The index was up from a disappointing revised reading of 127.1 in Jun, sunken by lower income prospects.  Consumers reported better feelings toward the current economic situation; however, they were not optimistic about long-term growth.  "Consumers' assessment of present-day conditions improved, suggesting that economic growth is still strong," said Director of Economic Indicators at The Conference Board Lynn Franco.  "However, while expectations continue to reflect optimism in the short-term economic outlook, back-to-back declines suggest consumers do not foresee growth accelerating."  The survey measures American's sentiment on current economic conditions & prospects for the next 6 months, including business a& labor market conditions.  Since consumer spending accounts for about 70% of US economic activity, economists pay close attention to the number.

Consumer confidence rises above expectations in July

Reports of trade talks between the US & China are bringing out buyers for stocks.  Meanwhile consumer confidence & consumer spending data are adding enthusiasm for purchasing shares.  The Dow has been above 25K since mid Jul, making the bulls happy.  But more oomph will be needed for the Dow to go significantly higher.

Dow Jones Industrials

Markets decline led by selling in tech shares

Dow sank 144 (closing near session lows), decliners slightly over advancers & NAZ tumbled 107.  The MLP index rose 2+ to the 277s & the REIT index was about even in the 347s.  Junk bond  funds were mixed & Treasuries slid lower.  Oil shot up to 70 (more below) & gold lost 1 to 1230.

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Stocks fell as tech shares weighed on the key indices & offset the effect of a record Q2 profit from Dow stock Caterpillar (CAT).  The manufacturer which also hiked its full-year outlook & raised its div, beat expectations, which had been tempered by worries about the effect of tariffs on the company's exports & also rising input costs.  That success wasn't enough to lift the Dow, S&P 500 or NAZ, down more than 1% as tech stocks struggled.   Slightly more than ½ of the companies in the S&P 500 have reported Q2 earnings & the results are well ahead of expectations.  In Europe, Britain's FTSE 100 was trading modestly higher, while Germany's DAX & France''s CAC40 were lower.  Asian bourses closed mostly lower.  On Fri, the S&P 500 managed to post its 4rth-straight weekly advance, as strong earnings from a number of firms helped offset an end-of-week slide in the tech sector.  Investors parsed a mixed batch of data & earnings results over the course of the week that broadly suggested the US economy remains strong, even as certain industries have shown signs of weakening.  Data Fri showed the US economy grew 4.1% in Q2, the fastest pace in nearly 4 years, though lower than the expectations.  Yet disappointing earnings from some companies put pressure on the tech sector, sparking wild swings.  Facebook (FB) logged the biggest one-day loss in market capitalization ever Thurs after warning its growth was slowing, while Intel (INTC), Dow stock, & Twitter (TWTR) tumbled after their earnings failed to meet expectations.

US shares broadly lower as tech sector weighs on markets

Pres Trump said he would have "no problem" shutting down the federal gov this year if congressional lawmakers don't agree to provide additional border security funding.  Trump's suggestion puts him at odds with members of his own party in Congress, where many Reps are facing tough re-election fights this Nov.  Gov funding expires at the end of Sep, just weeks before the midterm elections.  "I would have no problem doing a shutdown," Trump said during a joint press conference at the White House with Italian Prime Minister Giuseppe Conte.  "It's time we had border security."  Asked about specific requirements, he said he had no "red line."  "I'll always leave room for negotiation," Trump said.

Trump says he has 'no problem' shutting down government

More Americans signed contracts to purchase homes in Jun compared to May, but the volume of pending sales has slipped over the past year.  The National Association of Realtors said that its pending home sales index rose 0.9% last month to 106.9.  But on a yearly basis, pending home sales have fallen 2.5%.  There are signs that home-buying has stalled in recent months due to the mix of rising prices, higher mortgage rates & a dearth of sales listings.  On a monthly basis, pending sales increased in all 4 geographic regions: Northeast, Midwest, South & West.  But pending sales have also tumbled in all 4 regions during the past year, especially in the Northeast & West where homes are generally more expensive.  Pending sales are a barometer of home purchases that are completed a month or 2 later.  After months of steady gains, the housing market has shown evidence of stalling.  The Realtors said last week that completed sales of existing homes fell 0.6% in Jun from the prior month & 2.2% over the past 12 months.  The median sales price rose 5.2% over the past year to $276K, about double the pace of wage gains.  Sales of newly built homes tumbled 5.3% in Jun, while ground breakings also fell, according to the Commerce Dept.

