Thursday, December 20, 2018

Markets extend slide after assessing Fed comments

Dow dropped 165, decliners over advancers 4-3 & NAZ fell 29.  The MLP index was off fractionally in the gloomy 231s & the REIT index lost 3+ to the 337s.  Junk bond funds were mixed & Treasuries crawled higher in price.  Oil fell 1+ to the depressed 46s & gold rose 6 to 1263, a 5 month high.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil46.84
 -1.33  -2.8%

GC=FGold   1,264.50
+8.10 +0.6%

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A global decline in stocks ttoday weighed on US equities, which were struggling after the Federal Reserve raised a key interest rate for the 4th time this year.  Stocks in both Europe & Asia fell in trading, following drop in the US a few hours earlier.  Japan's Nikkei closed the session down 2.8%, to a 15-month low.  China's Shanghai Composite ended the day down 0.5% & Hong Kong's Hang Seng fell 0.9% at the close.  In European trading, London's FTSE traded down 0.4%, Germany's DAX dropped 1% & France's CAC fell 1%.  As expected, policymakers at the central bank voted yesterday to hike the benchmark federal funds rate by a qtr percentage point, setting a range of 2.25-2.5%.  It was the 4th such move in 2018.  Fed Chair Jerome Powell said that the central bank expected 2 rather than 3 interest rate hikes next year did not buoy investor sentiment.  Yesterday, the major indices were all higher until the 2PM announcement of the interest rate hike.  Investors noted that the interest rate announcement was not couched in as dovish language as many had hoped.  Notably, the Fed predicted “some further gradual increases” in its guidance, which didn’t satisfy investors who wanted to see the Fed drop “further gradual” from its outlook on possible future rate hikes.  Crude oil prices extended losses, falling 3.43$ to $46.52 per barrel.  At one point after the central bank's announcement, the Dow was down 500 but settled at 23,324, its low for 2018.

Global stocks fall following Fed interest rate hike

Concerns about the tariff war between the US & China has retailers hoarding inventory.  Retailers are warehousing Chinese imports of all kinds - microwaves, vacuum cleaner filters, swimwear, furniture, according to Amy Magnus, who heads the National Customs Brokers & Forwarders Association of America.  Magnus is one of over a dozen customs brokers, retailers, vendors, analysts & supply chain experts who have said that retailers have been stockpiling inventory from China to avoid higher tariffs that may kick in next year.  The National Retail Federation (NRF) & Hackett Associates have reported that imports at major US retail container ports surged 13.6% to a record 2.04M containers in Oct.  Stores raced to buy Chinese products in Sep, when the Trump Administration announced 25% tariffs would go into effect on Jan 1 on $200B of Chinese imports.  The US & China have since agreed to a 90-day trade war truce until Mar 2, but supply chain firms & vendors said this has not slowed buying or forward orders because the tariffs could still be hiked.

Trump tariff war with China sends US retailers on buying binge

The Senate passed a short-term spending bill by voice vote yesterday night intended to avoid a gov shutdown.  The measure moves on to the House, where if passed, then goes to Pres Trump for his signature.  The Senate  introduced the stopgap measure to fund the gov, Majority Leader Mitch McConnell said.  The pres has been in a stand-off with Dems over funding for a wall along the country's southern border, which has prohibited lawmakers from reaching an agreement on a spending bill.  Congress needs to agree on the measure by Fri midnight or parts of the gov will shut down.  On Feb 8, when the measure runs out, Dems will have control of the House, which could lead to an even more challenging battle for Trump over border wall funding.  While Trump suggested last week that he would be “proud” to shut down the gov over border security, he seemed to back away from that stance this week.  Yesterday, he suggested the trade agreement reached with Canada & Mexico (USMCA) would lead to an indirect payment from Mexico.  CRs, while useful in keeping Capitol Hill running, can have negative consequences on federal agencies, which are unable to plan for the coming year when their budgets have not been finalized.

Senate passes short-term spending bill to avoid shutdown

Mounting trade risks are dragging down the the confidence of senior finance officers at companies operating in China, according to the results of a survey by Deloitte.  The consultancy polls financial execs twice a year about their attitudes on trade & business for its China CFO Survey.  Asked to describe changes in sentiment over the past 6 months, 82% of respondents said their economic outlooks had become less optimistic.  That marked a significantly change from the prior poll, where just 30% said their expectations had grown less rosy.  "There has been a sharp shift in sentiment," William Chou, national managing partner of the Deloitte China CFO Program, said, citing factors including a lack of resolution to the ongoing tariff conflict between Beijing & DC, & China's struggling stock markets.  The struggling stocks have been blamed in part on the ongoing trade war between the world's 2 largest economies.  Pres Trump & Chinese Pres Xi Jinping earlier this month declared a 90-day ceasefire in the conflict pending further negotiations, but a host of tariffs already imposed by both sides remain in place & the outlook for a resolution remains unclear.  Deloitte received 108 responses to the poll from executives at a mix of multinational, state-owned & privately owned companies operating in mainland China, Hong Kong & Macau.  The survey was conducted Sep-Nov.  A total of 69% of respondents hold positions at the level of CFO or finance director, while 8% are VPs.  The survey also found that 59% of respondents think trade volumes will decline in the next year, while 56% said their companies had already been or expected to be affected by rising tariffs.  Asked what countries or regions would benefit from shifting trade patterns, 53% of the execs said Southeast Asia would see the largest increase in export volumes, with only 9% choosing China.  "Southeast Asia has been developing itself as a manufacturing hub and the changes may provide it unforeseen opportunities," Deloitte said.  "The region may also benefit from companies shifting manufacturing capabilities to avoid some of the trade protectionist measures," it added.  And regarding the outlook for China's currency, 74% of respondents said they expect the yuan to weaken further against the $ in the coming year.  Deloitte's Chou said execs are hungry for a positive resolution to the conflict:  "If (the U.S. and China) can eventually reach an agreement, business sentiment will quickly improve."

Top finance execs are losing confidence in China's economy, survey shows

Investors are unhappy with the cheerless comments by the Fed.  Avoiding a partial gov shutdown is still on the table as some Reps in the House don't like the spending bill passed by the Senate.  Then there is China & that picture is not improving.  The Dow is only 180 above 23K currently.  It's ability to hold above 23K at the close is very shaky.  YTD it's down 1500.

Dow Jones Industrials

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