Friday, November 30, 2018

Mixed markets ahead of trade talks

Dow lost 7, advancers  barely ahead of decliners & NAZ gained 23.  The MLP index fell 2 to the 245s & the REIT index was about even in the 354s.  Junk bond funds inched higher & Treasuries were purchased.  Oil dropped 1+ to just above 50 &  gold went down 6 to 1223.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil50.08
-1.37 -2.7%

GC=FGold   1,223.10
-7.30 -0.6%

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Srocks opened lower as investors eyed prospects for a positive outcome from planned meeting between Pres Trump & Chinese Pres Xi Jinping at the G-20.  The Sat meeting on the sidelines of the G-20 summit in Argentina is expected to focus on tariffs being placed by Trump on Chinese goods.  Such tariffs are blamed for higher prices on consumer goods for Americans.  In Asian markets today, China's Shanghai Composite ended the day up 0.8% & gained 0.3% for the week.  Hong Kong's Hang Seng was up 0.2% at the close, higher by 2.2% for the week & Japan's Nikkei average closed the day gaining 0.4%, adding 3.3% for the week.  In Europe, London’s FTSE was lower by 0.7%, Germany's DAX slipped 0.6% & France's CAC fell 0.4%.  Yesterday, US stocks finished lower after a PM rally faded.  Banks & technology companies fell after the market pulled off a huge rally the day before when Federal Reserve chair Jerome Powell suggested in a speech that the Fed might be almost done raising interest rates, & is willing to stop raising rates at least temporarily so it can assess the effects of the last few years of increases.  The S&P 500 index shed 0.2% to 2737 & the Dow ended 0.1% lower at 25,338.  The NAZ slid 0.3% to 7273.

US stocks mixed on hopes for positive Trump-Xi meeting at G-20

Growth in China's vast manufacturing sector stalled for the first time in over 2 years in Nov as new orders slowed, piling pressure on Beijing ahead of crucial trade talks between Pres Xi Jinping & Pres Trump this weekend.  If the high-stakes negotiations fail, Trump is widely expected to proceed with a sharp tariff hike on Chinese goods in Jan, which would further strain China's slowing economy & heighten risks to global growth.  Today's downbeat factory activity reading suggested a flurry of stimulus measures by Beijing in recent months has yet to be felt, adding to views that business conditions in China will likely get worse before they get better.  The official Purchasing Managers' Index (PMI), released by the National Bureau of Statistics (NBS), fell to 50 in Nov, missing expectations & down from 50.2 in Oct (the weakest reading in 28 months).  Analysts had forecast little change from Oct at already marginal growth levels.  The 50-point mark is considered neutral territory, indicating no expansion in activity or contraction on a monthly basis.  The Trump administration has pointed to growing signs of economic weakness in China & its slumping stock market as proof that the US is winning the trade war.

China reports weakest factory growth in over 2 years

Minneapolis Federal Reserve Pres Neel Kashkari said that central bankers should not be raising rates while job creation continues to be strong & inflation remains tame.  "For the three years since I've been at the Fed, we have been surprised by the labor market. We keep thinking we're at maximum employment. And then wage growth is tepid. And the headline unemployment rate drops further. Inflation has been well under control," he said.  "If the U.S. economy is creating 200,000 a jobs a month, month-after-month, we're not at maximum employment."  With neither pillar of the Fed's dual mandate from Congress — to promote maximum employment & keep inflation from getting too high — throwing off warnings signs, the Fed should pause on rate increases at this point, Kashkari said.  He added that hiking too forcefully before necessary could risk causing a recession in the US economy.  He believes rates are "close to neutral."  Furthering his case for holding rates steady, Kashkari added "there's still slack" in the labor market.  Unless wages really go up or inflation spikes, a wait-&-see posture at the Fed makes sense, he suggested.  Kashkari is not a voting member on the central bank's policymaking committee this year or next year.  But as a voter in 2017, he was against all 3 rate hikes last year, saying at the time there was no need to move because inflation wasn't a problem.  Over the long term, he thinks the economy won't grow much more than 2% annually.  While that's been seen as a base case for some time, he said that 2% growth at the near zero percent rates of the past is far more difficult to maintain with rates so much higher nowadays.

Fed's Kashkari says rates should not go up when job creation is strong and inflation is tame

An influential Federal Reserve policymaker appears to want the Fed to adopt wholesale changes to the way it targets inflation, urging a new framework that would encourage higher prices & provide more flexibility in US economic downturns.  NY Fed Pres John Williams did not comment on current interest-rate policy today.  Instead he waded into a debate that has just began: the central bank announced in Nov it will conduct an extensive review of its policy strategy & consider alternative approaches.  Williams, who has long favored changes, said the Fed faces "significant challenges" in a world in which neutral, or equilibrium, interest rates have been falling for years in part because people live longer & productivity has generally slipped.  The Fed currently uses a flexible inflation-targeting strategy in which it always attempts to hit a 2% target.  Prices are generally at target now & they did not stray too far below or above even through the last recession & recovery.  Yet inflation expectations could slip if the Fed is repeatedly forced to cut rates to near zero as it did for 7 years.  Williams said this was like "always swimming upstream, fighting a current of too-low inflation expectations that interferes with achieving the target inflation rate."  Instead he highlighted the benefits of "average-inflation" & "price-level" regimes, similar approaches which would compel the Fed to boost prices to make up for periods below target.  "Neither will likely be effective in practice unless communicated clearly and carried out consistently over time," he added at a meeting of Group of 30 central bank officials at the Federal Reserve Bank of NY.  The Fed, under pressure from a critical White House, is taking advantage of good economic times to host a series of forums across the country next year to hear from a "wide range" of stakeholders.  By mid-2019, it could lead to a rethink of the tools it uses and the way it communicates policy decisions.  At the center of the debate will be whether the Fed should continue to rely on large-scale asset purchases, or quantitative easing, in times of crisis - or rather should it adjust the inflation framework so that using QE is less likely.  For his part, Williams said that maintaining the status quo "carries with it the risk that inflation expectations become anchored at too low a level."

Williams backs new Fed approaches to targeting inflation

Today twiddling thumbs is in order.  Not much else to do.  There is very little price movement as traders await developments on trade talks between Trump & Xi Jinping.  The bulls are encouraged to see the Dow above 25K, however it has been staggering a lot in the last 2 months.  After wide swings, Dow is down 120 in Nov

Dow Jones Industrials

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