Tuesday, July 31, 2018

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=FCrude Oil68.96

GC=FGold  1,230.60

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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

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