Friday, August 10, 2018

Markets decline on Turkey's currency crisis

Dow sank 205, decliners over advancers 2-1 & NAZ declined 33.  The MLP index continued strong, going up 2 to the 293s, & the REIT index was flattish in the 356s.  Junk bond funds did little & Treasuries gained in strength after the turmoil in eastern Europe.  Oil rose to the 67s & gold added 3 to still depressed 1223.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil67.50
+0.69 +1.0%

GC=FGold  1,222.70
+2.80 +0.2%

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Stocks slipped lower as financial concerns develop in Turkey & Russia.  The Turkish lira plunged to a fresh record low against the $.  This came after a report that the ECB is growing more concerned about exposure of regional banks to Turkey & the lira is extending losses in part due to a diplomatic rift between Turkey & the US.  The ECB has concerns specifically about banks in Spain, Italy & France & their exposure to Turkey's woes.  The recently announced additional sanctions against Russia, hit that country's currency and stocks as the country braced for uncertainties over the Trump administration's commitment to enforcement.  In economic data, a reading on inflation was in line with forecasts.  The Labor Dept said its Consumer Price Index advanced 0.2%, the bulk of which was due to a rise in the cost of shelter.  CPI rose 0.1% in Jun.  In the 12 months thru Jul, the CPI increased 2.9%, matching the increase in Jun.  Stocks ended mostly flat yesterday, 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 Dow fell 74 (0.3%) to 25,509 & the S&P 500 was down 4, closing at 2853.  The NAZ edged up 3 to 7891.  Investors said renewed trade tensions sapped some of the market's enthusiasm after China threatened Wed to slap new tariffs on various chemicals & medical equipment, among other goods.

Stocks fall amid global financial concerns

Automobile sales in China fell 4.0% in Jul from a year earlier to 1.89M vehicles, according to an industry association.  The results come amid rising concern over the potential fallout of a Sino-US trade spat.  Ford (F) reported that its sales in China fell 32% in Jul, following a 38% fall in Jun.  The carmaker has been struggling from a lack of new models.  Earlier in the week, Ford announced plans to launch a new a new sport utility vehicle in China.  The China Association of Automobile Manufacturers said overall sales for the first 7 months of the year were up 4.3% from the same period a year prior, totaling 16M vehicles.  Last month's sales drop followed increases of 4.8% in Jun & 9.6% in May.  Auto sales in China, the world's biggest vehicle market, had been rebounding steadily since Feb when sales volume fell 11.1%.  The industry association forecasts market growth of 3% this year, in line with last year, but far below the 13.7% gain of 2016.

July vehicle sales in China fall amid tariff concerns

US consumer prices rose in Jul & the underlying trend continued to strengthen, pointing to a steady increase in inflation pressures that keeps the Federal Reserve on track to gradually raise interest rates.  The Labor Dept said its Consumer Price Index advanced 0.2%, the bulk of which was due to a rise in the cost of shelter.  The CPI rose 0.1% in Jun.  In the 12 months thru Jul, the CPI increased 2.9%, matching the increase in Jun.  Excluding the volatile food & energy components, the CPI rose 0.2%, the same gain as in May & June.  The annual increase in the core CPI was 2.4%, the largest rise in 10 years, from 2.3% in Jun.  The forecast for both called for the CPI & core CPI rising 0.2% in Jul.  The Fed more closely tracks a different inflation measure, the personal consumption expenditures (PCE) price index excluding food & energy, which increased 1.9% in Jun.  That gauge hit the central bank's 2% target in Mar for the first time in more than 6 years & Fed policymakers have said they will not be unduly concerned if it overshoots its target in the coming months.  The Fed has raised rates twice this year, in Mar & Jun, & investors overwhelmingly expect a hike at the next policy meeting in Sep.  The Fed currently forecasts a total of 4 rate rises in 2018, with investors expecting a final nudge upwards of the year in the benchmark overnight lending rate in Dec.  Inflation pressures are seen continuing to build amid low unemployment and increasing difficulty reported by employers in filling positions.  Rising raw material costs are also expected to push up inflation as manufacturers pay more, in part because of tariffs imposed by the Trump administration on lumber, aluminum & steel imports.  Last month, gasoline prices fell 0.6% after increasing 0.5% in Jun.  Food prices edged up 0.1% after rising 0.2% in Jun.

Consumer prices edge up in July

Pres Trump tweeted that he authorized a doubling of steel & aluminum tariffs on Turkey amid a growing diplomatic dispute between the 2 countries that is causing a currency crisis for Turkish Pres Erdogan.  "I have just authorized a doubling of Tariffs on Steel and Aluminum with respect to Turkey as their currency, the Turkish Lira, slides rapidly downward against our very strong Dollar! Aluminum will now be 20% and Steel 50%. Our relations with Turkey are not good at this time!" Trump wrote.  Losses in the Turkish lira deepened on Trump's tweet, falling as much as 20% versus the $.  The currency was already reeling after comments from Erdogan, who called for citizens to convert their foreign currency holdings into lira.  So far there has been no confirmation of the new tariff policy from the Dept of Commerce.  Yesterday (before Trump's tweet) Erdogan said he would stand up to pressure from the US. "There are various campaigns being carried out. Don't heed them," Erdogan said yesterday.   "Don't forget, if they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now," Erdogan told supporters.  The brewing dispute comes after a Turkish delegation returned from DC with little to no progress on the detention of US. evangelist pastor Andrew Brunson, who is charged with supporting a group blamed for an attempted coup in 2016.  Last month, Trump threatened to slap "large sanctions" on the longtime NATO ally if it refuses to free Brunson.  The US then announced on Aug 1 sanctions on Turkey's Justice & Interior ministers, prohibiting US citizens from doing business with them.  The increase in the metal levies also follows Trump's decision earlier this year to impose tariffs of 25% on imported steel & 10% for imported aluminum in an effort to protect American business.  "People have no idea how badly our country has been treated by other countries. By people representing us who didn't have a clue," Trump said in Mar, arguing that trade trends "destroyed" American steel & aluminum industries.

Aug is supposed to be a quite, sleepy time for stocks.  No so this year.  Stocks had been on the rise, hoping to break thru to new records.  They're stumbling & the abundance of problems look to be serious.  The Dow began the day deep in the red which was not followed by bargain hunting.  But it is up more than 500 YTD (made in early Jan), for what that's worth.

Dow Jones Industrials

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