Wednesday, October 10, 2018

Markets decline as Treasury yields rise

Dow tumbled 269, decliners over advancers 3-1 & NAZ sank 122.  The MLP index fell 1+ to 280 & the REIT index inched up 1 to the 347s.  Junk bond funds declined in price & Treasuries were sold today.  Oil lost 1+ taking it into the 73s & gold was steady at 1191.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil74.28
 -0.68 -0.9%

GC=FGold  1,192.50
 +1.00 +0.1%

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Stocks opened lower as investors digested the latest economic data while the IMF's reduced global outlook weighed on sentiment.  Yeterday's move lower follows a mixed session with only the NAZ squeezing out a gain.  Economic data included the producer price index (PPI), a key reading on inflation.  The PPI increased 0.2% in Sep, in line with expectations.  Traders are also closely monitoring Treasury yields, which were hovering around a 7-year high.  Yesterday, the IMF cut its outlook for the growth in the global economy to 3.7% from 3.9%, partly because of worsening trade tensions between the US & China.  Commodities were mostly lower today.

Stocks lower as traders mull IMF's economic downgrade

Powerful Hurricane Michael was hours away from smashing into Florida's northwestern shore with a wall of water & roof-shredding winds & the state's governor said it would be the worst hurricane to hit the region in a century.  Authorities told residents along the affected areas of Florida's Gulf of Mexico coast that they had run out of time to evacuate & should hunker down.  A very dangerous Category 4 storm on 5-scale, Michael strengthened as it moved north over the Gulf of Mexico & was carrying top winds of 145 miles per hour, the National Hurricane Center said.  The hurricane was set to make landfall later on Florida's Panhandle & could drive sea water levels as high as 14 feet above normal in some areas.  The storm could strengthen further before coming ashore.  More than 2.1M residents of at least 20 Florida counties were under mandatory or voluntary evacuation orders.  Much of this part of Florida is rural areas known for small tourist cities, beaches, wildlife reserves & Tallahassee, the state capital.  "Hurricane Michael is forecast to be the most destructive hurricane to hit the Florida Panhandle in a century," Governor Rick Scott told reporters.  Earlier, Scott said on Twitter that it was too late to evacuate the target zone & that people who had stayed should immediately seek refuge.  Some of the storm's most significant early impact was to offshore energy production.  US producers in the Gulf cut oil production by 40% & natural gas output by 28%.  Pres Trump declared a state of emergency for the entire state of Florida, freeing up federal assistance to supplement state & local disaster responses.  Apalachicola Mayor Van Johnson said the city, which could suffer some of the worst of the storm surge, was under mandatory evacuation orders.

'Extremely dangerous' Category 4 Hurricane Michael bears down on the Florida Panhandle

Treasury Secretary Steve Mnuchin has told China not to weaken its currency as the US & China try to resolve their trade differences.  Mnuchin said the Treasury Dept is closely watching the currency market & wants to talk about the issue with China as part of trade discussions.  "As we look at trade issues there is no question that we want to make sure China is not doing competitive devaluations," Mnuchin said.  "The renminbi has depreciated significantly during the year. … We are going to absolutely want to make sure that as part of any trade understanding we come to that currency has to be part of that."  China's renminbi, also known as the yuan, is down 6.5% this year versus the $.  The Chinese currency has fallen this year on concern about slowing growth in the Asian country compared with the strengthening US economy.  The White House's latest tariffs of 10% on $200B of imports from China took effect in late Sep.  Pres Trump, in a Sep 17 statement, said the tariffs would rise to 25% on Jan 1.

Mnuchin warns China against devaluing currency, says yuan agreement must be part of trade deal

US producer prices increased 0.2% in Sep, reversing an unexpected decline in Aug & in line with expectations.  A rise in services prices offset a slight drop in prices for goods.  Final demand prices had fallen 0.1% in Aug.  In the 12 months thru Sep, the producer price index rose 2.6%, slightly less than expected.  The forecast had called for PPI increasing 0.2% in Sep & advancing 2.8% year-on-year.  A key gauge of underlying producer price pressures that excludes food, energy & trade services rose 0.4% last month, the largest increase since Jan.  Core PPI had risen 0.1% in Aug.  The cost of services rose 0.3% last month, reversing 2 months of declines, & driven by a 1.8% jump in transportation & warehousing services.  Over 1/3 of the increase in services was attributed to a 5.5% increase in the index for airline passenger services.  The index measures changes in margins received by wholesalers & retailers.  Services had fallen 0.1% in Aug.  The slight decline in goods prices was the first since May, 2017, led by a 0.8% drop in energy prices & a 0.6% drop in food.  Excluding food & energy goods prices rose 0.2%.  In the 12 months thru Sep, the core PPI rose 2.9%, the same as the month before.

US producer prices rebound in September

Stock opened lower & selling continued.  Higher interest rates are spooking investors even though they should have been anticipated given the strong economy.  Unsettled trade issues are another major drag on the stock market.  Adding to market troubles, Sears (SHLD), an old line major retailer looks to be heading for bankruptcy.  The Dow is now down 300 in Oct & the outlook is gloomy.

Dow Jones Industrials

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