Thursday, August 23, 2018

Markets slide lower on US-China trade worries

Dow dropped 76, decliners over advancers 2-1 & NAZ gave back 10.  The MLP index fell 1+ to the 288s & the REIT index lost 2 to the 359s.  Junk bond funds fluctuated & Treasuries were little changed in price.  Oil was off pennies following recent strength (more below) & gold declined a very big 11 to 1191.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Sales of new US single-family homes unexpectedly fell in Jul to a 9-month low in a sign the housing market was cooling & could give less support to the overall economy.  The Commerce Dept said new home sales decreased 1.7% to a seasonally adjusted annual rate of 627K units last month, the lowest level since Oct 2017.  The Jun sales pace was revised up to 638K units from the previously reported 631K units.  The forecast new home sales, which account for about 10% of housing market sales, called for rising to a pace of 645K units in Jul.  New home sales are drawn from permits & tend to be volatile on a month-to-month basis.  They increased 12.8% from a year ago.  Housing market data has weakened in recent months, with home resales declining in Jul for a 4th straight month.  The sector has been plagued by rising building material costs & shortages of land & labor, which have put a squeeze on the supply of houses available for sale & kept house prices elevated.  Though the moderation in housing is largely driven by supply constraints, there are concerns that persistent weakness will eventually spill over to the broader economy.  The housing market has underperformed the economy so far this year.  New home sales in the South, which accounts for the bulk of transactions, declined 3.3% in Jul.  Sales rose 10.9% in the West & 9.9% in the Midwest.  They tumbled 52.3% in the Northeast to their lowest level since Sep 2015.  The median new house price rose 6.0% to $328K in Jul from Jun.  There were 309K new homes on the market in Jul, the most since Mar 2009 & up 2.0% from last Jun.

New home sales fall to 9-month low

Sears (SHLD) said this week it is shuttering 46 more stores in Nov.  The locations are spread across the US.  "We continue to evaluate our network of stores, which is a critical component to our integrated retail transformation, and will make further adjustments as needed," the company said.  Liquidation sales at the 33 Sears stores & 13 Kmarts are expected to begin next week.  The company also said that eligible workers will receive severance & be able to apply for openings at other nearby stores.  SHLD said in Jan it was planning to shut more than 100 stores.  It then announced another round of roughly 100 store closures in May.  The retailer was operating 894 stores as of May 5 (the latest available total provided by the company).  With CEO Eddie Lampert at the helm, SHLD has been trimming its real estate footprint as sales dwindle at its stores & shoppers increasingly opt to ring up purchases online or outside of shopping malls.  SHLD is currently evaluating a bid from Lampert's hedge fund, ESL Investments, to buy the Kenmore appliance brand for $400M.  The company had previously sold its Craftsman tool brand.  SHLD is still testing new concepts, like stand-alone mattress stores & combined Sears & Kmart locations, but retail analysts say it will be hard for the company to bounce back from its dire situation.  The stock fell 7¢ to 1.11 (record low).
If you would like to learn more about SHLD, click on this link:

