Friday, December 7, 2018

Market plunge again over confusion on US-Chinese relations

Dow sank 558 (finishing near the lows), decliners over advancers better than 2-1 & NAZ tumbled 219.  The MLP index was steady in the 243s.  Junk bond funds fluctuated & Treasuries were a little higher.  Oil gained 1+ to the 52s on production cuts (more below) & gold shot up 11 to 1255 on growing demand for a safe haven investment.

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Shoppers are on pace to spend a record amount of money online during this holiday season, according to early projections from Adobe Analytics.  Consumers spent $80.3B on e-commerce platforms on Nov 1-Dec 6, marking an increase of 18.6% compared to the $67.7B spent in the same period one year ago.  Smartphones played a key role in the sales surge, with mobile transaction revenue rising nearly 55% to $23.7B.  “Retailers are reaping the rewards of their investments in mobile and have seen unprecedented success in converting mobile traffic to sales,” said Taylor Schreiner, director of Adobe Digital Insights.  “Holiday shoppers have relied heavily on their mobile devices, resulting in an unprecedented 55% percent year-over-year increase in sales from smartphones alone. Indeed, smartphones are driving this season’s impressive growth.”  For the full holiday season of Nov 1-Dec 31, consumers are expected to spend at least $124B.  The firm measures data from 80 of the top 100 US online retailers, that would figure would smash last year’s total spending of $108B.  Holiday figures were bolstered by unprecedented spending on Black Friday & Cyber Monday last month.  Customers spent a record $6.22B on Black Friday & $7.9B on Cyber Monday.  Shoppers in Alaska, California, Washington, NY & Wyoming have spent the most money per order so far this holiday season.

US holiday online shopping on pace for sales record

Top White House economic adviser Larry Kudlow said that Pres Trump is focused on trade talks with China & is aware of the situation surrounding the arrest of a top executive from China telecom giant Huawei.  "I’m sure I’m not privy to the law enforcement action. We’re certainly in deep discussion on the trade actions – I really don’t think one cancels out the other,” Kudlow said.  Huawei CFO Meng Wanzhou was arrested in Canada on Sat at the same time that Trump & China Pres Xi Jinping met on the sidelines of the G20 Summit in Buenos Aires, to discuss a trade truce.  Trump's national security advisor John Bolton yesterday said that he knew of the arrest.  However, Kudlow said Trump had no knowledge of the arrest.  “President Trump did not know—none of us knew as a matter of fact… period full stop,” he added.  Fears that the detention of Huawei’s CFO may derail the already divisive trade talks between the US & China is contributing to high volatility for the stock market this week.  The Dow, S&P 500 & NAZ dipped back into negative territory for 2018.

Larry Kudlow weighs in on Huawei

Chinese state-run media attacked the US in blistering editorials over the arrest of a senior Huawei telecoms exec in Canada this week.  Meng Wanzhou was arrested in Vancouver on Sat & faces extradition to the US.  Although the specific charge or charges against the daughter of Huawei’s founder were not disclosed, the US is investigating the company for possibly violating American trade sanctions against Iran.  It has been reported that she was arrested as part of a US investigation into an alleged scheme by Huawei to use HSBC for possible illegal dealings involving Iran, circumventing US sanctions.  China has called for the immediate release of Meng, a former officer in the Chinese military.  “It is clear that Washington is maliciously finding fault with Huawei and trying to put the company in jeopardy with US laws,” The Global Times wrote.  “Washington is attempting to damage Huawei's international reputation and taking aim at the tech giant's global market in the name of law.”  In a similar editorial, the state-run China Daily claimed Meng’s arrest is part of a US effort to contain the company's global expansion & called on DC to “change its mentality” toward China.  “Security concerns are the reason given, but no evidence of this has been forthcoming while the pressure from the US is writ large,” they wrote.  “What propels Washington's animosity against China is its pertinacious Cold War mentality, with which it continually distorts the reality of international relations.”  The rhetoric came as American political leaders called for the Trump administration to hold the company, which many view as a front for the Chinese gov & military -- accountable by issuing sanctions.  "It has been clear for some time that Huawei, like ZTE, poses a threat to our national security,” Sen Mark Warner, Dem, said.  “Now we know that Huawei, like ZTE, has violated U.S. sanctions law. It's my hope that the Trump administration will hold Huawei fully accountable for breaking sanctions law, as it failed to do in the case of ZTE.”  Warner is the vice chair of the Senate Intelligence Committee.  Tensions over Meng & Huawei threatened to derail an already fragile trade deal between the US & China, & send stocks plummeting yesterday before they clawed their way back.

