Dow pulled back 181 (finishing close to the lows), decliners over advancers 2-1 & NAZ added 6. The MLP index fell 2+ to the 275s & the REIT index slid lower to 357. Junk bond funds inched higher & Treasuries were off a tad. Oil shot up 1+ to go over 72 as Brent hit a 4 year high (more below) & gold added 2 to 1203
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
The Federal Reserve is set this week to raise interest rates for a 3rd time this year to prevent the economy from growing too fast. But with Pres Trump's trade fights posing a risk to the US economy, the Fed may soon be ready to slow its hikes. Many analysts expect the economy to weaken next year, in part from the effects of the conflicts Trump has pursued with China, Canada, Europe & other trading partners. The tariffs & counter-tariffs that have been imposed on imports & exports is having the effect of raising prices for key goods & supplies, potentially slowing growth. An economic slowdown would likely lead the Fed to throttle back on its rate increases to avoid stifling growth. In that scenario, it might raise rates only twice in 2019 & then retreat to the sidelines to see how the economy fares. Compounding the effects of the tariffs & retaliatory tariffs resulting from Trump's trade war, other factors could slow growth next year. The benefits of tax cuts that took effect this year, along with increased gov spending, for example, are widely expected to fade. Still, some analysts hold to a more optimistic scenario: That momentum already built up from the gov economic stimulus will keep strengthening the job market & lowering unemployment, at 3.9%, already near a 50-year low. A tight employment market, in this scenario, will accelerate wages & inflation & prod the Fed to keep tightening credit to ensure that the economy doesn't overheat. Any light the Fed might shed on those questions could come in the statement it will make after its latest policy meeting ends Wed, in updated economic & rate forecasts it will issue afterward. The modest rate increase that's widely expected reflects the continued strength of the US economy, now in its 10th year of expansion, the 2nd-longest such stretch on record. Most analysts also expect the Fed to signal that it plans to raise rates a 4th & final time this year, presumably in Dec. The Fed's rate increases typically lead to higher rates on some consumer & business loans. Should neither Powell nor the Fed itself clarify expectations for the months ahead, it could be because the policymakers are sharply divided & are coalescing into 2 familiar opposing groups — "hawks" & "doves." Doves focus on the Fed's mandate to maximize employment & worry less about inflation. Hawks tend to concern themselves more with the need to prevent high inflation. One Fed board member, Lael Brainard, a leading dove, earlier this month surprised some with a speech that emphasized her belief in the need for continued gradual rate hikes. This week's expected hike will be the Fed's 8th since 2015, when it began tightening credit after having kept its benchmark rate at a record low for 7 years beginning in 2008 at the height of the financial crisis.
On the eve of the Federal Reserve's Sep meeting, Europe's top central banker delivered a sharp reminder to markets that the world's central banks are moving away from easy policies. ECB Pres Mario Draghi said the "stable profile" of inflation "conceals a slowing contribution from the non-core components of the general index & a relatively vigorous pickup in underlying inflation." Draghi's inflation comment was viewed as hawkish, even though he repeated that the ECB does not intend to raise interest rates through next summer. The € rose, European stocks fell & European bond yields climbed, as traders took the comment to mean that inflation is stronger than expected, & that could mean rate hikes sooner. US Treasury yields temporarily moved higher with European rates, as the German 10-year bund yield reached 0.50%. ECB officials, Benoit Coeure & Peter Praet, said recently that the ECB will need to begin clarifying next year the likely path of interest rates, beyond the first hike. Draghi's comments come as markets have begun to price in a more hawkish Fed. Expectations in the futures market have only just recently priced in the 2 rate hikes forecast by the Fed for this year. Nearly 2 are priced in for next year, while the Fed has forecast 3.
