Friday, August 3, 2018

Markets edge higher after jobs data and growing trade worries

Dow rose 76, advancers over decliners 3-2 & NAZ went up 13.  The MLP index was off 1 to the 285s & the REIT index added 1+ to the 356s.  Junk bond funds dipped lower & Treasuries were higher although the 10 year Treasury is only 2.97%.  Oil slid lower in the 68s & gold rebounded all of 5 to 1227 in a heavily oversold market.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil68.71
 -0.25 -0.4%

GC=FGold  1,224.90
 +4.80 +0.4%

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The US economy added 157K jobs in Jul, below analyst expectations for 190K jobs to be added in the month, while the unemployment rate decreased month over month & wage growth met expectations.  The unemployment rate came in at 3.9%, matching expectations & below Jun's 4%.  In May, the unemployment rate hit an 18-year low of 3.8%.  The 3.9% unemployment rate suggests workers are in short supply.  Wages increased by 0.26%, in line with the 0.3% month-over-month forecast.  The monthly wage growth put the annual reading at 2.7%, also meeting the forecast.  The gov upwardly revised Jun jobs additions to 248K from the prior 213K.  Jul job additions were propelled by the private sector, which added 170K jobs.  Government employment shrank, with 13K jobs lost, almost erasing the 14K added in Jun.

Jobless rate falls in July to 3.9%, but employment growth disappoints

Economic growth will tame America's unruly budget deficit, according to Treasury Dept Assistant Secretary for Public Affairs Tony Sayegh.  “We inherited a huge deficit, a huge debt,” Sayegh said.  “We want to grow the economy because that’s the only way you’re going to solve it.”  Since Pres Trump took office the administration has zeroed in on promoting pro-growth policies.  The economy is growing at a rate above predictions & unemployment fell at a rate it has not seen in decades, according to the White House.  The Commerce Dept announced in Jul that Q2 growth advanced by 4.1% & Q1 GDP was revised up to 2.2% from 2%.  The average annual growth rate has been 2.8% over the past 4 qtrs & is now on track for 3.1% growth in 2018, a level that has been met with skepticism by some economists.  “When you grow the economy you’re creating-- as John Kennedy and Jack Kemp used to say -- the rising tide that lifts all boats, that generates not only trillions of dollars in revenue to the government but so much opportunity — higher wages, lower unemployment, better paychecks, more entrepreneurship and investment incentives to the economy. This is why growth is so important,” Sayegh added.  However, some US businesses have raised concerns over some of the administration's policies, such as the steel & aluminum tariffs, wreaking havoc on their ability to manage skyrocketing costs.  Sayegh admitted that some parts of the micro-economy will be unfairly targeted during this time, but the tariffs will ultimately benefit the entire country & many sectors in the economy.  “Sadly there will be some short-term pain,” he said, “but the broader picture is opening up the export markets in a fair and reciprocal way so all of these American companies have an opportunity to participate fairly there.”

White House banking on economic growth to pay for ballooning deficit

China is preparing to retaliate in the escalating trade war with tariffs on about $60B worth of U.S. goods.  The import taxes would range in rates from 5-25%, China's Ministry of Commerce said on its website.  There are 4 lists of goods, one for each of the rates proposed.  Many of the goods are agricultural-related, with others on various metals & chemicals.  "The implementation date of the taxation measures will be subject to the actions of the US, and China reserves the right to continue to introduce other countermeasures," China's release said.  "Any unilateral threat or blackmail will only lead to intensification of conflicts and damage to the interests of all parties."  China declared it will impose these new tariffs if the US places more tariffs on Chinese imports.  Pres Trump is considering the US raise proposed tariffs on $200B of Chinese goods to 25% from the 10% rate his administration is currently mulling, the administration announced Wed.  The White House is trying to use duties, among other tools, to push China to abandon alleged unfair practices & reach a potential new trade deal.  Trump aims to balance a desire to force Beijing to the negotiating table with efforts to avoid escalation in a potentially devastating trade war.China's Ministry of Finance also released a statement to the same effect.

China says it will retaliate with tariffs on $60 billion in US goods

Activity in the services sector slowed more than expected in Jul.  The Institute of Supply Management index fell to 55.7%, nearly 3 percentage points below an expected decline to 58.6% from 59.1% in Jun.  The majority of the 16 service industries which responded to the survey cited escalating trade tensions as a primary concern.  The tit-for-tat tariffs between the US & other global economic powers took a bite out of business activity despite positive sentiment on domestic conditions.  "Tariffs and deliveries are an ongoing concern," said Anthony Nieves, chair of the Institute of Supply Management.  "The majority of respondents remain positive about business conditions and the economy."  Despite the decline, a report above 50% marks the sector's 102nd month of expansion.  A reading above 50% indicates growth in the service sector while a reading below 50% signals contraction.  The measure tracks growth in the service industries, including construction, education, wholesale trade & transportation.

Services sector activity falls well-below expectations in July

Apple (AAPL), a Dow & NAZ stock, was fractionally lower after yesterday's excitement about topping $1T in market cap.  Now eyes are looking elsewhere.  The jobs report for Jul was mixed.  The big picture is that of a strong economy with low unemployment.  But the trade dispute between the US & China lingers on with no end in sight.  Today's later day trading should be influenced by evaluation of the jobs data & trade issues.

Dow Jones Industrials

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