Wednesday, October 10, 2018

Markets plummet for the worst drop since February

Dow plunged 831 (FINISHING AT THE LOWS), decliners over advancers more than 6-1 & NAZ tumbled 315 (4%). The MLP index sank 5+ to the 276s & the REIT index clawed its way higher to the 347s.  Junk bond funds declined & Treasuries pulled back so yields rose.  Oil dropped 2+ to the 62s & gold went up 4 to 1196 as stocks were sold.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Stocks tumbled as investors eyed rising rates & the IMF's reduced global outlook weighed on sentiment.  Technology stocks led the retreat with the NAZ touching a 3-month low.  Amazon (AMZN) shares dipped into correction territory, falling more than 10% from their record closing high on Sep 4.  The VIX Index, a closely-watched measure of investor anxiety, jumped almost 20% to its highest since Jun.  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.

US stocks plunge more than 500 points, Nasdaq at 3-month low

The Trump administration announced a plan that could put additional restrictions on foreign investment in US companies.  The Treasury said it is expanding the power of a federal panel to review foreign investments beyond takeovers & controlling stakes to include noncontrolling stakes in US businesses that are involved in technology that could be deemed critical to national security.  The expanded review includes transactions in which the foreign investor would get nonpublic technical information, a place on the board of directors or involvement in decision-making.  This applies to businesses in several industries, including telecommunications, semiconductors & computers.  The move is yet another bid to punish Beijing over its trade practices.  Already this federal panel, called the Committee on Foreign Investment in the United States, or Cfius, has been actively reviewing foreign takeovers of US companies to make sure national security concerns are protected.  The Trump administration has been trying to prevent China from getting emerging technologies such as 5G, the next generation of wireless.  Pres Trump has been critical of China's trade practices, which he says restrict access to certain markets & force American firms doing business there to hand over valuable technology and trade secrets.  This comes on top of tariffs the US has slapped on some $250B  of Chinese imports.  China has retaliated with its own set of tariffs on US goods.  Trump had considered putting a set of sweeping investment restrictions on China but decided to go along with a plan to grant Cfius broader review power, a win for Treasury Secretary Steve Mnuchin, who had been working behind the scenes to diffuse the trade spat.

Amid China trade war, US moves to broaden review of foreign investment

A more severe downturn in emerging markets, not domestic inflation, is the "biggest risk" to the US economy, a top economic advisor to Pres Trump said.  "I'm very concerned about emerging markets. If you look at the indices, they're heading in a way that's a little bit troubling," said Kevin Hassett, chairman of the Council of Economic Advisers.  He added that he's watching Turkey, Venezuela, Argentina & China to see if stresses "lead emerging markets to head into a direction that's more extremely south than we've seen so far."  "That could come back and haunt the U.S. a little bit," he said.  He continued saying that council economic models concur with the IMF's decision to trim its global growth forecast to 3.7% for this year & next.  Another trouble spot for global growth is rising oil prices, he added.  The IMF yesterday cut its growth forecasts for the US & China to 2.9% & 6.6%, respectively, this year, & 2.5% & 6.2%, respectively, in 2019.  Hassett countered by saying, "We're looking at [U.S.] GDP growth of about 3.5 percent for this year, and carrying on to something north of 3 [percent] next year. That's a little more optimistic than they are."  He did not offer an outlook on China's economy, but he said the White House is hopeful the 2 sides can resolve their differences on trade.  "But make no mistake, President Trump is serious about it. If they don't behave a little bit better, stopping stealing our intellectual property and lower their tariffs on our products, then this could continue longer."  Hassett also said he would let Trump''s comments expressing displeasure with the Fed hiking interest rates stand on their own.  But he did make a case, like Trump did, that budding signs of inflation are not posing a risk to the economy.  "We at the White House really do respect the independence of the Fed," he added.  "The fact is, the president's respect for the independence is clear in the quality of people we sent over there."

Trump advisor Hassett: Emerging markets fallout, not US inflation, poses 'biggest risk' to economy

Hurricane Michael strengthened into a powerful Category 4 storm ahead of its landfall in the Florida panhandle, but its path creates few concerns for the flow of oil & gasoline in the area.  The storm is blowing east of the Gulf Coast refining hub in Louisiana & Texas, sparing the area the devastating blow dealt by Hurricane Harvey last year.  Meanwhile, Hurricane Michael has remained on a relatively steady course, allowing the state's fuel distributors to plan for the storm's aftermath.  Michael's biggest energy impact to date has been on offshore oil & gas facilities in the Gulf of Mexico, where companies have evacuated crews from 86 platforms & rigs.  Nearly 40% of Gulf of Mexico oil production & roughly 28% of natural gas output has been shut down, the Bureau of Safety & Environmental Enforcement estimates.  However, barring significant damage to those facilities, output typically starts up quickly.  The temporary loss of Gulf oil output would typically lead to a drop in weekly US crude stockpiles, which tends to push up oil prices.

Oil and gasoline infrastructure poised to weather Hurricane Michael

Chicago Fed Pres Charles Evans said he supported more interest-rate increases but added the question posed by Pres Trump of why interest rates need to rise as quickly as they have is a "fair" one.  Evans said he was comfortable with the projected path of higher rates because the US economy is doing "extremely well" & the unemployment rate may bottom out at 3.5% before rising slowly to 4.5%.  He said there's a little bit more to go on interest rates until reaching the level of neutral rates that is somewhere near 2.75%-3%.

Fed's Evans sees more rate hikes but said Trump's questioning of tightening is 'fair'

Wholesale inventories in the US rose 1% in Aug as businesses boosted production to keep up with rising sales.  Sales increased 0.8% in the month.  The ratio of inventories to sales, meanwhile, was unchanged at 1.26.  That's how many months it would take to sell all the inventory on hand.  One year ago, the inventory-to-sales ratio was higher at 1.30.  An increase in inventories adds to GDP product, suggesting Q3 will be fairly strong.

U.S. wholesale inventories jump 1% in August

Stocks began the day in the red & selling did not stop.  The mood of investors is getting ugly.  As a reminder, the Feb-Mar period was very tough going for stocks (shown below).  Rates are climbing higher, trade relations with other economies (i.e. China) are getting ugly & market leader tech stocks are in trouble with the NAZ down about 700 from its recent record high.  The Dow sank 850 during the first 1/3 of Oct.  The stock market may need a bigger blowout to bring back the bulls!!

Dow Jones Industrials

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