With Fed set to raise rates again, other central banks sound ready to end the easy money, too
Brent crude breached $81 a barrel, its highest level in nearly 4 years — on the back of a tightening oil market & OPEC leaders signaling they won't be immediately boosting output. Global benchmark Brent crude rose as high as $81.39 a barrel, its strongest level since Nov 2014. The contract ended the session up $2.50 a barrel (3.2%) at $81.20, its best closing prices since Nov 11, 2014. Meanwhile, US West Texas Intermediate crude rose $1.30 (1.8%) to $72.08, its best settle since Jul 10. A meeting of OPEC & non-OPEC oil ministers in Algiers over the weekend concluded with the 15-nation cartel & its allies refraining from an urgent boost in output, despite Pres Trump's demands that it work harder to bring down prices. The ministers said they would increase output only in the event that customers wanted more cargoes. The Trump administration has been pressuring its allies to cut their Iranian oil imports down to zero since its decision to withdraw from the Iranian nuclear deal in May. South Korea has dropped its imports to nearly zero, but Japan & Turkey have had little marked decrease in theirs. India's imports from Iran in Aug were actually up 56% from the same month last year, due to large discounts offered by the Islamic Republic since the sanctions were announced. A number of Asian countries, major customers of Tehran, have asked for waivers from the restrictions. Iran's oil exports averaged 2.1M barrels per day (bpd) over the last year & analysts say sanctions will likely take 500K-1M bpd off the market. A group of about a dozen oil producers led by OPEC has aimed to keep 1.8M barrels a day off the market since Jan 2017 in order to drain a global glut of oil that caused a punishing downturn. In Jun, the participating countries agreed to restore some production after the group's output fell more than intended. OPEC & Russia have pledged to increase production to meet any shortfall created by an anticipated fall in Iranian crude oil production, but no official decision has been made yet.
Brent crude breaks $80, its highest since 2014, as oil market tightens
If anything gets more attention than higher tariffs, it's the goings on in DC. Chaos is in charge, with nobody really knowing what is going on. The Dow pulled back from its record high on Fri, but tech stocks did well so that the NAZ was able to eke out a small gain. This could be a wild week for stocks with the Fed meeting representing only a mild distraction.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
The US & China implemented another round of
tariffs on B$ worth of one another's goods,
which has the potential to raise US prices on some common consumer
items. The US targeted $200B worth of
items from China, at a rate of 10%. Beijing countered with
tariffs on $60B worth of goods, at rates of 5-10%. Among the US items expected to be
hardest hit are
printed circuit boards, desktop computers, computer parts & metal &
wooden furniture. In 2017, the US imported quantities of these items
from China ranging from $3B (wooden furniture) to $11.6B
(printed circuit boards). Also expected to be impacted meaningfully are auto parts, including tires & brakes. Vacuum
cleaners, of which more than $1.8B worth were imported into the
US last year, as well as light bulbs, could also take a hit. On the other
hand, certain technology items will be spared from the tax, including
smartwatches, smart objects & Bluetooth devices. That comes just weeks
after tech giant Apple (AAPL), a Dow & tech stock, unveiled its new product line, which includes an
updated smartwatch that has drummed up consumer interest. The iPhone,
iPad, iPod & Apple TV are included among the products that will not be
affected by the tax. As the Trump
administration escalated the ongoing trade conflict, gov
officials from Beijing accused the White House of engaging in
“trade bullyism” to intimidate other countries into submission. Last week, National Economic Director Larry Kudlow
suggested the pres was using tariffs as a negotiating tactic,
saying it was unclear how long the levies would remain in place. The pair of powerhouse economies have already implemented tariffs on $50B worth of one another’s exports.
These products will now cost more due to the US-China trade war
The Federal Reserve is set this week to raise interest rates for a 3rd time this year to prevent the economy from growing too fast. But with Pres Trump's trade fights posing a risk to the US economy, the Fed may soon be ready to slow its hikes. Many analysts expect the economy to weaken next year, in part from the effects of the conflicts Trump has pursued with China, Canada, Europe & other trading partners. The tariffs & counter-tariffs that have been imposed on imports & exports is having the effect of raising prices for key goods & supplies, potentially slowing growth. An economic slowdown would likely lead the Fed to throttle back on its rate increases to avoid stifling growth. In that scenario, it might raise rates only twice in 2019 & then retreat to the sidelines to see how the economy fares. Compounding the effects of the tariffs & retaliatory tariffs resulting from Trump's trade war, other factors could slow growth next year. The benefits of tax cuts that took effect this year, along with increased gov spending, for example, are widely expected to fade. Still, some analysts hold to a more optimistic scenario: That momentum already built up from the gov economic stimulus will keep strengthening the job market & lowering unemployment, at 3.9%, already near a 50-year low. A tight employment market, in this scenario, will accelerate wages & inflation & prod the Fed to keep tightening credit to ensure that the economy doesn't overheat. Any light the Fed might shed on those questions could come in the statement it will make after its latest policy meeting ends Wed, in updated economic & rate forecasts it will issue afterward. The modest rate increase that's widely expected reflects the continued strength of the US economy, now in its 10th year of expansion, the 2nd-longest such stretch on record. Most analysts also expect the Fed to signal that it plans to raise rates a 4th & final time this year, presumably in Dec. The Fed's rate increases typically lead to higher rates on some consumer & business loans. Should neither Powell nor the Fed itself clarify expectations for the months ahead, it could be because the policymakers are sharply divided & are coalescing into 2 familiar opposing groups — "hawks" & "doves." Doves focus on the Fed's mandate to maximize employment & worry less about inflation. Hawks tend to concern themselves more with the need to prevent high inflation. One Fed board member, Lael Brainard, a leading dove, earlier this month surprised some with a speech that emphasized her belief in the need for continued gradual rate hikes. This week's expected hike will be the Fed's 8th since 2015, when it began tightening credit after having kept its benchmark rate at a record low for 7 years beginning in 2008 at the height of the financial crisis.
