Dow rose 11, advancers over decliners 3-2 & NAZ recovered 55 following recent selling. The MLP index went up 1+ to 281 & the REIT index gained 5 to the 346s. Junk bond funds hardly budged in price & Treasuries crawled higher bringing lower yields. Oil was about even in the 74s & gold bounced back 3 to 1191.
AMJ (Alerian MLP Index tracking fund)
US stocks down on high bond yields, weaker IMF growth outlook
The IMF has cut its global growth forecasts as trade tensions between the US & trading partners have started to hit economic activity worldwide. The IMF said the global economy is now expected to grow at 3.7% this year & next year — down 0.2 percentage points from an earlier forecast, according to the fund's latest World Economic Outlook report. The report, published twice a year in Apr & Oct, widely read by both public & private sectors globally for the IMF's assessment of the world economy. The latest edition was released as thousands of finance officials and professionals gather in Bali, Indonesia, for the IMF & World Bank annual meetings. Earlier projections now appear to be "over-optimistic" given that risks from "further disruptions in trade policies" have become more prominent, said Maurice Obstfeld, IMF chief economist. "Two major regional trade arrangements are in flux — NAFTA (where a new trilateral agreement awaits legislative approval) & the EU (with the latter negotiating the terms of Brexit). US tariffs on China, & more broadly on auto & auto part imports, may disrupt established supply chains, especially if met by retaliation," he said. "The impacts of trade policy and uncertainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to companies. Trade policy reflects politics, and politics remain unsettled in several countries, posing further risks," he added. The fund also cut its forecasts for global trade volume: The total good & services flow is expected to grow by 4.2% this year & 4% next year — down 0.6 & 0.5 percentage points, respectively, from earlier estimates. And the 2 economies in the center of the ongoing tariff fight, the US & China, are also expected to grow slower than initially projected. The IMF maintained that the US & China will grow by 2.9% & 6.6%, respectively, this year but said both would slow more than expected to 2.5% & 6.2%, respectively, in 2019. Emerging markets, the group of economies that came under massive selling pressure in recent months, saw larger cuts to their growth forecasts in the IMF report. "The negative revisions for emerging market and developing economies are more severe," said Obstfeld. "Broadly speaking ... we see signs of lower investment and manufacturing, coupled with weaker trade growth."
IMF cuts its global growth forecasts, citing trade tensions between the US and its trading partners
Dallas Federal Reserve Pres Rob Kaplan said he sees some inflationary pressures building but said he doesn't think there will be a sudden spike in prices. “I don’t believe inflation is going to run away from us,” Kaplan said in a talk at the Economic Club of New York. Kaplan said the inflation picture is a tale of “two colliding forces.” On the one hand, there is no question that “cyclical inflationary pressures are building” such as a tight labor market, trade tariffs & higher oil prices. Some industries have said they will try to raise prices. On the other hand, structural factors like automation & globalization are still limiting the pricing power of businesses, he added. These factors are intensifying & as a result, price pressures should remain muted & give the Fed room to raise rates gradually, he said. It will be “tricky” for the Fed if price pressures keep rising & the central bank has to decide what is sustainable & how much is transitory. He said a gradual pace for him would be 3 qtr-point interest rate increases thru Jun. The idea is that the Fed should be raising the funds rate until it is no longer boosting growth, “understanding we have to feel our way a bit.” He estimated that a neutral rate, where rates would not be easy, is a range between 2.5% & 2.75%. At the moment, the funds rate is a range between 2% & 2.25%. So 3 rate hikes thru Jun “doesn’t seem unreasonable to me,” he said. After that, Kaplan said he was uncertain where policy should go. “I don’t know,” he said. “I don’t need to make that judgment yet,” he added. “Once we get to neutral, we’ll have to assess should we go further or should we sit tight for awhile and I don’t know the answer yet,” he said. Bond yields have climbed in recent weeks. The yield on the 2-year note has climbed to 2.89% from 2.75% a month ago & the yield on the 10-year has climbed to 3.22% from 2.98%.
