Tuesday, November 20, 2018

Markets plunge led by continued selling in tech shares

Dow tumbled 551, decliners over advancers 5-1 & NAZ gave back another 119.  The MLP index sank a huge 7 to the 242s, another recent low, & the REIT index was flattish while other stocks & commodities were sold.  Junk bond funds drifted lower & Treasuries inched higher.  Oil was down a whopping 4 to the 53s (more below) & gold fell 3 to 1222.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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White House economic adviser Larry Kudlow said that Pres Trump is optimistic on the prospect of reaching a trade deal with China, as long as it meets certain conditions.  “[Trump] believes that China would like to have a deal,” said Kudlow.  “But he has also told me [on] a number of occasions any deal between the two countries has got to be in American interests without any question.”  Kudlow said Trump's meeting with Chinese Pres Xi Jinping during the Group of 20 (G-20) summit in Buenos Aires, presents a good chance to squash the retaliatory exchanges that the world's 2 largest economies have been engaged in since Jul.  “They will be meeting in Argentina,” he said.  “I and many others will be there and we will see how it turns out. You’re not going to get a deal unless it suits American interest. That’s a key point that President Trump is making.”  According to Kudlow parts of the deal must include intellectual property & tariff protection.  Trump, in Sep, imposed a 10% tariff on $200B worth of Chinese goods that includes a 25% increase by the end of the year.  Trade-sensitive shares such as Boeing (BA) & 3M (MMM) contributed to a sharp drop in the Dow today.

China trade deal must be in America's best interest: Larry Kudlow

British Prime Minister Theresa May got a reprieve in one of her Brexit battles as party rebels said they did not yet have the strength for a leadership challenge.  But she faced a new headache as parliamentary allies warned they could remove support from May's minority gov if she does not alter her divorce deal with the EU.  Northern Ireland's Democratic Unionist Party (DUP) struck a deal last year for its 10 lawmakers to back May's Conservatives on major legislation.  But the Protestant, pro-UK party opposes the Brexit deal's plans for keeping the border between Northern Ireland & EU member Ireland open after Brexit, saying it weakens the ties binding the UK by creating separate trade rules for Northern Ireland.  In a warning to May, DUP lawmakers abstained or opposed the gov during several votes on a finance bill yesterday.  DUP lawmaker Sammy Wilson said the votes were "designed to send a political message to the government: Look, we've got an agreement with you but you've got to keep your side of the bargain."  May defended her Brexit deal in an article, saying it "puts Northern Ireland in a fantastic position for the future."  She said businesses would benefit because Northern Ireland would "be a gateway to both the EU market and the rest of the U.K.'s market."  In better news for the beleaguered British leader, a leading pro-Brexit lawmaker acknowledged that the rebels haven't mustered the numbers for a leadership challenge.  Jacob Rees-Mogg is one of a group of Conservative legislators who have written letters calling for a no-confidence vote in the prime minister.  They say the draft divorce deal would leave Britain tied to the bloc's rules without any say in making them.  The draft agreement reached last week triggered an avalanche of criticism in Britain & left May fighting to keep her job even as British & EU negotiators raced to firm up a final deal before a summit on Sun where EU leaders hope to rubber-stamp it.  The 585-page, legally binding withdrawal agreement is as good as complete, but Britain & the EU still need to flesh out a far less-detailed declaration on their future relations.  May's office said she would meet European Commission Pres Jean-Claude Juncker in Brussels tomorrow as part of work to finalize the declaration.  EU leaders have largely welcomed the deal, but Spain expressed concerns, saying the wording leaves unclear how Gibraltar, the British territory at the southern tip of the Iberian Peninsula, would be dealt with.  Spanish Prime Minister Pedro Sanchez said that his country would vote against the divorce agreement if Gibraltar's future isn't considered a bilateral issue between Madrid & London.  Sanchez told a business forum in Madrid that Spain "cannot accept that what will happen to Gibraltar in the future depends on negotiations between the U.K. and the EU. It will have to be something that we define and we negotiate and agree between the U.K. and Spain."  If the EU approves the deal it needs to be passed by the European & British Parliaments.

May gets rebellion reprieve, but faces warning from allies

Oil prices plummeted as much as 7%, snapping 4 days of gains & renewing a sell-off that has plunged crude futures into a bear market.  The renewed selling in the energy complex dovetailed with a sharp pulln\back in the stock market where the Dow was down more than 500 points, after posting a nearly 400-point loss in the previous session.  Crude futures & equities fell in tandem during a broad market sell-off last month that saw investors dump risk assets.  West Texas crude settled the session down $3.77 (6.6%) at $53.43 after it fell as low as $52.77, its weakest price level since Oct 2017.   Brent crude dropped $4.43 (6.6%) to $62.36 a barrel after earlier falling to $61.71, a low going back to Dec 2017.  US crude prices have now dropped 31% from a 4-year high last month & Brent has tumbled nearly 29% from its recent high.  Commodity watchers have grown more concerned that supply will outstrip demand next year.  The market now expects OPEC, Russia & several other allied producers to launch a fresh round of output cuts in the coming weeks to prevent a price-crushing global crude glut.  Crude futures fell to fresh session lows after Pres Trump issued a statement saying the US stands for Saudi Arabia following the slaying last month of journalist & US resident Jamal Khashoggi by Saudi agents.  The CIA has reportedly concluded that Saudi Crown Prince Mohammed bin Salman ordered Khashoggi's killing, but Trump cast doubt on that assessment, saying "maybe he did and maybe he didn't!"  Trump's remarks come 2 weeks before the Saudi-led OPEC oil cartel meets with Russia & other producers to set global oil policy.  The allied exporters are widely expected to cut output following the pullback in oil prices.  Trump recently urged Saudi Arabia & OPEC against throttling back production, a move that would boost oil prices.  Keeping energy costs down is a priority for the pres.  Forecasters now see oil demand growing less than anticipated in 2019.  Meanwhile, the world's top producers — the US, Russia & Saudi Arabia — have been pumping at or near records.  The 15-member OPEC cartel has also been ramping up production.  Exacerbating the rise in global oil supplies, the Trump administration is allowing some of Iran's biggest customers to continue importing crude despite restoring sanctions on the Islamic Republic.  OPEC & other nations agreed to hike output in Jun based in part on Trump's vows to strictly enforce the sanctions.  Now, OPEC & its partners are poised to cut output by as much as 1.4M barrels per day when they meet in Vienna on Dec 6.  Analysts & traders say the oil market rout has deepened due to momentum trading & investors dumping crude futures to buy natural gas contracts.  Natural gas futures have surged about 40% over the last month on colder-than-average weather.

Oil prices plunge as stock market slides

Stocks buyers are away on holiday, leaving the bears in charge.  This is shaping up as one ugly week, a time when holiday cheer should bring joy.  OK, there was a little buying in the last hour followed by more selling.  Melancholy is the predominant emotion.  Tomorrow is a full day of trading & Fri is a ½ day.  Looking at the chart below, the Dow is flirting with the low made one month ago (after losing 1K in just 2 days) & not far from lows made earlier this year.  NAZ is below 7K after topping 8K only 3 months ago.  Holiday joy is missing.

Dow Jones Industrials

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