Thursday, November 1, 2018

Markets advance on hopes for new US-China trade talks

Dow gained 164, advancers over decliners about 3-1 & NAZ went up 17.  The MLP index added 2+ to the 253s &  the REIT index gave back 4 to 342.  Junk bond funds rose & Treasuries were a tad higher.  Oil slid lower in the 65s & gold jumped up 19 to 1234.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil65.10
   -0.21 -0.3%

GC=FGold   1,231.20
+16.20 +1.3%

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Stocks opened modestly higher after a rollercoaster Oct in which all 3 major indices finished in the red.  The major averages, which had their worst October in 10 years, were on track for a 3rd day of gains.  The NAZ, coming off its worst month since 2008, hasn't seen 3 consecutive winning sessions since Aug, evidence of the extreme selling pressure that's been hitting shares lately.  Q3 earnings were dominating investors' attention.  Stocks climbed yesterday, boosted by the latest earnings reports & economic data.  The Dow jumped 241 (1%) to 25,115 & the S&P 500 rose 29 (1.1%) to 2711.  The NAZ was up 144 (2%) at 7305.  But the NAZ remained down 9.2% for Oct.  The S&P 500  posted its largest one-month drop in more than 7 years, off nearly 7% & the Dow's  monthly drop was 5.1%, its largest such fall since Jan 2016.  Highflying technology stocks were among the most sharply sold sectors in Oct.  A handful of big names posted their quarterly results on yesterday & a highlight was General Motors (GM).  The carmaker topped quarterly expectations on strong truck & crossover sales.  Traders also digested the ADP payrolls report, which showed the US economy added 227K jobs versus the estimate for 189K.  Tomorrow the gov monthly jobs report will be released.

Traders cautiously begin the new month after a bruised and battered October

New applications for US unemployment aid fell last week & the number of Americans receiving benefits was the lowest in more than 45 years as labor market conditions tightened further.  Initial claims for state unemployment benefits dropped 2K to a seasonally adjusted 214K, the Labor Dept said.  Claims fell to 202K during the week ended Sep 15, which was the lowest level since 1969.  The forecast called for claims falling to 213K.  The Labor Dept said claims for North Carolina continued to be affected by Hurricane Florence, while Hurricane Michael impacted those for Florida & Georgia.  The 4-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 1K to 213K last week.  The claims data has no bearing on the Oct employment report, which is scheduled for release tomorrow, as it falls outside the survey period.  Nonfarm payrolls probably rebounded by 190K jobs in Oct after Florence depressed restaurant & retail payrolls in Sep.  But the pick-up in job growth was likely tempered by Michael, which struck the Florida Panhandle in mid-Oct.  Payrolls increased by 134K in Sep, the fewest in a year.  The unemployment rate is forecast unchanged at a near 49-year low of 3.7% in Oct.  The labor market is viewed as being near or at full employment.  There are a record 7.14M open jobs in the economy, suggesting a shortage of skilled workers.  Tightening labor market conditions are pushing up wages & a report on yesterday showed annual wage growth recorded its biggest increase in 10 years in Q3.  Today's claims report also showed the number of people receiving benefits after an initial week of aid declined 7K to 1.63M for the latest week, the lowest level since 1973.  The 4-week moving average of continuing claims decreased 6K to 1.64M , the lowest level since 1973.

US weekly jobless claims fall; continuing claims lowest since 1973

Pres Trump said that he spoke to Chinese Pres Xi Jinping amid concerns about escalating trade tensions between the world's 2 largest economies.  In a tweet, the president said he had a “long and very good conversation” with the Chinese leader, “with a heavy emphasis on trade.”  He added that “those discussions are moving along nicely” ahead of planned meetings at the G-20 summit in Argentina next month.  It is unclear how much progress Trump & Xi made toward breaking an impasse over how they will assuage Trump's grievances with Beijing and move toward reducing tariffs.  Talks between the 2 countries have recently stalled as the White House pushes for an end to alleged intellectual property theft by Chinese companies & a reduction in the US trade deficit with China.  Despite the lack of detail on any concrete progress, stock markets jumped in response to Trump's tweet. Investors have worried about Trump's threats to levy tariffs on an additional $267B in Chinese goods & the damage the move could do to American consumers & companies.  The duties would come on top of tariffs already imposed on $250B in Chinese imports.  The tweet comes just 5 days before the midterm elections.  Numerous candidates across the country, particularly those in areas that export agricultural products to China, have pushed for Trump to ease the trade tensions.

Trump says he and China's Xi exchanged 'long and very good' trade conversation

US manufacturing activity fell short of expectations in Oct with a gauge of new orders easing to its lowest level since Apr 2017.  The Institute for Supply Management (ISM) said its index of national factory activity dropped 2.1 percentage points to 57.7 last month from 59.8 in Sep.  A reading above 50 indicates growth in manufacturing, which accounts for about 12% of the US economy.  The forecast was for the ISM manufacturing index to hit 59 in Oct.  An index tracking new orders registered 57.4%, a decrease of 4.4 percentage points from the Sep reading of 61.8%.  “Demand remains moderately strong, with the New Orders Index easing to below 60 percent for the first time since April 2017, the Customers’ Inventories Index remaining low but improving, and the Backlog of Orders Index remaining steady,” Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee, said.   “Consumption softened, with production and employment continuing to expand, but at lower levels compared to September.”  Despite the moderation in the manufacturing numbers, Oct marked the 114th consecutive month of overall economic growth, according to the Manufacturing ISM report.  The latest read on the health of the manufacturing sector comes amid an ongoing trade dispute between the US & China as a part of Pres Trump's “America First” policy.  The White House hopes that it can pressure Beijing into a more favorable trade deal through taxes on Chinese goods.  The pres escalated the economic spat in Sep, imposing tariffs on an additional $200B worth of goods from China as of Sep 24.  The next wave of tariffs started at a 10% rate before climbing to 25% at the start of 2019 if the disagreement between the 2 nations is not resolved.  The rift has not yet had a major impact on US economic activity, with the first read on Q3 GDP showing growth of 3.5% on an annualized rate.  The Commerce Dept said last month that inflation has remained relatively tame & that consumer spending surged.

Manufacturing activity slips for second month; construction spending unchanged in September 

Hope springs eternal for the bulls on hopes for new US-China trade talks with a positive outcome.  That's still weeks away & they will involve resolving complicated issues.  Stocks generally rally on the first day in a new month.  It will be up to the bulls to extend today's enthusiasm.

Dow Jones Industrials

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