Pres Trump is expected to revise fuel guidelines to allow for the sale of gasoline with higher concentrations of ethanol year-round. The Environmental Protection Agency currently has a rule in place preventing the sale of E15 fuel, which contains 15% ethanol, between Jun 1 & Sep 15. The purpose is to prevent air pollution & curb dependence on foreign petroleum. Ethanol producers claim that the limitation has dented profits, but lifting the ban is opposed by oil refiners. Gasoline generally contains about 10% ethanol. A potential change in the rules governing ethanol content, however, could also benefit corn farmers. Allowing for the year-round sale of the ethanol-heavy gasoline will give farmers more avenues to sell corn, which could bolster revenue especially when prices are low. The Renewable Fuel Standard calls on refiners to blend biofuels, like ethanol, into their fuel, providing support for farmers. If refiners fail to do such blending, they are required to buy credits from others that do. The oil industry has been attempting to get a cap put in place on the amount they are required to pay in those credits. Small refiners can qualify for what is known as an economic hardship waiver to be exempted from the standard under certain circumstances. However, reports have surfaced that the administration has awarded them more freely & to larger oil & gas companies, sparking backlash from the biofuels industry & members of Congress. Trump's announcement comes as farmers have been voicing concerns over a growing trade war between the White House & China, which has featured tariff implementation. Nearly 40% of the corn grown in Iowa is used for ethanol production & Iowa corn is responsible for creating nearly 30% of US ethanol.
Stocks are looking for direction. Economic data continues to be good although the IMF reduced its forecast in the global economy. Optimism for earnings season remains high, but early reports will be coming next week.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
| CL=F | Crude Oil | 74.53 | +0.24 | +0.3% |
| GC=F | Gold | 1,188.40 | -0.20 | -0.0% |
Stocks opened lower after the
IMF slashed its global growth forecast due to
trade tensions & rising interest rates that weighed on investor
sentiment. The IMF cut its outlook for the
worldwide economy to 3.7% from 3.9%, partly because of
worsening trade tensions between the US & China but also tightening
financing conditions in emerging markets. Other
factors also weighed on US shares, including the yield on the 10-year
Treasury, which has climbed to 3.25%, a 7-year high. Yesterday, US stocks see-sawed 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. The Dow rose 39 (0.2%) to 26,486 & the S&P 500 fell 1 to 2884. The NAZ was down 52 (0.7%)
at 7735. Major indices have been under pressure since last week, when a bond sell-off sent Treasury yields to multiyear highs. The tech sector dragged down everything from chip makers to social media companies to software developers. US
investors will soon 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. In
Asia today, China's Shanghai Composite rebounded to end the
session 0.2% higher, after plunging 3.7% yesterday & Hong
Kong's Hang Seng index fell for a 6th session, sliding 0.1%. Japan's Nikkei ended the day down 1.3%. In Europe, London's FTSE slipped 0.4%, Germany's DAX is down 0.6%, while France's CAC is off 0.4%.
US stocks down on high bond yields, weaker IMF growth outlook
The IMF has cut its global growth forecasts as trade tensions between the US & trading partners have started to hit economic activity worldwide. The IMF said the global economy is now expected to grow at 3.7% this year & next year — down 0.2 percentage points from an earlier forecast, according to the fund's latest World Economic Outlook report. The report, published twice a year in Apr & Oct, widely read by both public & private sectors globally for the IMF's assessment of the world economy. The latest edition was released as thousands of finance officials and professionals gather in Bali, Indonesia, for the IMF & World Bank annual meetings. Earlier projections now appear to be "over-optimistic" given that risks from "further disruptions in trade policies" have become more prominent, said Maurice Obstfeld, IMF chief economist. "Two major regional trade arrangements are in flux — NAFTA (where a new trilateral agreement awaits legislative approval) & the EU (with the latter negotiating the terms of Brexit). US tariffs on China, & more broadly on auto & auto part imports, may disrupt established supply chains, especially if met by retaliation," he said. "The impacts of trade policy and uncertainty are becoming evident at the macroeconomic level, while anecdotal evidence accumulates on the resulting harm to companies. Trade policy reflects politics, and politics remain unsettled in several countries, posing further risks," he added. The fund also cut its forecasts for global trade volume: The total good & services flow is expected to grow by 4.2% this year & 4% next year — down 0.6 & 0.5 percentage points, respectively, from earlier estimates. And the 2 economies in the center of the ongoing tariff fight, the US & China, are also expected to grow slower than initially projected. The IMF maintained that the US & China will grow by 2.9% & 6.6%, respectively, this year but said both would slow more than expected to 2.5% & 6.2%, respectively, in 2019. Emerging markets, the group of economies that came under massive selling pressure in recent months, saw larger cuts to their growth forecasts in the IMF report. "The negative revisions for emerging market and developing economies are more severe," said Obstfeld. "Broadly speaking ... we see signs of lower investment and manufacturing, coupled with weaker trade growth."