US pending home sales rose 0.9 percent in June

Caterpillar (CAT) reported record Q2 earnings & bumped up its full-year forecast.  The big machinery exporter also said it would offset a sizable H2 hit from the tariffs by raising prices.  "Caterpillar delivered record second-quarter profit per share," CEO Jim Umpleby said.   "Based on outstanding results in the first half of the year and continued strength in many of our end markets, Caterpillar is again raising our profit outlook for 2018."  EPS were $2.82, the best Q2 EPS performance for the equipment manufacturer.  It was more than double that from a year earlier, while adjusted EPS of $2.97 was nearly twice as high as the year-earlier period.  The company raised its full-year EPS forecast to $11-12, an increase of 75¢ from its previous guidance.  The company gave this higher forecast despite rising costs due to tariffs, with CAT saying it expects an impact of $100-200M  on its material costs in H2.  The company will offset those impacts with price increases this year.  "Our business in China continues to be strong. We haven't seen an impact of the trade tension on our business," Umpleby said.  The stock dropped 2.82.
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Caterpillar posts record second-quarter profit, raises forecast

Pres Trump said that he would be willing to meet with Iranian Pres Rouhani "any time they want to," & that he would impose no preconditions to such a meeting.  "They want to meet, I'll meet. Any time they want," Trump said.  His comments came amid escalating tension between the US & Iran.  Earlier this month, the pres threatened Rouhani in an all-caps post on Twitter that called out the Iranian leader by name.  A meeting with Rouhani would be "good for the country, good for them, good for us, and good for the world," the pres said.  It's not clear whether Iran would accept any proposed meeting, particularly given the threats the pres has issued.  In Jul, Rouhani's chief of staff Mahmoud Vaezi said that Trump had asked eight times for a meeting with Rouhani & was rejected each time.  Trump, whose White House has stylized him as the "ultimate negotiator and dealmaker," stressed the high stakes of any potential meeting with Rouhani.  "Speaking to other people, especially when you're talking about potentials of war, and death, and famine, and lots of other things — you meet," he said.  "There's nothing wrong with meeting."  The pres cited his administration's negotiations with North Korean leader Kim Jong Un & Russian leader Vladimir Putin as examples of his successful bilateral negotiations.

Trump: I am ready to meet with Iran 'any time they want to' – with no preconditions

Oil prices rose back above $70 a barrel, with US crude posting its best one-day $ gain in over a month, after 4 weeks of losses for the benchmark.  West Texas Intermediate crude ended the session up $1.44 (2.1%) to $70.13 a barrel.  While the contract has risen in 7 of the last previous 10 sessions, it has not posted a gain of more than $1 a barrel since Jun 27.  As of Fri, WTI was down more than 7% over the last 4 weeks, as heavy losses in a handful of trading sessions wiped out a string of modest daily gains for the benchmark.  The contract to deliver intl benchmark Brent crude for Sep was up 83¢ (1.1%) at $75.12 a barrel (the Sep contract expires tomorrow).  Trading was heavier for the Oct contract, which is up 97¢ (1.3%) at $75.73.  Prices got support after Saudi Arabia announced it would suspend shipments of oil thru the critical Bab el-Mandeb Strait, after Houthi rebels in Yemen attacked a pair of oil tankers in the Red Sea.  The Saudis have led a military coalition against the Iran-aligned Houthis for more than 3 years.  The US & Iran have lately engaged in a war of words, with Iranian officials threatening to snarl oil exports in the world's busiest region for crude shipments.  Tension is rising ahead of the first of 2 deadlines next week for intl businesses to wind down ties with Iran under renewed US sanctions.

US crude rises 2.1%, settling at $70.13, boosted by signs of tight oil supply

The Treasury expects to borrow $329B in Q3, $56B more than previously estimated, according to a statement.  The new forecast includes an end-of-qtr cash balance of $350B, the largest borrowing in the Q3 since 2010 & well above the $189B borrowed one year ago.  Details of the borrowing will be released Wed.  One of the reasons for the increased borrowing is that the Fed is not replacing as many securities on its balance sheet once they mature, allowing some to "roll off" under its new policy of quantitative tightening.  During Q2, the Treasury borrowed $72B in net marketable debt & ended with a cash balance of $333B.  This was slightly lower than the $75B estimated.  During Q3, Treasury said it expects to borrow $440B in net marketable debt with a cash balance of $390B.

U.S. expects to borrow $329 billion in third quarter, largest borrowing in that period in eight years

As is typical when reporting corp earnings, the best ones tend to come early.  Later ones are less impressive.  After being the leader in this year's stock market, tech shares are leading the pullback.  For example, FB sold off almost 4 today after taking a drubbing last week.  The Dow is hanging in above 25K after largely being in the 24-25K rut for 6 months.  Breaking out (that means rising above) looks to be a serious challenge for the bulls.  Late day selling & the goings on in DC are making matters worse.

Dow Jones Industrials