Thursday, August 2, 2018

Markets drift lower on rising threats of trade wars

Dow dropped 113, decliners slightly ahead of advancers & NAZ was up 17.  The MLP index shot up 5+ to the 285s & the REIT index rose 2 to the 356s.  Junk bond funds were off a tad & Treasuries inched higher.  Oil slid back pennies in the 67s & gold lost 4 to 1223 (remaining near 1 year lows).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil67.63

GC=FGold  1,225.10

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Pres Trump is taking a firm stance on trade with China, Commerce Secretary Wilbur Ross said.  The White House yesterday announced it would consider more than doubling its proposed 10% tariffs on $200B worth of imported Chinese goods to 25% in order to reinforce that America will not allow Beijing to take advantage of American workers.  “The reason for the tariffs to begin with was to get China to modify their behavior,” Ross said.  “But instead they have been retaliating. So the president feels that it is potentially time to put more pressure on in order to modify their behavior.”  Trump has already imposed tariffs on $34B worth of Chinese goods in Jul, which prompted Beijing to retaliate with its own levies on U.S goods.  The US & China are the world's largest economies, respectively.  The US had a $375B trade deficit with China last year.  The new round of tariffs, Ross said, are intended to get China to change its behavior.  “We have to create a situation where its more painful for them to continue their bad practices than it is to reform them,” Ross added.  US companies have raised concerns over trade tensions potentially trickling down to consumers, but Ross said, if imposed, it wouldn't be “cataclysmic.”

Trump will stop China’s ‘bad’ behavior: Wilbur Ross

Stocks were lower as concerns about the Trump administration's proposal to tack on a 25% tariff on $200B  worth of Chinese imports continues to hang over the markets.  The day ahead will also include a full plate of earnings reports & economic data.  This will be another busy day for corp earnings.  So far, this has been a stellar earnings season.  According to data from Thomson Reuters, companies, on average, experienced 22.7% growth in earnings, with energy sector companies leading the way with 123% growth.  Economic data released pre-bell included jobless claims.  Weekly jobless claims increased by 1K to 218K in the latest week.  The weekly jobless claims report comes ahead of tomorrow's highly anticipated monthly reading on the US employment sector.  After the market open, data on factory orders was released. In Jun, they rose by 0.7%.  Increased tariff concerns sent Asian stocks lower today with the Shanghai Composite index down 2.5%, Hong Kong's Hang Seng finished down 2.2% while Japan's Nikkei ended the day down 1.03%.  Commodities were mostly lower.

Stocks slip as trade tensions overshadow solid earnings season

China is not taking the US' latest tariff threat lightly & vows to hit back if the US moves forward."China is fully prepared and will have to retaliate to defend the nation's dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries," the Chinese Ministry of Commerce said.  "The carrot and stick tactic won't work.The ministry's remarks came after Pres Trump instructed Trade Representative Robert Lighthizer to consider raising proposed tariffs on $200B in Chinese goods to 25% from 10%.  Trade tensions between the US & China, the world's 2 largest economies, have been ratcheting up. The US has already imposed tariffs on $34B in Chinese imports, which were met with retaliatory charges by China. "The Trump Administration continues to urge China to stop its unfair practices, open its market, and engage in true market competition. We have been very clear about the specific changes China should undertake," Lighthizer said yesterday.  "Regrettably, instead of changing its harmful behavior, China has illegally retaliated against U.S. workers, farmers, ranchers and businesses."  Worries around trade have kept investors on edge as they try to assess what will be the impact of a global trade war on capital markets and the global economy.

New orders for US-made goods rose for a 2nd straight month in Jun, but business spending plans on equipment were not as strong as initially thought, suggesting a further slowdown was likely in Q3.  Factory goods orders increased 0.7%, boosted by strong demand for transportation equipment, electrical equipment, appliances & components as well as computers & electronic products, the Commerce Dept said.  Factory orders increased by an unrevised 0.4% in May.  June's rise in factory orders was in line with expectations.  Orders increased 8.0% on a year-on-year basis in Jun.  But there are signs that manufacturing, which accounts for about 12% of the US economy, is starting to slow as rising shortages of workers & import tariffs put pressure on the supply chain.  An Institute for Supply Management survey of manufacturers published yesterday showed a decline in production in Jul, with nearly all industries saying workers were scarce & that raw material prices had gone up because of tariffs on steel, aluminum & other imported products.  The Trump administration has imposed duties on steel & aluminum imports, provoking retaliation by trade partners including Canada, Mexico, China & the EU.  It has also slapped 25% tariffs on $34B of Chinese imports.  Beijing retaliated with matching tariffs on the same amount of US exports to China.In Jun, orders for transportation equipment increased 2.1%, boosted by a 4.2% jump in the volatile orders for civilian aircraft.  Transportation orders fell 1.3% in May.  Orders for motor vehicles rose 0.9% in Jun & orders for machinery were unchanged in Jun.  There were decreases in orders for primary metals & fabricated metal products.  The Commerce Dept also said Jun orders for non-defense capital goods excluding aircraft, which are seen as a measure of business spending plans, rose 0.2% instead of increasing 0.6% as reported last month.  Orders for these core capital goods climbed 0.7% in May.

Factory orders rise for second straight month

Earnings season is largely over & they generally received positive reviews.  Now there is more time to pay attention to trade issues & prospects for a quick resolution to solve those problems looks dismal.  But the Dow is staying close to its highs since the selloff in late Jan, a positive sign for the bulls.  However magic is needed for progress on the trade front, something stocks need to extend the latest rally.

Dow Jones Industrials

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