Wednesday, August 8, 2018

Markets slide lower after China announces new tariffs on US goods

Dow fell 45, decliners modestly ahead of advancers & NAZ added 4.  The MLP index rose 3+ to the 288s & the REIT index was slightly lower to the 357s.  Junk bond funds fluctuated & Treasuries hardly budged in price.  Oil dropped 2+ to the 66s, a 7 week low, (more below) & gold crawled up 3 to 1221.

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The US in the next 5 years will become an energy exporting powerhouse, rivaling Saudi Arabia in oil exports & growing into one of the world's largest gas exporters, regardless of its trade spat with China.  China slapped tariffs on a range of oil products, liquid petroleum gas & coal, as well as threatened to tax US liquified natural gas, a stinging rebuke since US officials had pushed burgeoning US energy exports as a way for China to trim its huge trade surplus.  China this year imported 20% of America's still small but growing crude oil exports, which totaled 1.76M barrels a day thru Jun while it bought 0.4B cubic feet a day of the 2.77 bcf/d liquefied natural gas, exported by the US this year.  Crude oil futures fell sharply today amid concerns that Chinese demand for oil imports is slowing after the latest import data & as it slapped a new round of tariffs on US products.  While its crude imports recovered slightly in Jul, imports had fallen in the previous 2 months & the Jul numbers were still among the lowest this year after a drop-off in demand by China's smaller independent refineries.  West Texas Intermediate futures lost 3.8% to $66.50 per barrel.  Chinese imports of crude for Jul were up slightly from Jun at about 8.48M bpd, up from 8.18M bpd a year ago & June's 8.36M bpd, according to data from the General Administration of Customs.  China did not explicitly cite crude oil in its latest list of tariffs on $16B in goods, released yesterday, but it listed a whole range of refined products & fuels, heavy oils & petrochemical products.

China slams oil prices but tariff war can't stop U.S. boom in oil and gas exports

The New York Times (NYT) reported a better-than-expected quarterly profit but the company added fewer paid digital subscribers, sending its shares down.  The company added 109K paid digital subscribers in Q2, compared with 114K a year earlier, when it offered heavy discounts for annual subscriptions.  Digital advertising revenue, which accounts for more than 1/3 of the company's total advertising revenue, fell 7.5% to $51M, hurt by a fall in display advertising.  "This was a subdued quarter for digital advertising as we predicted, but we remain confident that we will return to strong year-over-year growth in the third quarter," CEO Mark Thompson said.  EPS attributable jumped to 14¢ in the qtr.  Excluding items, the company had EPS of 17¢, above the estimate for 15¢.  Revenue rose to $414.6M from $407.1M & above the estimate for $412.3M.  The stock fell 1.60.
If you would like to learn more about NYT, click on this link:

New York Times shares drop 5% after digital subscriber growth slows

China's exports to the US surged last month as its merchants rushed to fill orders ahead of a jump in US tariffs on Chinese goods.  Its shipments climbed 13% in Jul from a year earlier, to $41.5B, after a roughly similar rise in Jun, customs data show.  At the same time, Beijing's trade surplus with the US, a frequent source of anger & threats from Pres Trump, grew 11% to $28B.  Chinese exporters appear to be trying to ship their goods to the US before tariffs that Trump is imposing in a fight over technology policy take full effect.  The trade war between the world's 2 biggest economies has forced many multinational companies to reschedule purchases & rethink where they buy materials & parts to try to dodge or blunt the effects of tit-for-tat tariffs between DC & Beijing.  Beijing has warned that its exporters face "rising instabilities" after DC slapped 25% duties on $34B of Chinese goods last month in response to complaints that China steals or pressures foreign companies to hand over technology.  Beijing has retaliated against the US tariffs with higher duties on a similar number of American goods.  Yesterday, the Trump administration announced that it would proceed with previously announced 25% tariffs on an additional $16B of Chinese imports starting Aug 23.  Today, China hit back by saying it would impose identical 25% punitive duties on $16B of US goods, including cars, crude oil & scrap metal, also to take effect Aug 23.  A Commerce Ministry statement labeled Trump's decision to go ahead with the latest US tariffs "very unreasonable."  Beijing's retaliatory move was a "necessary response" to "safeguard its legitimate interests," the ministry said.  Escalating its tensions with Beijing, the Trump administration has also threatened to impose penalties on an additional $200B in Chinese exports to the US.  Beijing is ready to retaliate against $60B of American imports. (Beijing cannot tax an equal number of US products, because the US exports far fewer goods to China than it imports.)  Tariffs are taxes on imports, meant to protect homegrown businesses & put foreign competitors at a disadvantage.  But the taxes also exact a price on domestic businesses & consumers who buy imports & end up paying more for them.  In Jul, China's global exports surged 12%, even faster than an 11% increase in Jun.  At the same time, overall imports to China jumped 27% last month.  Exports to the rest of the world might have been boosted by a weaker Chinese currency.  The yuan has declined by 8% this year against the $ & by about 4% against a basket of global currencies.  A weakening currency makes a nation's goods more affordable for overseas buyers.  China's trade conflict with the US, coupled with weakening global demand, has compounded the challenges for Beijing.  Economic growth has slowed since regulators tightened controls on bank lending to rein in surging debt.  China's global trade surplus narrowed by 40% from a year earlier to $28B.  In the meantime, its trade gap with the 28-nation EU contracted 8% to $11.2B.  China is running out of American goods to hit with retaliatory tariffs given the 2 nations' lopsided trade balance.  Last year's imports from the US totaled about $130B.  That leaves only about $20B for penalty tariffs after increases that have already been imposed or threatened on US goods are counted.  Beijing has stepped up efforts, so far without success, to recruit govs including Germany & France as allies.  Those nations have criticized Trump's tactics, but they share US complaints about Chinese industrial policy & market barriers.

China exports accelerated in July despite rise in US tariffs

The Dow began the day lower, but buying in the PM brought it back to roughly breakeven.  Then in the last ½ hour there was selling into the close bringing the Dow back into the red.  Trade wars between the China & US are heating up, making business execs very nervous.  Even if current business data looks good, there are doubts it might come from stocking up before new tariffs hit soon.  After its decline earlier this year, the Dow is back to where it was in early Jan.

Dow Jones Industrials

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