Wednesday, August 1, 2018

Mixed markets on US-China trade worries

Dow rose 52, but decliners over advancers 3-2 & NAZ gained 54. The MLP index added 1+ to 281 & the REIT index was off 1+ to the 352s.  Junk bond funds fluctuated & Treasuries were sold, taking the yield on the 10 year Treasury up to 3%.  Oil slid to the 67s & gold remained weak, dropping 6 to 1227.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil67.75

GC=FGold  1,228.10

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Stocks were range bound, amid reports that the Trump administration is considering putting a 25% tariff on $200B worth of imported Chinese goods.  This comes after initially setting the tariffs at 10% in a bid to pressure Beijing into making trade concessions.  An announcement could come as early as today.  Meanwhile, investors will be watching the Federal Reserve, which concludes its 2-day policy meeting later today.  It is widely expected that the central bank will keep interest rates unchanged.  This was another busy day for earnings, while economic data included the ADP's report on private-sector hiring.  According to the survey, 219K private-sector jobs were created in Jul, above the 185K estimate.  The Markit US Manufacturing Sector Final PMI for Jul came in at 55.3 in Jul versus the 55.5 flash reading.  Meanwhile, the yield on the 10-year Treasury touched 3% for the first time in 7 weeks.  Commodities were mixed but oil slipped, pressured by signs of rising production.

Stocks flat as trade tensions return

US businesses added 219K jobs in Jul, a private survey found, a robust total that suggests employers are still able to find the workers they need despite the low unemployment rate.  Payroll processor ADP said that hiring was led by health care providers, hotels & restaurants, & manufacturers.  The Jul figure was up from 181K in June & is enough to lower the already-low jobless rate of 4%.  Last month's job gain comes as the economic expansion enters its 10th year, the 2nd-longest in US history.  Tax cuts & greater government spending are accelerating growth.  Mark Zandi, chief economist at Moody's Analytics, which compiles the ADP data, said there were signs that tariffs imposed by the US & other countries have led to job cuts at large multinational firms.

US companies add healthy 219,000 jobs in July: ADP

Factory growth stuttered across the world in Jul, heightening concerns about the global economic outlook as an intensifying trade conflict between the US & China sent shudders thru trading partners.  Global economic activity remains solid, but it has already passed its peak. Protectionist policies on trade are expected & tey show no signs of abating.  But slowing growth, wilting confidence & trade war fears are not likely to deter major central banks moving away from their ultra-loose monetary policies put in place during the last financial crisis.  Last month, China & the US imposed tit-for-tat tariffs on $34B of each other's goods & another round of tariffs on $16B is expected in Aug.  Pres Trump's administration is poised to propose 25% tariffs on a further $200B of imports, up from an initial proposal of 10%.  Its threat of tariffs on the entire $500B or so worth of goods imported from China still stands.  Beijing has pledged equal retaliation, although it only imports about $130B of US goods.  World stocks fell & the $ strengthened today on fears of an imminent escalation in the US-China tariff war.  Despite lethargic expansion rates, the ECB last week reaffirmed plans to end its €2.6T stimulus program this year & the Bank of England is widely expected to raise borrowing costs tomorrow.  Yesterday, the Bank of Japan pledged to keep its massive stimulus in place but made tweaks to reduce the adverse effects of its policies on markets & commercial banks as inflation remains stubbornly out of reach.  China has been cutting bank reserve requirements to ease the pain of its campaign to de-risk the financial system for smaller companies & support growth.  It is also planning more spending on infrastructure to cushion the impact of trade tensions.  Nevertheless, any fiscal & monetary measures would take time to filter thru.  In the US, growth is expected to cool slightly, but remain strong enough for the Federal Reserve to stay on track for 2 rate hikes this year, even if it is likely to hold rates steady this week.  European factory growth remained subdued in Jul, with scant sign of a pick up anytime soon.  Manufacturers across Asia provided evidence of a loss of momentum across the region.

Global factory growth slowing; China-US trade war biting

US construction spending recorded its biggest drop in more than a year in Jun as investment in both private & public projects fell, but spending for the prior months was revised sharply higher.  The Commerce Dept said that construction spending fell 1.1%, the largest decline since Apr 2017.  Data for May was revised up to show construction outlays rising 1.3% instead of the previously reported 0.4% gain & Apr outlays were also revised up to show them increasing 1.7% instead of 0.9%.  The forecast that construction spending called for an advance of 0.3% in Jun.  Construction spending accelerated 6.1% on a year-on-year basis.  Spending on private residential projects fell 0.5% in Jun following a 1.3% increase in May.  Homebuilding has been slowing, with builders citing rising material costs as well as persistent land & labor shortages.  Residential investment contracted in H1.  Spending on private nonresidential structures slipped 0.3% in Jun after gaining 0.2%  in the prior month.  Overall, outlays on private construction projects fell 0.4% after increasing 0.9% in May.  Investment in public construction projects tumbled 3.5%, the biggest drop in 5 years, after surging 3.0% in May.   Spending on federal gov construction projects declined 3.1%.  That followed a 0.9% increase in May.  State & local gov construction outlays plunged 3.5%, also the largest drop in 5 years, after jumping 3.1% in the prior month.

Construction spending posts biggest drop in over a year; factory activity slips in July

Apple (AAPL), a Dow & NAZ stock, shot 10+ to go over 200 on an excellent earnings report.  As a result, the Dow & NAZ are higher.  However market breadth is negative on worries about the future of trade between the US & China.  The Fed meeting later will be a non-event.  Economic data being reported later this week should be good, but trade issues are the major concern for the stock market.  And that has the potential to get much uglier.  

Dow Jones Industrials

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