Monday, October 8, 2018

Markets end mixed after violent trade swings

Dow finished up 39 in a wild day of trading, advancers slightly ahead of decliners & NAZ gave back 52 (retreating to where it was 3 months ago).  The MLP index fell 1+ to the 278s & the REIT index barely moved.  Junk bond funds dipped & Treasuries were not traded.  Oil was off a tad lower in the 74s & gold dropped a massive 15 (more below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Stocks seesawed between sharp losses & modest gains as investors gauged higher interest rates & overseas weakness with the impending earnings season, which should provide more good news about companies' bottom lines.  Volatility ticked higher, potentially due to the Columbus Day holiday, which may mean equity trading is lighter than a typical Mon.  Shares in Asia were hard hit as Chinese investors returned from a holiday & sold off shares amid trade tensions between Beijing & DC.  Stateside, stocks have been under pressure from climbing bond yields, with the 10-year Treasury yield rising to an 11-year high last week.  US investors will also turn their attention to corp earnings.  This week marks the kickoff of earnings season, with the big banks reporting on Fri.  Expectations are lofty heading into this season.  Consensus expectations are for the S&P 500 to grow Q3 EPS by 21% on a year-over-year basis, a slight deceleration from the 26% earnings growth experienced in Q2.  In commodities, oil was lower following a report that the Trump administration is considering waivers on crude oil sanctions for countries that are reducing Iranian oil imports.  Today the bond market was closed for Columbus Day while it is business as usual for US stocks.

Stocks reverse gains, amid volatile session

Zero percent finance deals are becoming harder for car shoppers to find.  With interest rates on the rise, 0% finance deals have dropped to their lowest levels since 2005, according to recent analysis by Edmunds.  Promotional offers of 0% annual percentage rates accounted for 5.6% of all new-vehicle sales in Sep, down from 10.1% in the same month in 2017.  The decline of 0% offers in recent months has bucked the seasonal trend, as automakers typically dangle no-interest loans during the summer to boost sales of outgoing model-year vehicles.  But no-interest loans have become more costly for lenders.  Automakers are now using cash incentives & other perks to attract buyers.  “This appears to mark the end of a fairly long-lived tradition for the industry,” Jeremy Acevedo, Edmunds’ manager of industry analysis, said.  “While inventory isn't at the alarming level it was at this stage last year, how automakers navigate their model-year selldown will be critical thru the rest of the year as the market contracts and prices continue to rise.”  Edmunds added that a scarcity of 0% finance offers has helped keep interest rates near record highs.  The average rate for a new vehicle was 5.8% in Sep, sharply higher than the year-ago average of 4.8%.

Car shoppers finding fewer 0% finance deals

US officials are concerned about the recent depreciation in China's currency & plan to lay out details on China's policies in an upcoming foreign exchange report, according to a senior Treasury official.  The official was speaking ahead of Treasury Secretary Steve Mnuchin's participation at the IMF-World Bank meeting in Bali this week.  As trade tensions have risen & China prepares to retaliate against US tariffs, the yuan's fall against the $ has accelerated recently & is near a 21-month low.  The currency was at 6.92 to the $, near its Aug low of 6.93.  Should it reach a level of 7, analysts expect more selling as that is a key technical and psychological threshold.  US officials have refrained from calling China a currency manipulator in the past.  But with trade issues straining relations, there have been rising concerns that China is intentionally weakening its currency to deflect the impact of tariffs on its goods.  The official said the US is "broadly concerned about China's turn away from market-oriented policies and continued reliance on non-market policies."  The currency has fallen nearly 2% against the $ since Aug.  China Vice Premiere Liu He, Mnuchin's counterpart, is not expected to be in Bali, though central bank & finance officials will be.  There are so far no set meetings, & the official reported that nothing is new on trade talks, which have stalled.  The official said any meetings in Bali would not be solely focused on trade & that the Us is willing to talk with China on trade as soon as it is willing to have meaningful discussions on the trade imbalance.  China is a large creditor & the US is interested in making sure Chinese lending & borrowing is done in a transparent manner.  Pres Trump & other US presidents before him have threatened to label China a manipulator, though there has been no such action since the early 1990s.  China's central bank sets a daily exchange rate for the yuan based on recent prices & allows trading against the $ in a band that could be as much as 2% above or below that level.  Analysts have said the U.S. could base its decision on further trade actions based on how the Chinese currency trades.  They also have noted that the trade wars were likely to weaken China's currency anyway & some of the weakness may stem from the fact that China is simply not propping it up.

US growing concerned about China's falling currency and 'turn away from market-oriented policies'

Gold futures retreated0, sending prices to their lowest finish in more than a week as Treasury yields remained elevated & a leading $ index firmed.  Dec gold fell $17 (1.4%) to settle at $1188 an ounce, its lowest finish since Sep 27.  Despite its wavering price action over recent sessions, the Fri gain was enough to hand the metal an 0.8% advance for last week.  The 10-year Treasury note yield ended last week near 3.23%, off last week's steepest levels but still hovering near multiyear highs.  US bond markets were closed today the holiday.  Because precious metals, usually used as a haven by investors, don't offer a yield, the commodity is vulnerable to a slump in a rising-rate environment.  That climate also tends to lift the $, in which gold is primarily priced.  The Federal Reserve has already increased rates 3 times in 2018 & is expected to lift benchmark rates a 4th time in Dec, moves which can drive risk-free Treasury yields higher & undercut appetite for the yellow metal by comparison.  Gold's negative reaction to higher yields from a competing asset could reach a tipping point, however, some analysts note, meaning that eventual fears that high rates could sink stocks or the economy could revive interest in the hedging asset.  Investors were also watching developments in Europe, with the EU signaling in a letter Fri to Italy's economic minister, Giovanni Tria, that Italy's budget targets are a source of concern for the trading bloc, setting up a potential market-disrupting clash, which can offer underlying support to haven gold.

Gold drops to a more than 1-week low with attention on rising rates, dollar strength

Today's trading would have been more turbulent if Treasuries were bought & sold.  They are getting a lot of attention when yields are at 7 year highs.  Tech stocks have lost their appeal with more interest in their business models which affect their profitability.  Then there is the intl trade scene with US-China getting everybody's attention.  Oct has been the month with some the biggest selloffs in history, something to keep in mind especially if earnings are less than spectacular.

Dow Jones Industrials

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