Thursday, August 9, 2018

Markets crawl higher while trade tensions drone on

Dow edged up 8, advancers over decliners about 2-1 & NAZ rose 27.  The MLP index continued on the rise shown below, up 3 to the 291s, & the REIT index was off 1+ to the 355s.  Junk bond funds did little & Treasuries were bid higher.  Oil climbed in the 67s after yesterday's steep decline & oversold gold added another 1 to 1222.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil67.28

GC=FGold    1,222.00

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Stocks were flat with the NAZ & S&P 500 hovering near record levels as traders digested the continued stream of mostly positive earnings, while the long-running uncertainty over trade still weighed on markets.  The Trump administration completed plans Tues to impose tariffs on an additional $16B of Chinese imports.  China will match the US & apply a 25% tariff on $16B worth of imported US goods including crude oil, cars, coal, diesel, medical equipment & steel products.  In total, the tariffs will be applied on 333 products & will be implemented on Aug 23, the same day the US tariffs on Chinese goods will take effect.  Economic data out today included weekly jobless claims which came in at 213K vs the forecast for 220K.  Producer prices, a measure of inflation, were flat in Jul.  Stocks were mixed yesterday after the Chinese gov announced another round of retaliatory tariffs.

Stocks flat as traders digest corporate news, trade developments

Twenty-first Century Fox (FOXA) reported earnings & revenue that surpassed expectations, as the media company saw top-line growth across its TV & film businesses.  In its Q4, FOXA earned net income of $920M, compared to $476M in the same period a year ago.  EPS rose to 57¢, up from 36¢, & revenue grew 18% to $7.94B.  Analysts expected EPS of 54¢ on revenue of $7.56B.  The company said cable network programming recorded a 14% increase in revenue during the latest 3-month period.  Revenue from its television unit, which includes the FOX broadcast network, also climbed 14%.  The filmed entertainment business saw revenue jump 27% to $2.3B.  A pending deal to sell certain entertainment assets to Walt Disney (DIS), a Dow stock,  “unlocked enormous value for shareholders,” FOXA said.  The company noted that its stock rallied 75% during its fiscal year.   Shareholders of DIS & FOXA approved the $71B deal in Jul a rival bid for the same assets was dropped.  The Dept of Justice has approved the deal & DIS is awaiting approvals in other markets.  FOXA is also seeking to buy the remainder of Sky, a stake that would also join DIS's media portfolio as part of their deal.  FOXA stock rose 25¢.
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Fox earnings, revenue beat Wall Street view

A growing trade war with the US is causing rifts within China's Communist Party, with some critics saying that an overly nationalistic Chinese stance may have hardened the US position, according tosources close to the gov.  Pres Xi Jinping still has a firm grip on power, but an unusual surge of criticism about economic policy & how the gov has handled the trade war has revealed rare cracks in the ruling Communist Party.  A backlash is being felt at the highest levels of the gov, possibly hitting a close aide to Xi, his ideology chief & strategist Wang Huning.  A prominent & influential academic whose views have found favor in some party quarters has also come under attack for his strident views on Chinese power.  Wang, who was the architect of the "China Dream", Xi's vision for China to become a strong & prosperous nation, has been taken to task by the Chinese leader for crafting an excessively nationalistic image for the country, which has only provoked the US, according to sources.  "He's in trouble for mishandling the propaganda and hyping up China too much," said one source, who has ties to the leadership & propaganda system.  The office of the party's spokesman did not respond to a request for comment on Wang & his relationship with Xi, or on whether China had erred in its messaging in the trade war.  There is a growing feeling within the Chinese gov that the outlook for China has "become grim", according to a gov policy advisor, following the deterioration in relations between China & the US over trade.

Chinese leadership is facing a rare backlash for its handling of the US trade dispute

US producer prices were unchanged in Jul for the first time in 7 months as a modest increase in the cost of goods was offset by a drop in services, but underlying producer inflation continued to push higher.  The Labor Dept said the unchanged reading in its producer price index for final demand followed a 0.3% increase in Jun.  In the 12 months thru July, the PPI advanced 3.3%, slowing after Jun's 3.4% increase.  The forecast called for the PPI increasing 0.2% in Jul & rising 3.4% year-on-year.  A key gauge of underlying producer price pressures that excludes food, energy & trade services rose 0.3% last month & rose by the same margin in Jun.  In the 12 months thru Jul, core PPI increased 2.8% after rising 2.7% in Jun.  Last month's weak PPI reading is likely temporary against the backdrop of a strong labor market & robust economy.  The Trump administration's import tariffs on lumber, steel & aluminum, as well as a range of Chinese goods, are also expected to boost price pressures.  The Fed's preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food & energy, increased 1.9% in Jun.  The PCE price index hit the central bank's 2% inflation target in Mar for the first time since 2011.  In Jul, prices for goods edged up 0.1% after a similar gain in Jun.  Goods prices were lifted by a 0.7% increase in the cost of pharmaceutical preparations.  There were also increases in the prices of motor vehicles & liquefied petroleum gas, but the cost of electricity fell 1.6%.  There were also decreases in the prices of meat, oilseeds & nonferrous scrap.  The cost of services dipped 0.1%, the biggest drop in 7 months, after increasing 0.4% in Jun.  A 12.7% drop in the index for fuels & lubricants retailing led the decline in the cost of services last month.  The cost of healthcare services edged up 0.1% as a 0.4% drop in prices for hospital outpatient care was offset by increases in hospital inpatient care.  Healthcare prices gained 0.2% in Jun.  Those costs feed into the core PCE price index.

July producer prices were flat, signaling tame inflation

As is typical in Aug, the stock market is sluggish.  Trade tensions, the dominant concern after earnings season is winding down, drone on.  Nobody knows where they will lead which is keeping buyers away on vacation.  But the popular stock averages are near record highs, not bad all considered.,

Dow Jones Industrials

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