Friday, September 14, 2018

Markets seesaw after Trump threatens higher tariffs on Chinese goods

Dow crawled up 8, advancers slightly ahead of decliners & NAZ lost 3.  The MLP index fell 1+ to 280 & the REIT index gained 1+ to the 361s.  Junk bond funds fluctuated & Treasuries were sold taking the yield on the 10 year Treasury close to 3%.  Oil climbed to the 69s (more below) & gold dropped 9 to 1198.

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US industrial production rose by a healthy 0.4% in Aug, boosted by gains in the production of autos, oil & natural gas.  The Federal Reserve said that industrial production, which includes output at factories, mines & utilities, has climbed 4.9% over the past 12 months.  Industrial production appears on track for its strongest annual growth since 2010, when it jumped 5.5% as the economy began to recover from the Great Recession.  Factory production increased 0.2% last month, lifted by a 4% rise in the making of vehicles & parts.  Automakers assembled vehicles at their strongest pace since Apr.  Still, factory production has slowed over the past 2 months as trade conflicts have created uncertainty for the sector.  The Trump administration is seeking to revamp the North American Free Trade Agreement with Mexico & Canada, has imposed tariffs on imported steel & aluminum, has slapped tariffs on goods from China & threatened to impose more.  Mining output posted a 0.7% monthly gain in Aug.  A sharp increase in the production of oil & natural gas has caused mining output to soar 14.1% over the past 12 months.  Increased oil & natural gas production can support factories that make pipelines, machinery & other equipment.  Production at utilizes advanced 1.2% in Aug, powered by a surge in electricity usage during the hot month.  Other reports suggest that manufacturing is healthy, despite signs that its job growth is slowing.  US factories grew at a faster pace in Aug as American industry continues to show robust health.  The Institute for Supply Management said its manufacturing index jumped rose to 61.3 in Aug from 58.1 in Jul.  Anything over 50 points toward expansion & economic growth.  The manufacturing index has pointed toward growth for the past 2 years.  Still, job growth at US factories has decelerated in recent months.  Manufacturers added just 36K factory workers for the 3 months that ended in Aug, according to the Bureau of Labor Statistics, down from 3-month gains of as many as 90K earlier this year.

US industrial production rose a solid 0.4 percent in August

Chinese factory output and retail sales held up in Aug but investment weakened, gov data showed, adding to challenges for communist leaders as they fight a tariff battle with DC.  The data showed little impact yet from gov efforts to shore up flagging growth by easing lending controls.  Even before trade tension with DC, growth in the world's 2nd-largest economy was forecast to slow after Beijing tightened lending controls last year to cool a debt boom.  Exports to the US have held up so far despite Pres Trump's tariff hike on $50B of Chinese goods.  Communist leaders want to steer China to slower, more self-sustaining growth based on domestic consumption.  But they appear to be worried retail spending & investment, bigger parts of the economy than trade, might be cooling too much.  Growth in industrial output edged up to 6.1% from Jul's 6%.  But growth in investment in factories, real estate & other fixed assets decelerated to 5.3% in the first 8 months of the year from 5.5% in Jan-Jul.  Retail sales rose 9%, up from Jul's 8.8% gain.  Online commerce spending rose 28.2% in the first 8 months of the year over the same period in 2017.  Beijing responded to weakening activity by ordering banks to lend more freely to exporters that might be hurt by Trump's tariff hike.  Communist leaders have avoided a full-scale stimulus for fear of reigniting a surge in what private sector analysts say are dangerously high levels of corp & household debt.  Exporters face a potentially bigger blow if Trump goes ahead with plans for penalties on $200B of Chinese goods.  Beijing has issued a $60B list of American imports for retaliation.  Forecasters say it will take time for easier credit to work its way thru the economy.

China factory output holds up in August, investment weakens

Pres Trump wants tariffs on $200B of Chinese goods despite the US attempt to restart talks on trade, according to reports.  The pres told aides to go ahead with tariffs, the reports said, citing people familiar with the matter.  The US & China have already put in place tariffs on $50B of each other's imports since Jul as tensions escalated despite several rounds of talks.  Trump has criticized China's record trade surplus with the US & openly questioned whether it was manipulating its currency.  Trump raised the ante, vowing to target an additional $200B of Chinese goods, but he hasn't officially imposed them even after a deadline passed.  The pres met with trade advisors yesterday, including Treasury Secretary Steve Mnuchin, Commerce Secretary Wilbur Ross & US Trade Representative Robert Lighthizer.  Mnuchin had been spearheading attempts to restart trade talks with China.  But Trump has indicated he has no intention of backing down.  Yesterday he tweeted "we are under no pressure to make a deal with China, they are under pressure to make a deal with us."  Earlier this month, Trump said that he could go after another $267B of goods on top of the $200B & the previously imposed tariffs.  Tariffs ranging from 5-25% apply to thousands of products, including cameras, recording devices, tires & vacuum cleaners.  China has vowed to respond.

Trump said to want tariffs on $200 billion of Chinese goods despite talks

Oil prices gained, ending the week up more than 2% as the market strengthened, bucking off bearish forces that had pulled it down earlier in the session.  Brent crude rose 23¢ to $78.41 a barrel.  The global benchmark fell 2% yesterday after rising on Wed to its highest since May 22 at $80.13.  West Texas Intermediate (WTI) futures were up 59¢ at $69.18 a barrel after dropping 2.5% yesterday.  After a volatile week, Brent was set for a 2.4% weekly rise & WTI 2.7%.  Brent reached a session high of $78.94 a barrel, as speculators attempted to break thru resistance at $79.00 a barrel.  The US is renewing sanctions on Iran after withdrawing from a nuclear deal forged in 2015 between Tehran & world powers.  The US reimposed some of the financial sanctions from Aug 6, while those affecting Iran's petroleum sector will come into force from Nov 4.  Indian refiners, traditionally major buyers of Iranian crude, will cut their monthly loadings from Iran for Sep & Oct by nearly ½ from earlier this year.  But Iran's OPEC governor Hossein Kazempour Ardebili, said that a "supply shortage" meant that the US would not be able to meet its zero export target.  Price rises were capped after US Energy Secretary Rick Perry said Saudi Arabia, other members of OPEC & Russia were to be admired for trying to prevent a spike in global oil prices.  Meanwhile, the Intl Energy Agency yesterday warned that although the oil market was tightening & world oil demand would reach 100M bpd in the next 3 months, global economic risks were also mounting.  China will not buckle to US demands in any trade negotiations, the major state-run China Daily newspaper said, while Pres Trump said on Twitter he felt no pressure to strike a deal with China.  Following Chinese Pres Xi Jinping's call for a boost to national energy security amid trade tensions, the country's crude oil output rose in Aug for the first time in nearly 3 years.

Oil prices gain as Brent tests $79

The thought of higher tariffs shook the market.  Then they settled back.  Some traders are away, serious trading will resume Mon when there will also be more information on the damage brought by the storm.  The Dow went up 240 this week & continued above 26K while the NAZ is over 8K, keeping the bulls happy.

Dow Jones Industrials

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