Tuesday, August 28, 2018

Mixed markets after consumer confidence data

Dow went up 32, decliners over advancers 5-4 & NAZ added 10.  The MLP index fell 1+ to the 286s & the REIT index was fractionally lower to the 359s.  Junk bond funds inched higher & Treasuries were sold again.  Oil was off pennies in the 68s & gold lost 1, sliding to 1215.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil68.84
-0.03  -0.0%

GC=F  Gold1,219.00
+3.00  +0.3%

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Stocks rose, with the optimism of a preliminary trade deal between Mexico & the US continuing to support gains, even after yesterday's rally.  While Mexico & the US came to a preliminary deal, Canada remains absent.  Commerce Secretary Wilbur Ross said that this "deal is pretty well put together with Mexico... So the president, as he’s indicated, is fully prepared to go ahead with or without Canada.”  Economic data released today included the latest Case-Shiller home prices, which showed home price growth slowed further in Jul.  Commodities were mostly higher, with oil futures climbing ahead of the Energy Information Administration's weekly inventory update, due tomorrow.  Yesterday's gains follow a strong day for the markets, with the Dow jumping by triple digits, rising 259 (1.01%) to 26,049.  The broader S&P 500 & tech-heavy NAZ set fresh record highs.  The S&P gained 22, closing at 2896 & the NAZ was up 71 (0.9%) at 8017.

Stocks continue climb as trade optimism turns from Mexico to Canada

If the US is unable to strike a trade deal with Canada to include it in the replacement of the North American Free Trade Agreement, Pres Trump may consider imposing another round of tariffs on automobile imports, according to the director of the National Economic Council.  “The president wants to make a constructive deal that’s great for the United States and Canada, but if not, he has said with great clarity we may be forced to go automobile tariffs, Canadian automobile import tariffs,” Larry Kudlow said.  Yesterday, the US & Mexico negotiated a new pact to replace NAFTA, snubbing Canada in the process.  The pres also suggested he might leave Canada out of the new agreement -- which would be called the “United States-Mexico Trade Agreement.”  Canada is the 2nd-biggest trading partner of the US.  Kudlow declined to comment on whether the US & Canada could reach an agreement during renewed talks this week.  Canada's auto industry is the 9th-largest in the world & 4th-largest exporter by value, producing 2.4M vehicles annually & exporting $48.8B worth of vehicles in 2016.  “Canadians really need to look at what the U.S. and Mexico just completed as an example of what can be done if there’s good faith negotiating and a willingness to compromise in the interest of both parties,” Kudlow said.  “That’s what negotiation is supposed to be, not just hardline.”  Canada has not been part of the most recent discussions.  Prime Minister Trudeau previously said one of the sticking points is the inclusion of a 5-year sunset clause, which would limit the lifespan of the agreement.  Trump's insistence of including that in the trade pact drew swift rebuke from Canada & Mexico.  But Mexico's incoming trade negotiator said  that the US had softened its stance on the  sunset clause.  “It's going to come out,” Jesus Seade, designated chief negotiator of Mexico's next gov, said.  “It's no longer what the United States was putting first in any way.”  The decades-old trilateral trade agreement has been a frequent target of Trump, who has criticized large trade deficits the US has with Mexico & Canada, as well as the relocation of American jobs & companies.  US goods & services trade with Canada totaled an estimated $545B  in 2016, with a trade surplus of $11.2B.

Kudlow says Trump will force Canada’s hand on trade, here’s how

Treasury Secretary Steve Mnuchin said he's hopeful a revamped trade deal will get done soon with Canada — but if not the US is ready to go forward with one it already has negotiated with Mexico, the 3rd partner in the NAFTA bloc.  "This is a great move forward for trade," Mnuchin said, a day after the White House announced that it had reached an agreement with Mexico that essentially would rewrite the trilateral trade pact ratified in 1994.  Renegotiating NAFTA has been a top priority for Pres Trump, who has often complained about terms he views unfair to the US in the agreement as well as many others around the world.  The pres said the Mexico deal, which focuses on autos but includes multiple other provisions, essentially scraps NAFTA.  The next step is to negotiate better terms with Canada, something Mnuchin said he believes will happen.  "I think our objective is to try to get Canada on board quickly," he said.  "This is a great deal for American workers. If you remember one thing, this deal is about more trade for U.S. companies and goods and services, and that's what we're focused on."  Once the Canada negotiations are wrapped up, the administration will move onto its next 2 trade priorities: the EU & China.  Trump has bemoaned the large US trade deficit, particularly with China, & has accused it of manipulating its currency for trade advantage.  "We've been very clear. We need better market access to China, we need reciprocal trade," Mnuchin said.  "These are issues that our allies in the G-7 agree with us on."  The new deal with Mexico lasts 16 years & adjusts provisions regarding the digital economy, autos, agriculture & unions.  It keeps steel & aluminum tariffs on Mexican imports in place & allows for continued imports of light vehicles from Mexico.

Mnuchin hopeful a trade deal with Canada will get done, but prepared to 'move forward with Mexico'

Consumer confidence rose in Aug to its highest level since 2000, building on Jul's solid result.  The Conference Board's index rose to 133.4 in Aug, despite expectations from a survey that it would fall to 126.7.  The measure rose slightly last month to 127.4, up from 127.1 in Jun as consumers reported better feelings toward the economy in the near-term but less optimism about long-term growth.  "Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018," Lynn Franco, director of economic indicators at The Conference Board, said.  Aug saw that optimism increase among consumers, the Conference Board found, with the percentage of consumers expecting business conditions will get better over the next 6 months increasing to 24.3% from 22.9%.  "These historically high confidence levels should continue to support healthy consumer spending in the near-term," Franco added.  The survey measures American's sentiment on current economic conditions & prospects for the next 6 months, including business & labor market conditions.  Since consumer spending accounts for about 70% of US economic activity, close attention is paid to the number.

Consumer confidence pops in August to highest level since October 2000

Today is may be a pause day after yerterday's rally.  The bulls are feeling good with consumer & economic data supporting their views.  Most popular stock averages are at record levels, with the Dow recovering to just 2% below its record earlier this year.

Dow Jones Industrials

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