Friday, August 24, 2018

Higher markets after comments from Fed officials

Dow jumped up 134, advancers over decliners  better than 2-1 & NAZ gained 62 (to a new record).  The MLP index lost pennies in the 288s & the REIT index was fractionally lower to the 358s.  Junk bond funds went up & Treasuries were slightly lower in price.  Oil rose 1+ to the 69s & gold recovered 15 to 1209.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil69.17
+1.34   +2.0%

GC=FGold  1,204.50
+10.50  +0.9%

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Stock were higher after trade talks between China & the US ended without any apparent progress, while market participants awaited Federal Reserve Chairman Jerome Powell's address to attendees of the Jackson Hole Symposium in Wyoming.  If the Dow adds more than 12 today, it will turn positive for the week.  The S&P 500 & NAZ were on track for a positive finish, but a negative performance on today could erode these gains.  The economic data calendar is fairly light today.  Before opening bell the latest durable goods orders were released & orders fell 1.7% in Jul versus expectations for a 0.5% drop.  Durable goods are consumables that last 3 years or more.  Commodities were mostly higher & oil futures were gaining momentum.

Stocks higher, markets await Powell speech

St Louis Federal Reserve Pres James Bullard does not want the central bank to raise rates again this year.  "If it was just me, I'd stand pat where we are and I'd try to react to data as it comes in," he said.  "I just don't see much inflation pressure. ... I'm an inflation hawk, but I just don't see that developing. ... I just don't think this is a situation where we have to be pre-emptive."  Market watchers widely anticipate a Fed rate increase on Sep 26 & possibly one more in Dec.  The Fed has been on a rate-hiking cycle since Dec 2015, raising rates 7 times, after keeping the funds rate near zero for 7 years.  Bullard said he'd focus on inflation data & inflation expectations to change his views.  Currently the numbers are not pointing to "much inflation," he noted.  He also said he believes economic growth will slow next year.  "I think it's going to be a good year, and part of that is fiscal stimulus," he said.  "But the point is, it's going to slow in 2019 and 2020. That's the standard forecast that's out there." Bullard, a nonvoting member of the policymaking Federal Open Market Committee, was interviewed at the Fed's annual retreat in Jackson Hole, Wyoming.  In recent weeks Pres Trump has repeatedly criticized Fed Chair Jerome Powell for raising rates.  "I'm not thrilled," Trump said last month.  "Because we go up and every time you go up they want to raise rates again. I don't really — I am not happy about it."

Fed’s James Bullard says he would 'stand pat' on rates for rest of the year

Cleveland Federal Reserve Pres Loretta Mester raised her outlook for the economy & GDP for 2018, adding that the central bank's plan for gradual interest rate increases is appropriate.  "I've been upping my forecast. I'm now at 2.75 percent to 3 percent for the year, probably closer to 3 percent," Mester said.  "I think that the fiscal policy — the stimulus and the tax cuts — has been a positive for the economy in terms of demand growth, and so that's one of the factors."  "But also there's been more momentum in the economy than I might have anticipated," she added.  "Again, we're at our targets, and yet we have accommodative monetary policy. Right now, this gradual upward path of policy rates seems appropriate to me."  The Fed has been on a rate-hiking cycle since Dec 2015, raising rates 7 times, after keeping the funds rate near zero for 7 years.  Mester is a voting member of the Federal Open Market Committee, the Fed's policymaking arm.  "We're basically at our 2 percent inflation target and I think we'll be sustainably at that by the end of the year," she said.  "We are monitoring financial conditions, we're monitoring them very carefully. I think we're doing a better job than we did in the past, but we certainly look for risk," she added.  "Leveraged lending is little up there, I think if you look at stock prices and other asset valuations, some of those are excessive. So we've got to take that into account."

Fed's Mester raises GDP outlook, still thinks gradual rate increase path appropriate

US & Chinese officials ended 2 days of talks with no major breakthrough as their trade war escalated with activation of another round of dueling tariffs on $16B worth of each country's goods.  "We concluded two days of discussions with counterparts from China and exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship," White House a spokeswoman Lindsay Walters said.  The discussions included "addressing structural issues in China," including its intellectual property and technology transfer policies, she added.  The mid-level Trump administration officials participating in the talks would brief the heads of their agencies on the discussions, she continued.  Implementation of the latest 25% tariffs yesterday did not derail the talks, led by Treasury Under Secretary David Malpass & Chinese Commerce Vice Minister Wang Shouwen.  They were the first face-to-face US-China meetings since early Jun to try to find a way out of a deepening trade conflict & escalating tariffs.  Earlier, a senior Trump administration official downplayed chances for success, saying China had yet to address US complaints about alleged misappropriation of US intellectual property & industrial subsidies.  "In order for us to get a positive result out of these engagements, it's really critical that they (China) address the fundamental concerns that we have raised," the official said on the new US security review law for foreign acquisitions.  "We haven't seen that yet, but we are going to continue to encourage them to address problems that we have raised."  In a brief statement, the Chinese commerce ministry said both sides had a "constructive" & "candid" exchange over trade issues, & will stay in touch on the next steps.  China's Commerce Ministry said in Beijing that it has filed a complaint with the World Trade Organization over the latest round of US tariffs.  The 2 countries have now targeted $50B of each other's goods & threatened duties on most of the rest of their bilateral trade, raising concerns that the conflict could dent global economic growth.  Trump administration officials have been divided over how hard to press Beijing, but the White House appears to believe it is winning the trade war as China's economy slows & its stock markets tumble.  Economists reckon that every $100B of imports hit by tariffs would reduce global trade by around 0.5%.  They have assumed a direct impact on China's economic growth in 2018 of 0.1 to 0.3 percentage point & somewhat less for the US.  The impact will be bigger next year, along with collateral damage for other countries & companies tied into China's global supply chains.

No breakthrough in US-China trade talks as new tariffs kick in

Traders are felling good & taking the popular averages higher once again.  NAZ has reached record levels & the S&P 500 along with the Dow are not far away from setting news records.  Trade talks are stuck in the mud, but that does not seem to be a bother for investors after Q2 earnings.  Trading after Labor Day will be the big test for the bulls to see how much strength they have over the stock market.

Dow Jones Industrials

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