Fed's 3rd hike this year expected despite rising trade risks
On the eve of the Federal Reserve's Sep meeting, Europe's top central banker delivered a sharp reminder to markets that the world's central banks are moving away from easy policies. ECB Pres Mario Draghi said the "stable profile" of inflation "conceals a slowing contribution from the non-core components of the general index & a relatively vigorous pickup in underlying inflation." Draghi's inflation comment was viewed as hawkish, even though he repeated that the ECB does not intend to raise interest rates through next summer. The € rose, European stocks fell & European bond yields climbed, as traders took the comment to mean that inflation is stronger than expected, & that could mean rate hikes sooner. US Treasury yields temporarily moved higher with European rates, as the German 10-year bund yield reached 0.50%. ECB officials, Benoit Coeure & Peter Praet, said recently that the ECB will need to begin clarifying next year the likely path of interest rates, beyond the first hike. Draghi's comments come as markets have begun to price in a more hawkish Fed. Expectations in the futures market have only just recently priced in the 2 rate hikes forecast by the Fed for this year. Nearly 2 are priced in for next year, while the Fed has forecast 3.
With Fed set to raise rates again, other central banks sound ready to end the easy money, too
Brent crude breached $81 a barrel, its highest level in nearly 4 years — on the back of a tightening oil market & OPEC leaders signaling they won't be immediately boosting output. Global benchmark Brent crude rose as high as $81.39 a barrel, its strongest level since Nov 2014. The contract ended the session up $2.50 a barrel (3.2%) at $81.20, its best closing prices since Nov 11, 2014. Meanwhile, US West Texas Intermediate crude rose $1.30 (1.8%) to $72.08, its best settle since Jul 10. A meeting of OPEC & non-OPEC oil ministers in Algiers over the weekend concluded with the 15-nation cartel & its allies refraining from an urgent boost in output, despite Pres Trump's demands that it work harder to bring down prices. The ministers said they would increase output only in the event that customers wanted more cargoes. The Trump administration has been pressuring its allies to cut their Iranian oil imports down to zero since its decision to withdraw from the Iranian nuclear deal in May. South Korea has dropped its imports to nearly zero, but Japan & Turkey have had little marked decrease in theirs. India's imports from Iran in Aug were actually up 56% from the same month last year, due to large discounts offered by the Islamic Republic since the sanctions were announced. A number of Asian countries, major customers of Tehran, have asked for waivers from the restrictions. Iran's oil exports averaged 2.1M barrels per day (bpd) over the last year & analysts say sanctions will likely take 500K-1M bpd off the market. A group of about a dozen oil producers led by OPEC has aimed to keep 1.8M barrels a day off the market since Jan 2017 in order to drain a global glut of oil that caused a punishing downturn. In Jun, the participating countries agreed to restore some production after the group's output fell more than intended. OPEC & Russia have pledged to increase production to meet any shortfall created by an anticipated fall in Iranian crude oil production, but no official decision has been made yet.
Brent crude breaks $80, its highest since 2014, as oil market tightens
If anything gets more attention than higher tariffs, it's the goings on in DC. Chaos is in charge, with nobody really knowing what is going on. The Dow pulled back from its record high on Fri, but tech stocks did well so that the NAZ was able to eke out a small gain. This could be a wild week for stocks with the Fed meeting representing only a mild distraction.
Dow Jones Industrials
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