Thursday, October 11, 2018

Market selling continued, but losses were pared in late day trading

Dow tumbled 545 (but off session lows), decliners over advancers about 4-1 & NAZ sank 92 (again off session lows).  The MLP index declined 4+ to the 291s & the REIT index went down to 342.  Junk bond funds were little changed & Treasuries rallied bringing the 10 year Treasury yield down a huge 9 basis points to 3.13%.  Oil slumped 2+ to under 71 (more below) & gold soared 31 to 1225 while stocks were sold.

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Pres Trump placed the blame on the Federal Reserve's interest rate hikes for driving a selloff in the stock market, saying the central bank “has gone crazy.”  “I think the Fed is making a mistake. They’re so tight. I think the Fed has gone crazy,” Trump told reporters.  He kept the insults coming today in a wide ranging interview, which included his thoughts on fiscal policy makers.  Stocks saw more volatility after the Dow plummeted yesterday, recording its largest single-day point drop since Feb.  “Actually, it’s a correction that we’ve been waiting for, for a long time,” Trump said about the market selloff.  “But I really disagree with what the Fed is doing, okay?”  In Sep, the Federal Reserve raised short-term interest rates for the 3rd time this year.  Officials expect to hike rates another qtr percentage-point by the end of this year & gradually continue to raise rates at least thru 2019.  Trump has previously voiced his displeasure with the Fed's rate hikes, saying he would rather shift his focus to the continued growth of the US economy & creating more jobs.  “I'd rather pay down debt or do other things, create more jobs, so I'm worried about the fact that they seem to like raising interest rates. We can do other things with the money,”  the pres said at a Sep press conference.

Trump: Fed ‘has gone crazy’ as it raises interest rates

The White House has taken steps toward setting up a meeting between Pres Trump & Chinese Pres Xi Jinping as the world's 2 largest economies clash over trade, Trump's top economic advisor Larry Kudlow said today.  "There's some movement toward" a meeting in Argentina at the G-20 summit next month, the National Economic Council director said.  Still, he added that talks or the topics the leaders would address have not "been set in concrete."  "They have lots to talk about. So we'll see," Kudlow said.  A trade conflict between DC & Beijing has escalated as the countries slap mounting tariffs on imports.  Most recently, the Trump administration imposed duties on $200B worth of goods from China, prompting Beijing to put tariffs on $60B worth of US goods.  Trump has threatened even more duties as the nations struggle to restart talks toward a deal.  Issues that need to be addressed include US concerns about alleged theft of intellectual property by Chinese companies & the trade deficit between the countries.  The unresolved tensions have raised fears about widening economic damage that could hit American consumers & companies.  In addition, the pres has accused China of targeting farmers with tariffs in order to damage Reps in the upcoming midterm elections.  At a UN Security Council meeting last month, Trump charged that Beijing does not "want me or us to win because I am the first president to ever challenge China on trade."  China has denied trying to influence the US election, in which Dems are favored to take control of the House from Trump's Rep Party.  In recent days, both VP Mike Pence & Secretary of State Mike Pompeo have used increasingly tough rhetoric toward China.  Trump has repeatedly called Xi a friend, but admitted that tensions over trade may have strained their relationship.

Kudlow says Trump and China's Xi could meet this year as trade clash widens

Kansas City Fed Pres Esther George said she favors continued gradual interest-rate hikes, but said the timing & extent of further actions is still under discussion.  "The path of policy cannot be on a pre-set course at this stage of the expansion," George said in a speech.  She added the risks to the economy are currently balanced.  On the upside, fiscal policy & elevated consumer confidence could lead to higher growth & inflation.  On the downside, trade uncertainty & growing risks in emerging market economies could slow down US growth.  George will be a voting member of the Fed's interest-rate committee in 2019.

Fed's George backs further interest-rate hikes, says pace and extent uncertain

Treasury Secretary Steve Mnuchin attempted today to steer clear of his boss's harsh criticism of the Federal Reserve for a role in a midweek rout that handed stocks their biggest drop since Feb & triggered an equities retreat around the globe.  “I don’t think there was any new news that came out of the Fed today that wasn’t there beforehand,” Mnuchin said from the sidelines of an IMF meeting of global finance officials & central bankers in Indonesia.  Pres Trump attacked the Fed for a 3rd straight day, calling the central bank “cute” for its recent interest-rate hikes.  That follows comments at an evening campaign rally in which Trump called the central bank “crazy” for its current policy tack.   “Markets go up. Markets go down,” Mnuchin said.  “I see this as a normal correction.”  He added that solid US economic fundamentals provide some cover.  Some analysts argue the Fed's expected rate path is overly aggressive, while others contend strong underlying economic fundamentals justify the central bank's attempts to continue to remove the easy monetary policy that followed the financial crisis.  The Fed has already increased rates 3 times in 2018 & is expected to lift benchmark rates a 4th time in Dec, as well as continue its gradual tightening trend in 2019, according to the Fed's own forecasts.  Stock markets have been rattled in part by reaction to rising bond market yields, meaning steeper borrowing costs for businesses, as fixed-income investors adjust to a higher interest-rate climate.  A bond-market selloff drove the yield on the 10-year Treasury above 3.26% earlier this week for the first time since Apr 2011.

Mnuchin says Fed not to blame for market rout that’s part of a ‘normal correction’

Oil prices slumped to more than 2-week lows as global stock markets fell, with investor sentiment made more bearish by a bigger-than-expected US crude inventories build.  Crude inventories climbed by 6M barrels in the latest week, the US Energy Information Administration reported, compared with expectations for an increase of 2.6M barrels.  Brent crude fell $2.83 (3.4%) to $80.26 a barrel, its lowest level since Sep 24.  Brent lost 2.2% yesterday.  On Oct 3, it hit a 4-year high of $86.74.  US light crude ended today's session down $2.20 (3%) to $70.97 after losing 2.4% in the previous session.  US crude inventories rose for the 3rd consecutive week as refineries continued to reduce production for seasonal maintenance.  Refinery crude runs fell by 352K barrels per day as utilization rates dropped 1.6 percentage points, the EIA data showed.  US oil output is expected to rise 1.39M bpd to a record 10.74M bpd, the EIA said in its monthly forecast yesterday.  Falling equity markets & a global risk-off environment also weighed on crude futures.  Today OPEC cut its forecast of global demand growth for oil next year for a 3rd straight month, citing headwinds facing the broader economy from trade disputes & volatile emerging markets.  In the Gulf of Mexico, producers were checking production platforms & beginning to return crews to more than 90 offshore facilities evacuated this week as Hurricane Michael moved thru the Gulf.  Production shut-ins that temporarily halted 42% of Gulf oil output was restarting in some areas.

Oil prices drop 3% as markets fall, stockpiles climb

Today was was another wild day in trading.  Ups, down, it was hard to keep track of it all.  At session lows, the Dow was under 25K.  In the last hour there was an attempt to rally & then then sellers returned in the final 30 mins.  Go figgah!!  Others will explain what went on.  The truth is nobody really knows other than fear is on the rise.  The fear index (VIX) shot up to 28 & then pulled back to the 25s at the close.  That's still up 2+ & double the 12 area where it has been for much of the year.  After the first earnings (from big banks) come tomorrow, wild price swings can be expected to continue.

Dow Jones Industrials

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