Friday, September 7, 2018

Markets decline as Trump threatens more tariffs on Chinese trade

Dow was off 79, decliners over advancers 2-1 & NAZ lost another 20.  The MLP index fell 2+ to the 277s & the REIT index went up 1 to the 362s.  Junk bond funds drifted lower & Treasuries remained weak.  Oil slid back pennies in the 67s (more below) & gold dropped 2 to 1201.

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White House Economic Advisor Larry Kudlow said the dairy industry continues to hold up a trade deal with Canada.  “The word that continues to block the deal is M-I-L-K,” Kudlow said.  “Let go-- milk, dairy drop the barriers, give our farmers a break” he added.  US Trade Ambassador Lighthizer yesterday met with Canadian counterpart Foreign Affairs Minister Chrystia Freeland to grind out a deal that would allow Canada to remain on the North American trade bloc.  It is unlikely a deal will be reached today & the Canadians are set to return next week to resume talks.  Regardless, Kudlow stressed the US will hold out for the best possible terms of any deal.  “Ambassador Lighthizer, we met yesterday with the president and so forth. We’re all working hard and I think the United States would rather have a trade deal with Canada, but it has to be a good deal.”

Larry Kudlow: Dairy blocking trade deal with Canada

A stronger-than-expected Aug jobs report today reinforced Dallas Federal Reserve Pres Robert Kaplan's belief that there needs to be 3-4 interest rate hikes over the next 12 months to maintain steady economic growth.  “That tells me that over the next nine to 12 months, we ought to be raising the Fed fund rates probably at least three more times, maybe three to four times, to get to that neutral rate,” Kaplan said.  “Everything that’s in this job report today just causes me to reaffirm that view.”  The US economy added 201K jobs last month & the unemployment stayed at 3.9%, an 18-year low.  Wages also increased in Aug, with annual wage growth moving to 2.9% from Jul's 2.7%.  The wage number is consistent with a tight labor market, according to Kaplan, who welcomed the wage growth & said it was “probably consistent” with the Fed's economic outlook.  “I’ve been saying that I believe, in light of economic performance, we ought to be moving toward neutral, a rate at which we’re neither simulative or restrictive at the Fed, because we’re at or near full employment -- or past it -- we’re meeting our 2 percent inflation goal,” Kaplan said.  Policymakers at the central bank have already voted to hike the benchmark federal funds rate twice this year & are expected to do so twice more in 2018, bringing the yearly total to 4.  Officials previously indicated that 3 rate hikes would come this year.  But in the face of a strengthening US economy, investors have been watching closely to see whether the Fed would address any political developments, like a brewing trade war between the US & its major economic allies.  Policymakers have indicated a looming trade war could be a wildcard for the economy.  Although Kaplan agreed that headwinds from a tariff battle have cooled some businesses, more companies are taking a wait-&-see approach because of uncertainty surrounding trade -- he said that hasn't actually affected the overall economy yet.  “Trade tensions, at this point, are just something I'm watching carefully but at this point, I don’t think it should change our plans at the Fed,” he said.  The head of the Kansas City Federal Reserve Esther George suggested that the $20T US economy would not be affected if trade tensions did not surpass the $50B in actual & announced tariffs on Chinese goods (& the tariffs on imports from other countries).  But, she warned that uncertainty could stunt spending by businesses, & therefore slow economic growth.  The Fed's next scheduled meeting is set for late Sep, when it’s expected to raise rates again & issue an outlook for proposed rate hikes over the next coming years.

‘Strong’ jobs report reinforces future rate hikes: Dallas Fed’s Kaplan

German factory production slipped unexpectedly in Jul for the 2nd month in a row but economists say there's no reason to panic yet about Europe's biggest economy.  The Economy Ministry reported that industrial production dropped 1.1% in Jul over Jun, falling across all sectors except construction.  That followed a 0.7% drop in Jun over May.  The ministry reported that factory orders had also dropped 0.9% in Jul, suggesting future declines in production as well.  However experts say there was no need to panic because the figures are traditionally volatile.

German factory production drops 2nd month in a row in July

Pres Donald Trump told reporters on Air Force One that he was "ready to go" on tariffs for another $267B in Chinese goods "if he wants," which would come on top of the $200B in goods already targeted.  Already the administration was set to announce it would impose the tariffs on the $200B in goods, after threatening them in an ongoing & escalating dispute with China.  A public comment period on this set of tariffs expired yesterday in the US.  China's commerce ministry has said the country would retaliate if the US imposes new tariffs.  The world's 2 largest economies have already applied tariffs to $50B of each other's goods.  Talks aimed at easing tensions ended last month without major breakthroughs & DC appears emboldened by a sell-off in Chinese markets & a weakening economy.  Trump said Wed he was not prepared to make a deal with Chiina "that they'd like to make."  Still, he added, his administration will "continue to talk to China."  Trump's remarks sparked a 100-point drop in the Dow with the apparent escalation in the trade tensions with China.

Trump says he's ready to hit China with another $267 billion in tariffs

Oil prices fell for the 3rd straight session, weighed down by a strong $, weakness in the equity markets & Tropical Storm Gordon's smaller-than-expected impact on Gulf Coast oil production.  West Texas Intermediate (WTI) crude futures fell 2¢ to $67.75 per barrel.  For the week, WTI lost more than 3.5% & Brent fell 1.6%.  Oil prices had posted gains early in the week as the approach of Gordon forced the closure of Gulf of Mexico oil platforms & threatened refineries on the Gulf Coast.  The storm ultimately weakened & moved away from oil-producing areas & energy companies restarted operations shut-in as a precautionary measure.  The $ rose against a basket of other currencies after a report showed US job growth surged in Aug & that wages notched their largest annual increase in more than 9 years.  The jobs data raised concerns about the possibility of faster interest rate hikes, which in turn pressured equities markets.  The pan-European STOXX 600 had its worst weekly performance since the end of Mar, while emerging market stocks dropped 3.2%.  US oil prices were also still weighed down by disappointing inventory data from the Energy Information Administration (EIA) yesterday.  US crude inventories last week fell 4.3M barrels to 401M barrels, the lowest since Feb 2015, EIA data showed.  But that data was offset by a rise in refined product stocks coupled with relatively weak demand for fuel during this summer's US driving season, when consumption normally peaks.  Gasoline stocks rose 1.8M barrels, while distillate stockpiles climbed 3.1M barrels, the EIA added.

Oil falls with weaker equities, stronger dollar

Excitement about more tariffs quieted down in late day trading.  Maybe some traders went home early.  Tesla (TSLA), a darling for some, got clobbered again on more ugly reports.  It fell 18 & is off a massive 100+ in the last month.  But that hasn't hurt demand for other sexy tech stocks, at least so far.  After a bumpy start, the Dow fell 50 this week (month so far).  Let's see if Sep lives up to its reputation for being the worst month of the year. 

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