Monday, August 27, 2018

Markets leap ahead on US-Mexico trade talk optimism

Dow jumped up 191, advancers over decliners 2-1 & NAZ gained 66.  The MLP index lost 1+ to the 287s & the REIT index was up 2 to 360.  Junk bond funds crawled higher & Treasuries slid lower.  Oil was pennies higher in the 68s & gold added 5 to 1218.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil68.87
+0.15  +0.2%

GC=FGold  1,213.80
+0.50  +0.0%

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Stocks rose, boosted by optimism that the US & Mexico are closing in on a NAFTA deal.  The Dow jumped by triple digits while the NAZ & S&P set record highs.  Last week, US markets officially entered their longest bull market in history.  On Fri, Federal Reserve Chairman Jerome Powell affirmed that the central bank would continue a gradual pace of interest rate hikes.  While earnings season is essentially over, the last week of Aug will bring a full economic data calendar.  The Chicago Fed's national activity index declined slightly in Jul.  Later in the week, there will be reports on consumer confidence, home sales & personal income & spending.  Meanwhile, it is a busy week for vacations so it could be quiet in terms of trading volumes.  In company news, Tesla (TSLA) is in the spotlight after CEO Elon Musk said late Fri that TSLA would remain a private company.  This comes after Musk tweeted earlier this month that he was considering taking the company private.  Commodities were mostly lower, including oil futures.  OPEC will meet later this week.

US stock futures higher following record-setting run

TSLA shares fell after the company abandoned plans to go private.  The electric automaker will remain a public company after failing to convince investors.  Musk said that he made the decision to keep TSLA public based on feedback from shareholders, including institutional investors, who said they have internal rules limiting how much they can sink into a private company & the board agreed.  "Given the feedback I've received, it's apparent that most of Tesla's existing shareholders believe we are better off as a public company," Musk wrote in the statement.  Musk added that he worked with investment firms to consider all the options & he talked to investors, noting that his belief that there was more than enough funding to take the company private was reinforced during the process.  Musk tweeted on Aug 7 that he was considering taking TSLA private, adding that funding had been secured for the deal.  The tweet said TSLA would offer $420 per share, 23% above the Aug 6 closing price.  If all the shares were bought, the deal would be worth $72B.  Later, Musk said that he expected only 1/3 of stakeholders to agree to the buyout.  The tweet brought an inquiry from the SEC, which is reportedly looking into whether he was trying to manipulate the share price.  Short-sellers, who bet against a company's success, complained that Musk was trying to hurt them.  At least 2 lawsuits have been filed against TSLA on behalf of shareholders alleging Musk broke the law with his tweet.  On Fri, 6 members of the board wrote that the board has dissolved a 3-member committee set up to study any possible go-private transaction.  The stock is down 13+ to the 309s.
If you would like to learn more about TSLA, click on this link:

Tesla shares lower after company abandons plans to go private

A Mexican official said that trade talks with the US have wrapped up, adding that an announcement could come later in the day.  Officials were in DC trying to hammer out the details as the Trump administration pushes to remake the 1994 agreement between the US, Mexico & Canada.  There was some hope that a new NAFTA could be solidified before Mexico's gov turnover on Dec 1.  The comment from the Mexican official comes just a day after Mexican Economy Minister Ildefonso Guajardo said the 2 sides were likely "hours" away from reaching a deal.  " We've continued making progress," Guajardo told reporters.  Pres Trump later tweeted that a deal with Mexico was "looking good."  The official also said the US & Mexico have "reached understanding on key issues," adding that Canada will now "re-engage" in the negotiations.  Canada has remained on the sidelines of trade talks recently while the US aimed at first striking a deal with Mexico.  "Once the bilateral issues get resolved, Canada will be joining the talks to work on both bilateral issues and our trilateral issues," Chrystia Freeland, Canada's foreign minister, said on Fri.  "And will be happy to do that, once the bilateral US-Mexico issues have been resolved."  The White House said today: "We have no update at this time."

Mexican official says NAFTA talks with the US have 'concluded,' deal announcement coming

The US & China will continue their standoff in the ongoing trade war as there is just not "enough pain" yet for either side to back off, an expert said.  "I think we are in for a prolonged period of continuing escalating tensions," said Deborah Elms, the exec director at the Asian Trade Centre, which is based in Singapore.  One problem is that "both sides think they have the upper hand in this debate," Elms said.  Her comments came after the US & China slapped new tariffs on each other last Thurs & their 2 day meeting ended with no major breakthrough.  She said the situation is likely to worsen in the months ahead thru the US midterm elctions.  "I think we don't have enough pain in the system yet for either side to say, 'Okay, I declare that we've got to have a different approach right now.' That's the challenge," she added.  Market watchers are now keeping their eyes on another round of US tariffs on $200B worth of Chinese goods expected later this year.  As has been noted by analysts, China does not import enough US goods to be able to match the potential tariffs on a $-for-$ basis.  So, should the US keep increasing the number of goods on which it imposes duties, "something has to give," Elms said.  If "they can't continue to match the U.S., they'll have to do something else — it'll be on services, it'll be on retaliation against U.S. companies in China, it will be some other mechanism and they'll have to wait and see what that will be, but it will be something," she added.  US companies operating in China will have to be prepared for "a lot more scrutiny," she continued.

US-China trade war is poised to intensify: 'Both sides think they have the upper hand'

Even with light trading, the bulls have high hopes for a US-Mexico trade deal.  However other trade talks are still stumbling.  The biggest one is with China & that continues to be stuck in the mud.  The popular averages are at record highs with the Dow closing in on setting a new record (about 600 away).  Interesting that the TSLA news was ignored by the overall stock market.

Dow Jones Industrials

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