Thursday, December 20, 2018

Markets dive when shutdown talks collapse

Dow plunged (once again) 464 to below 23K (for what it's worth, off session lows), decliners over advancers 4-1 & NAZ sank 108.  The MLP index tumbled 6+ to the very depressed 225s & the REIT index was off almost 4 to the 337s.  Junk bond funds pulled back again in what has been a tough time for them & treasuries were a little lower today.  Oil dropped 2 to the low 46s (more below) & gold soared 9 to 1266.

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Pres Trump will not sign a Senate-passed spending bill, increasing the chances of a partial gov shutdown, House Speaker Paul Ryan said after meeting with the pres.  The Senate unanimously approved the legislation last night to keep the gov funded thru Feb 8.  With Trump's support, it appeared set to breeze thru the House before the midnight Fri deadline to fund seven agencies that make up about a qtr of the gov.  But Trump, who seeks $5B to build his proposed border wall, will refuse to sign the measure without his desired border security measures, Ryan said.  Trump's decision throws more chaos into the late scramble to keep the government running thru Christmas & the New Year.  "We just had a very long, productive meeting with the president," Ryan told reporters after House Reps met with the pres for more than an hour.  "The president informed us that he will not sign the bill that came up from the Senate last evening because of his legitimate concerns for border security."  In a subsequent statement, White House press secretary Sarah Huckabee Sanders said: "We urgently need funding for border security and that includes a wall."  Trump's desire for border wall funding leaves the path forward for Congress unclear.  As House Reps tried to head off conservative members' rebellion against the spending bill earlier today, both House Minority Leader Nancy Pelosi & Senate Minority Leader Chuck Schumer flatly said Dems would not approve money for the barrier.  Ryan, standing next to House Majority Leader Kevin McCarthy, said the leaders are "going to go back to the House and work with our members" on a solution that includes border security funding.  House Majority Whip Steve Scalise later said the House aims to add $5B in wall money, as well as disaster relief funding, to the Senate-passed measure.  That vote would likely take place tonight.  "We believe there is still time," McCarthy said following the White House meeting. Reps do not have a plan beyond the possible Thurs night vote.  Still, Senate Majority Leader Mitch McConnell told senators to prepare for a potential vote at around noon tomorrow.  It is unclear what spending plan would pass Congress & get Trump's signature, at this point.  Even if the GOP-controlled House approves border wall money, Dems could sink the proposal in the Senate.  Numerous lawmakers, including some who lost elections in Nov, have already left DC, complicating matters.  And Trump is scheduled to leave DC on tomorrow for a vacation.  Pelosi & her caucus supported the short-term spending bill that Trump said he would not sign.  Earlier today, she called wall money a "nonstarter."  If all Dems support the Senate-passed measure, it would need limited Rep votes to get thru the House.  If the gov does shut down, the effects would likely be limited, as lawmakers have already funded 5 agencies including the Pentagon & Dept of Health & Human Services.  Important law enforcement agents would stay on the job.  Still, the gov likely would not open again until after Jan 3, when the new Congress starts.  A "long" shutdown "might show up" in an upcoming gov jobs report, White House Council of Economic Advisors Chairman Kevin Hassett said.  Trump has repeatedly threatened to shut down the gov if Congress does not pass money for the wall, a key campaign proposal that he claimed Mexico would fund.  Last week, the pres said he would be "proud" to close parts of the gov if lawmakers did not approve funding for the barrier.

Shutdown talks collapse: Trump won't sign spending bill without wall money

Treasury Secretary Steve Mnuchin told FOX Business that the market selloff in reaction to the Federal Reserve's rate-hike decision was “completely overblown.”  “I think that the market was disappointed in the Chairman’s comments,” he said.  “But I would say if you look at the specifics you can’t just look at the headline which was two more rate hikes you have to actually look at the seventeen dots on the dot plot.” The dot plot is a chart the Fed uses to convey expectations for the federal funds rate.  The Federal Reserve raised the key interest rate a qtr-point yesterday, as expected, & said they only anticipate 2 more hikes next year, down from the 3 that were forecasted.  In Mnuchin's opinion the data showed more policymakers favored a slower pace of rate hikes.  “So each one of the governors and the people on the committee put their views. If you look at this the high end of the range came down significantly, and there’s still a pretty wide dispersion,” he said.  “So there’s clearly people on the committee who don’t think they need to raise rates much here.”  With the Dow and S&P 500 on pace for the worst Dec since 1931 & with many stocks hitting 52-week lows, Mnuchin added that he feels “U.S. equities are tremendous value.”  The stock market declines in the final weeks of the year have come amid high volatility, a pattern Mnuchin blamed on algorithmic trading & the Volker Rule.  “I think that with the advent of computerized trading which has such a big part of the market now combined with the Volcker Rule where you can’t have market makers commit capital, you just have much bigger moves in both directions,” he added.  “Clearly you have a situation here where the market has overreacted to the Fed’s comments and you see program trading taking over.”  Mnuchin also said the Fed's decision to downsize its balance sheet will give them more capacity in the future.