IMF cuts its global growth forecasts, citing trade tensions between the US and its trading partners
Dallas Federal Reserve Pres Rob Kaplan said he sees some inflationary pressures building but said he doesn't think there will be a sudden spike in prices. “I don’t believe inflation is going to run away from us,” Kaplan said in a talk at the Economic Club of New York. Kaplan said the inflation picture is a tale of “two colliding forces.” On the one hand, there is no question that “cyclical inflationary pressures are building” such as a tight labor market, trade tariffs & higher oil prices. Some industries have said they will try to raise prices. On the other hand, structural factors like automation & globalization are still limiting the pricing power of businesses, he added. These factors are intensifying & as a result, price pressures should remain muted & give the Fed room to raise rates gradually, he said. It will be “tricky” for the Fed if price pressures keep rising & the central bank has to decide what is sustainable & how much is transitory. He said a gradual pace for him would be 3 qtr-point interest rate increases thru Jun. The idea is that the Fed should be raising the funds rate until it is no longer boosting growth, “understanding we have to feel our way a bit.” He estimated that a neutral rate, where rates would not be easy, is a range between 2.5% & 2.75%. At the moment, the funds rate is a range between 2% & 2.25%. So 3 rate hikes thru Jun “doesn’t seem unreasonable to me,” he said. After that, Kaplan said he was uncertain where policy should go. “I don’t know,” he said. “I don’t need to make that judgment yet,” he added. “Once we get to neutral, we’ll have to assess should we go further or should we sit tight for awhile and I don’t know the answer yet,” he said. Bond yields have climbed in recent weeks. The yield on the 2-year note has climbed to 2.89% from 2.75% a month ago & the yield on the 10-year has climbed to 3.22% from 2.98%.
Fed’s Kaplan says he doesn’t expect sudden spike in inflation
Pres Trump is expected to revise fuel guidelines to allow for the sale of gasoline with higher concentrations of ethanol year-round. The Environmental Protection Agency currently has a rule in place preventing the sale of E15 fuel, which contains 15% ethanol, between Jun 1 & Sep 15. The purpose is to prevent air pollution & curb dependence on foreign petroleum. Ethanol producers claim that the limitation has dented profits, but lifting the ban is opposed by oil refiners. Gasoline generally contains about 10% ethanol. A potential change in the rules governing ethanol content, however, could also benefit corn farmers. Allowing for the year-round sale of the ethanol-heavy gasoline will give farmers more avenues to sell corn, which could bolster revenue especially when prices are low. The Renewable Fuel Standard calls on refiners to blend biofuels, like ethanol, into their fuel, providing support for farmers. If refiners fail to do such blending, they are required to buy credits from others that do. The oil industry has been attempting to get a cap put in place on the amount they are required to pay in those credits. Small refiners can qualify for what is known as an economic hardship waiver to be exempted from the standard under certain circumstances. However, reports have surfaced that the administration has awarded them more freely & to larger oil & gas companies, sparking backlash from the biofuels industry & members of Congress. Trump's announcement comes as farmers have been voicing concerns over a growing trade war between the White House & China, which has featured tariff implementation. Nearly 40% of the corn grown in Iowa is used for ethanol production & Iowa corn is responsible for creating nearly 30% of US ethanol.
Trump to help corn farmers by hiking ethanol limit in gasoline
Stocks are looking for direction. Economic data continues to be good although the IMF reduced its forecast in the global economy. Optimism for earnings season remains high, but early reports will be coming next week.
Dow Jones Industrials
No comments:
Post a Comment