Huawei CFO arrest a 'despicable rogue action' by US: Chinese media

St Louis Federal Reserve Pres James Bullard said the central bank could consider postponing its widely anticipated Dec rate hike because of an inverted yield curve.  "The current level of the policy rate is about right," Bullard said in prepared presentation.  In a Q&A session later, he suggested delaying the expected rate hike until Jan.  Bullard is the first member of the Fed to speak publicly about a delay.  The St Louis Fed pres, while not a voting member of the policy-setting FOMC this year, will be able to do so in 2019.  Bullard, a monetary policy dove, may be trying to persuade members of the FOMC that a more cautious approach to tightening will be necessary.  Market participants see a 76.6% chance that the Fed will increase the overnight rate when it concludes its meeting on Dec 19.  Fed Chairman Jerome Powell said on Nov 28 that the central bank's overnight rate seemed to be near neutral, a marked difference from his Oct comment that interest rates were "a long way" from the level that neither stimulates nor restricts economic growth.  On Mon, the 2-year Treasury yield moved past that of 5-year Treasury notes.  A negatively sloped yield curve often signals an economic recession, though the time between inversion & GDP downturn has varied widely over decades.  Currenlty, the yield on the 2-year Treasury note held lower at 2.725% while the rate on the 5-year note was at 2.718%.

Fed's Bullard becomes first on central bank to suggest delaying December rate hike

The Univ of Mich said its consumer-sentiment index in Dec was unchanged at 97.5, keeping most of the gains upbeat consumers have registered over the last 2 years.  The expectation was for a 97.3 reading.  Consumers were a little more optimistic on current conditions but a bit more pessimistic about the future.  In the early Dec survey, consumers did mention hearing much more negative news about future job prospects.  But mostly, the data reflect a strong jobs market, shown in the separate report released today in which unemployment matched its lowest level since 1969.  The Univ of Mich said the last time the sentiment index was consistently above 90 was 1997-2000, when it recorded a 4-year average of 105.3.  Including the Dec report, the sentiment index has averaged 97.5 over the last 2 years.

Consumer sentiment index holds near highs in December

Oil prices surged higher after OPEC, Russia & several other producers reached an agreement to cut output next year in order to boost the market.  The new agreement comes at a time when the oil market is near the bottom of its worst price plunge since the 2008 financial crisis.  Oil prices have dropped more than 30% from their highs in early Oct, hammered by concerns about oversupply, weakness in global markets & technical trading that exacerbated the slide.  OPEC & allies agreed to reduce output by 1.2M bpd during H1-2019.  The production cut is roughly in line with expectations heading into the meeting.  Traders were expected the alliance to remove 1-1.4M bpd from the market.  Brent crude, the intl benchmark for oil prices, rose $1.81 (3%) to $61.87 a barrel after rising earlier more than 5%  to $63.73.  West Texas Imtermediate crude futures ended the session up $1.12 (2.2%) at $52.61 per barrel, off a session high of $54.22. The US is pumping at all time highs near 11.7M bpd, according to preliminary government figures.  Last week, the country exported more oil & refined fuels than it imported for the first time in decades.  Meanwhile, Russian production hit a post-Soviet era high at 11.4M bpd this fall & Saudi oil production rose to a record 11.1M bpd in Nov.  The supply surge from the world's top 3 oil producers is as forecasters warn oil demand growth will be softer than anticipated next year.  OPEC members agreed to cut production by 800K bpd, while non-OPEC producers aim to shave 400K bpd off the market.  Top exporter Saudis Arabia will deliver the lion's share of the OPEC cuts.  Saudi Energy Minister Khalid al Falih said he expects the kingdom's output to fall to 10.7M bpd in Dec & 10.2M  bpd in Jan.  Russia's pledge pencils out to a 228-230K bpd cut, Russian Energy Minister Alexander Novak said.  However, Novak warned that Russia would reduce supply gradually due to climate conditions that affect its oil fields in the winter.

Oil prices rise as OPEC reaches deal to cut output

Wild & dreary days for stocks have become common in recent weeks.  Not a good sign going forward for what has been an extraordinary bull market in the last 2 years.  The Dow is back to where it was almost 1 year ago.  But that was on its way up!!  Extra confusion about US-Chinese relations is the last thing stocks need now.  However that is the case & investors will have to ride out this crazy period for stocks.  After all the swings were finished, the Dow dropped 1150 this week.  Worse, wild swings are not over.

Dow Jones Industrials

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