Wednesday, August 29, 2018

Higher markets on hopes for a Canada trade deal

Dow rose 60, advancers over decliners almost 2-1 & NAZ jumped up 79 to yet another new record.  The MLP index fell 2+ to the 281s & the REIT index added 4+ to 364.  Junk bond funds remained mixed & Treasuries continued even.  Oil added 1 to the 69s (more below) & gold retreated 2 to 1212.

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Brown-Forman (BF-B), a Dividend Aristocrat, reported higher fiscal Q1 profits, fueled partly by strong overseas sales aimed at softening the short-term impact from tariffs.  But the spirits company best known for its Jack Daniel's Tennessee Whiskey brand cautioned it's bracing for a period of uncertainty from trade disputes in some key markets.  Sales surged in its top European markets due to inventory stockpiling as the company & its customers braced for the effects of tariffs imposed in the EU that targeted American whiskey & other US products.  Foreign markets account for slightly more than ½ of overall sales & EU countries represent slightly more than ¼ of total sales.  So far, the company said it has responded by raising the price of its American whiskeys in a handful of markets due to tariffs, but it plans to eventually spread the price hikes to other countries where tariffs were imposed.  The company said it has not yet increased prices in the biggest European markets, which are the UK, Germany & France.  Those higher prices, however, won't completely absorb the company's higher costs due to the tax.  "We intend to take price increases in many of the remaining markets as a result of tariffs, and we are continuing to assess the timing and amount on a market-by-market basis, while considering the impact on our business and our consumers," said CFO Jane Morreau.  "However, at this point, we do not expect that these price increases will offset the cost of the tariff itself in the interim."  The result will be lower margins in the current fiscal year, she added.  The company cited stiff competition in those foreign markets & the benefits it reaped from federal tax cuts in the US as reasons it has delayed many of its overseas price hikes.  It's also waiting to see if the trade disputes can be resolved.  "In some ways, yes, we are buying time to see if these things can be worked out," said CEO Paul Varga.  Due to tariff-related inventory stockpiling, the company said its underlying net sales increased 38% in Germany & 33% in the UK in Q1.  The company estimated that stockpiling at retail & wholesale levels contributed about 2-3 points of its underlying net sales growth.  The company continued to predict underlying net sales growth of 6-7% in the current fiscal year.  But it lowered its projected full-year EPS to $1.65-1.75.  "This range includes the net estimated change to operating income growth due primarily to tariffs, which we assume remain in place for the full fiscal year, as well as expectations for additional foreign exchange headwinds at current spot rates," the company said.  Analysts forecast annual EPS of $1.79.  Net sales growth was across much of its spirits lineup in Q1 with the entire Jack Daniel's lineup had underlying net sales growth of 10%.  Woodford Reserve bourbon brand was up 29%.  Among its tequilas, el Jimador was up 11% & Herradura rose 10%.  Finlandia vodka's underlying net sales declined 10%.  Underlying net sales grew 2% in the US.  Sales surged 16% in the developed markets outside the US & by 11% in emerging markets abroad.  EPS was 41¢, above 37¢ a year ago.  Quarterly net sales rose 6% to $766M.  The stock was up a nickel.
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Brown-Forman posts higher profit in 1st quarter

Canadian Prime Minister Trudeau said that it may be possible to reach a deal on NAFTA ahead of Pres Trump's Fri deadline.  "We recognize that there is a possibility of getting there by Friday, but it is only a possibility, because it will hinge on whether or not there is ultimately a good deal for Canada," he said in northern Ontario.  "No NAFTA deal is better than a bad NAFTA deal."

Canada's Trudeau says NAFTA deal possible by Friday

Pres Trump said that he is optimistic Canada will join the new trade deal the US forged with Mexico that is intended to replace the North American Free Trade Agreement.  Trump's remarks followed a White House meeting announcing a grant for a program supporting drug-free communities.  "I think Canada very much wants to make the deal," Trump told reporters.  "It probably won't be good at all if they don't."  Trump also reiterated his Fri deadline for the US' northern ally to join the NAFTA replacement, which Trump coined "The United States-Mexico Trade Agreement" earlier in the week.  "I think we're probably on track. We'll see what happens," Trump added.

