Thursday, July 12, 2018

Markets rebound on economic data and easing tariff fears

Dow jumped up 183, advancers over decliners 4-3 & NAZ rose 68.  The MLP index was fractionally higher to the 263s & the REIT index barely moved in the 355s.  Junk bond funds did little & Treasuries were a tad lower.  Oil was off pennies but remained above 70 following yesterday's big decline & gold recovered 2 to 1246.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil70.29

GC=FGold  1,246.30

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US equities rose as global stocks rebounded from yesterday's tariff threat-fueled selling.  Stock futures held their gains after the latest weekly jobless claims & consumer price inflation (CPI) data.  The CPI rose to 2.9% from 2.8% in the 12 months thru Jun, according to the gov, the highest annual rate since 2012.  The weekly average of jobless claims fell by 18K to 214K last, taking the 4-week jobless claims average down by 1K to 223K.  Meanwhile, Pres Trump announced that member states agreed to increase their financial contributions.  This comes after his outspoken claims about the unfairness of how much the US was spending relative other members.  Stocks fell yesterday in reaction to the news that the country is pursuing a new set of tariffs that would hit $200B  of Chinese goods.  The Dow fell 219 (0.9%) to 24,700 & the S&P 500 lost 19, dropping to 2774.  NAZ fell 42 points at 7716.  After the markets had closed yesterday, the US trade representative said the 10% tariffs would target a variety of products imported from China, including clothing, baseball gloves, bicycles, refrigerators & seafood.  Tomorrow will mark the start of earnings season for the banks, with JPMorgan Chase (JPM & a Dow stock), Citigroup (C) & Wells Fargo (WFC) reporting.

Stocks rebound after tariff threat sell-off

Pres Trump declared victory in his campaign to get NATO members to boost spending so they can meet their commitment to spend 2% of their GDP on the military by 2024.  “Everyone agreed to pay more,” Trump told reporters.  Trump has been pushing NATO members to increase their spending, due to decades of the US paying vastly more than its European partners & the majority of NATO members continuing to miss their spending commitments.  The US spent more than 3.5% of its GDP on defense in 2017 (about $685B) according to a NATO report.  While that is down from more than $740B in 2011, it's still well above the outlay of all other members.  In 2017, the US is estimated to have spent more than 69% of the cumulative total.  Heading into the NATO meeting, Trump said, “I’d be unhappy if everyone didn’t up their commitments substantially.“  After what was called a “tough” meeting, Trump added that after getting NATO member states to spend 2% [of GDP].  “We will go higher.”  The target date to get military spending to 2% is 2024.  French Pres Emmanuel Macron said France would meet its NATO-agreed goal of spending 2% of GDP on defense by 2024, saying “cohesion within NATO was only possible if the burden was shared "fairly."

Trump declares victory in push to get NATO members to pay their share

US consumer prices barely rose in Jun, but the underlying trend continued to point to a steady buildup of inflation pressures that could keep the Federal Reserve on a path of gradual interest rate increases.  The Labor Dept said its Consumer Price Index (CPI) edged up 0.1% as gasoline price increases moderated & apparel prices fell.  The CPI rose 0.2% in May.  In the 12 months thru Jun, the CPI increased 2.9%, the biggest gain since 2012, after advancing 2.8% in May.  Excluding the volatile food and energy components, the CPI rose 0.2%, matching May's gain.  That lifted the annual increase in core CPI to 2.3%, the largest rise since Jan 2017, from 2.2% in May.  The forecast calleld for the CPI & core CPI rising 0.2% in Jun.  The Fed tracks a different inflation measure, which hit the central bank's 2% target in May for the first time in 6 years.  Economists expect the personal consumption expenditures (PCE) price index excluding food & energy will overshoot its target.  A tightening labor market & rising raw material costs are expected to push up inflation through next year.  Manufacturers are facing rising input costs, in part because of tariffs imposed by the Trump administration on lumber, aluminum & steel imports.  So far, they have not passed on those higher costs to consumers.  Fed officials have indicated they would not be too concerned with inflation overshooting its target.   The Fed raised interest rates in Jun for a 2nd time this year & has forecast 2 more rate hikes before the end of 2018.  Last month, gasoline prices rose 0.5% after increasing 1.7%  in May.  Food prices gained 0.2% after being unchanged in May.  Food consumed at home rebounded 0.2% after falling 0.2% in May.  Owners' equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, rose 0.3% last month after increasing by the same margin in May.  Healthcare costs advanced 0.4% after gaining 0.2% in May.  Prices for new motor vehicles rose 0.4% following a 0.3% increase in the prior month.  But apparel prices fell 0.9% after being unchanged in May.  The cost of airline tickets declined for a 3rd straight month.  There were also decreases in the prices of household furnishings & tobacco.

Consumer prices rise at the fastest pace in 6 years

Stock buyers returned as trade worries eased & economic data was helpful.  Easing tensions after the NATO meeting also factored into the buying.  However market breadth was not impressive.  The Dow continues to lumber along above 24K, needing reasons to go higher.  The bulls are hoping earnings season will do the trick.

Dow Jones Industrials

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