Sears is closing 46 more stores — here's where they are

Saudi Arabia denied reports that the kingdom has scrapped plans to list shares of state-owned energy giant Aramco on stock exchanges.  Khalid al-Falih, the Saudi minister of Energy, Industry & Mineral Resources & chairman of Saudi Aramco, said: "The Government remains committed to the IPO of Saudi Aramco at a time of its own choosing when conditions are optimum."  "This timing will depend on multiple factors, including favorable market conditions, and a downstream acquisition which the Company will pursue in the next few months," al-Falih said.  His comments follow reports that the listing of Saudi Aramco may be canceled.  Subsequent to those reports said that "the kingdom's powerful crown prince still wants to take Aramco public at some point in the future."  The IPO is now less urgent because oil prices have rebounded above $70 a barrel, relieving pressure on Saudi finances, sources have said.  The IPO would be the largest ever & lies at the center of Crown Prince Mohammed bin Salman's ambitious plan to overhaul the Saudi economy.  The Saudis hope to attract a $2T valuation for Aramco, the world's largest oil company, though some outside analysts have pegged its value at ½ that amount.  Crown Prince Mohammed first made the plans public in Jan 2016, when he was still the kingdom's deputy crown prince.  The plan emerged during the depths of a crushing oil price downturn that sent crude futures from more than $100 a barrel to less than $30.  The rout pushed Saudi Arabia's budget into a deficit & ultimately forced the kingdom to coordinate production cuts among about 2 dozen oil-producing nations.  "The company, for its part, has completed its internal program for IPO preparedness," al-Falih said today, adding that bylaws had been amended & the state oil giant has been converted to a joint stock company as Aramco tries to ensure that its internal financial reporting aligns with potential listing venue requirements.  "This is all positive progress on what is a complex process, preparing the company and the Kingdom for what will ultimately be a global landmark market offering of unprecedented quality and scale," the statement said.

Saudi Arabia denies reports that it's scrapping Aramco IPO

Dallas Federal Reserve Pres Robert Kaplan became the 2nd central bank figure today to state the central bank's independence.  Kaplan said the Fed would make its decisions on interest rates regardless of pressure from the political end, in response to a question about recent statements from Pres Trump.  Trump has been critical of the Fed, saying he's "not thrilled" it continues to raise interest rates.  "Our job at the Fed is to make decisions on monetary policy and supervision without regard to political considerations or political influence, and I'm confident we'll continue to do that," Kaplan said.  Earlier in the day, Kansas City Fed Pres Esther George, while also declining to take on the president directly, also stressed the Fed's independence & added it wouldn't be swayed by any pressure from the White House.  Both officials spoke from the Fed's annual retreat in Jackson Hole, Wyoming.  The Fed has hiked its benchmark rate 5 times since Trump took office, including twice in 2018.  Officials have indicated that 2 more increases are coming before the end of the year & perhaps 3 more in 2019.  Kaplan said he remains fairly upbeat about the economy.  Like other Fed officials, he expects GDP to grow close to 3% this year, though he warned that won't last.  The growth now, he said, is being pushed by fiscal stimulus like tax cuts & spending that will wear off.  "The only caution I'd give is in '19 some of that stimulus will fade," he said.  "It will fade further in 2020, so we expect economic growth is going to tail off somewhat down to what we call potential."  That would imply 1.75-2% for the longer run.

Fed's Kaplan: We'll continue to do our job 'without regard to political considerations'

Oil prices stepped back to snap a 5-session climb, a day after scoring their highest level in about 2 weeks amid by signs of tightening US crude inventories.  West Texas Intermediate crude for Oct delivery, the US benchmark, edged down 3¢ to settle at $67.83 a barrel.  It had climbed 3.1% yesterday to settle at the highest level since Aug 7 & booked 5 consecutive sessions in the green.  Oct Brent crude, the global benchmark, slipped by a nickel to $74.73 a barrel on the ICE Futures Europe exchange, following yesterday's finish at the highest since Jul 30, also posting gains in each of the last 5 sessions.  Yesterday, the Energy Information Administration reported that domestic crude supplies fell 5.8M barrels for the latest week.  Analysts had forecast a fall of about 3.4M barrels.  US sanctions against Iran have also contributed to the climb in oil prices.  Traders have been eyeing the health of Turkey's economy, an important conduit for crude in the Middle East & a country where the US has imposed sanctions.

U.S. oil prices step back from 2-week peak but tighter supplies remain an issue

While markets were lower today, the popular averages remain close to their record highs.  In this vacation kind of week, a lot is not expected in the stock market although there has been plenty of drama coming from DC.  And that influences the stock market.  Trade talks lumber along but meaningful action will probably have to wait until after Labor Day.  The Dow continues 1K below the Jan record high.

Dow Jones Industrials

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