Mnuchin: Market reaction to Fed rate hike 'completely overblown'

Already this holiday season, a record $110.6B has been spent online, an increase of nearly 18% from a year ago, according to a new report.  The surge in internet spending comes as retailers have been investing in their websites, adding more convenient delivery options or dropping shipping fees altogether. Traffic at stores, meanwhile, has been slightly lighter, with more consumers turning to their smartphones from their sofas to shop deals.  By this time last year, $93.9B had been spent online since Nov 1, said Adobe Analytics, which tracks the web transactions of 80 of the top 100 internet retailers in the US.  "Weary holiday shoppers continue to look for alternatives to crowded stores, long lines and empty shelves in the final push to Christmas," said Taylor Schreiner, director of Adobe Digital Insights.  "Retailers who can offer the easiest shopping experience, whether through excellent use of data to anticipate shoppers' needs or by providing an option for picking up products at brick-and-mortar stores, are the ones people are flocking to this week."  Adobe said mobile transactions this holiday season have so far reached $33.3B, up 57% from a year ago & added "click-and-collect" orders, where shoppers make purchases online & then pick items up at stores, were up 47% from a year ago, making it the biggest "buy online pick up in store" Christmas on record.  Adobe is predicting online sales this holiday season, from Nov 1 - Dec 31, will reach at least $126B.

Online holiday spending surges 18% to a record $110.6 billion

The number of Americans filing applications for jobless benefits rose marginally from near a 49-year low last week, suggesting underlying strength in the labor market & broader economy.  Initial claims for state unemployment benefits increased 8K to a seasonally adjusted 214K for the latest week, the Labor Dept said.  Claims had dropped to 206K in the prior week, close to the 202K reached in mid-Sep, which was the lowest level since 1969.  The forecast for claims called for an increase to 216K.  The Federal Reserve raised interest rates on yesterday for the 4th time this year, but forecast fewer rate hikes next year & signaled its tightening cycle is nearing an end in the face of financial market volatility & slowing global growth.  The central bank said "the labor market has continued to strengthen," & described job gains as having been "strong, on average, in recent months."  The 4-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 3K to 222K last week.  A jump in filings to an 8-month high of 235K during the week ended Nov 24 had stirred concerns the labor market was slowing.  Last week's claims data covered the survey period for the nonfarm payrolls component of the Dec employment report.  Claims fell 11K between the Nov & Dec survey weeks, suggesting some improvement in job growth this month.  Nonfarm payrolls increased 155K jobs last month after surging by 237K in Oct.  Nov's slowdown in job growth was largely blamed on a shortage of workers amid a tight labor market.  The unemployment rate is near a 49-year low of 3.7% & not too far from the Fed's forecast of 3.5% by the end of 2019.  The claims report also showed the number of people receiving benefits after an initial week of aid increased 27K to 1.69M for the latest week.  The 4-week moving average of continuing claims rose 7K to 1.67M.

US weekly jobless claims rise less than expected

Oil prices plunged to their lowest levels in over a year on, deepening a sell-off fueled by concerns about oversupply as stock markets slumped on rising US interest rates.  West Texas Intermediate crude ended the session down $2.29 (4.8%) at $45.88, the lowest closing price since Jul 2017 & is down 24% this year.  Brent crude, the intl benchmark for oil prices, fell $2.89 (5%) to $54.35, its weakest settle since mid-Sep 2017.  Brent has shed nearly 19% in 2019.  Crude futures staged a rally in the previous session on signs of strong fuel demand in the US.  However, bearish reports out of Asia overnight added to worries on both the supply & demand sides of the oil market ledger.  In India, crude oil imports in Nov registered their biggest year-over-year decline in almost 4 years.  Meanwhile, Asian oil buyers reported robust purchases of Saudi crude in Jan after the kingdom cut prices into the region.  Oil recouped some of the losses through the morning, but dropped sharply around noon, mirroring a pullback in the stock market.  The Dow dropped 650 points as equities were buffeted by the Federal Reserve's decision to raise its benchmark interest rate yesterday.  Crude futures have now fallen more than 35% from their 52-week highs in early Oct.  The market is grappling with surging supply from the world's top 3 producers (the US, Russia & Saudi Arabia) at a time when demand for oil is expected to grow less than previously expected.  To prevent a price-crushing glut, OPEC & 10 other producers including Russia agreed earlier this month to remove 1.2M barrels per day from the market.  But the production cuts do not take effect until Jan & the announcement has so far done little to stop the collapse in crude prices.  OPEC Secretary General Mohammed Barkindo is now calling on the allied producers to publicly release their production levels.  The producers did not disclose that detail earlier this month, leaving the market to question how much oil production each country would cut.  "In the interests of openness and transparency, and to support market sentiment and confidence, it is vital to make these production adjustments publicly available," Barkindo told OPEC members in the letter.

Oil tumbles 4.8% to 17-month low as stock market slides

Trump is playing hardball as the shutdown deadline approaches.  Some of these guys have already gone home to start their holiday, making matters worse.  However DC chaos is not what this market wants & sellers are in firm command of the stock market.  The Dow is below 23K & down about 3K YTD.  Times are tough for investors.  For the time being gold is the hottest investment.

Dow Jones Industrials

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