Trump says he is optimistic Canada will join trade deal

Argentina is asking the IMF for early release of funds from the country's $50B standby financing deal, Pres Mauricio Macri said in a televised address, a move aimed at calming turbulent markets.  The country's currency has weakened 40.8% in 2018.  Investors are concerned that with high inflation, a weak economy & fallout from a global selloff in emerging markets, Argentina may have problems meeting its $ debt obligation in 2019.  "We have agreed with the International Monetary Fund to advance all the necessary funds to guarantee compliance with the financial program next year," Macri said.  "This decision aims to eliminate any uncertainty."  The Argentine peso dropped to trade more than 6% lower against the $ on the news.  Argentina's central bank sold a total of $200M of its reserves in 2 currency auctions yesterday after the peso hit new lows.  The currency weakened to a record close of 31.50 per $ after touching an all-time low of 31.60 to the greenback earlier in the day.  Central bank shows it has sold $12.9B in the foreign exchange market this year as monetary policymakers try to stabilize the currency.  The gov says it expects the country's economy to contract 1% in 2018 but grow by at least 1.5% next year.

Argentina asks IMF for early release of standby funds, peso drops

Oil prices rose more than 1%, supported by a drawdown in US crude & gasoline stockpiles & on news of falling Iranian crude shipments as US sanctions deter buyers.  US light crude ended the session up 98¢ (1.4%) at $69.51 a barrel, having touched a 3-week high earlier in the session.  Benchmark Brent crude oil rose $1.18 (1.6%) to $77.13 after rising to its highest level in 7 weeks.  US crude inventories fell 2.6M  barrels last week, the Energy Information Administration said, exceeding the 686K-barrel draw forecast.  Gasoline stocks fell 1.6M barrels, compared with expectations for a 370K-barrel gain.  Distillate stockpiles, which include diesel & heating oil, fell by 837K barrels, versus expectations for a 1.6M-barrel increase, EIA data showed.  US gasoline stocks surprised with a 1.5M-barrel drop against expectations of a build.  Iran's crude oil & condensate exports in Aug are set to drop below 70M barrels for the first time since Apr 2017, preliminary trade flows data shows.  Many crude buyers have already reduced orders from Iran, OPEC's 3rd-biggest producer, ahead of the Nov 4 start date for US sanctions.  Although Tehran is offering steep discounts, Iran's Aug loadings are estimated at 2.06M  barrels per day (bpd) versus a peak of 3.09M bpd in Apr.  In Venezuela, where production has halved since 2016, the state-run oil firm PDVSA said it had signed a $430M investment agreement to increase production by 640K bpd, although some analysts doubted whether this investment would go thru given ongoing instability.  Meanwhile, the preliminary export plan for fellow OPEC member Angola indicates that its shipments have dropped to the lowest level since 2006, as a lack of investment in aging infrastructure continues to limit production.  Despite the risk of disruption from these OPEC producers global supply could climb toward the end of the year, in part due to increased non-OPEC output from Canada, the US & Brazil.  Norway's Equinor said it plans to develop new oil fields in Brazil & raise output from 90K barrels of oil equivalent per day to 300-500K boepd by 2030.

Oil rises as US stockpiles draw down, Iran exports fall

Prior to Labor Day is typically a quiet period for stocks, but not now.  There is no shortage of excitement & drama, especially out of DC.  Tesla (off 6+ to 305 today) seems to have a ton of problems, but that not has dampened demand for other tech shares.  Then there are hopes that a trade deal with Canada can be done by Fri.  Most popular stock averages are at record highs & the Dow is only 500 away from setting a new record.  Will wonders never cease?

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