Thursday, April 18, 2019

Markets edge higher after economic data

Dow rose 110, decliners slightly ahead of advancers & NAZ inched up 1.  The MLP index fell 1+ to the 251s & the REIT index recovered 3+ to the 373s after recent selling in REITs.  Junk bond funds fluctuated & Treasuries went higher (more below).  Oil crawled up to 64 (more below) & gold was steady at 1276.

AMJ (Alerian MLP Index tracking fund)

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The US economy remains on track to cool slightly in 2019, according to mortgage giant Fannie Mae.  That's largely a result of the fading fiscal stimulus from the $1.5T Tax Cuts & Jobs Act passed in late 2017, which only temporarily boosted consumer spending & business investment.  Fannie said in a news release, it's forecasting economic growth for 2019 at 2.2%, down from about 3.0% in 2018.  GDPNow, an up-to-date tracker published by the Federal Reserve Bank of Atlanta, is currently predicting 2.4% for Q1.  That reading on Apr 26 will reveal the effects of the longest gov shutdown in history on the US economy.  But as the effects of that shutdown, which lasted for 34 days begin to wane, & if the Federal Reserve refrains from raising interest rates again for the rest of this year, the economy could see stronger growth in H2.  “The predominant downside risks – the U.S.-China trade dispute and slowing global growth – are expected to ease later this year, which should help bolster growth in the second half,” Fannie Mae said.  “Despite its self-described ‘patience,’ we still expect the Fed to raise its key policy rate at the end of the year due to stronger second-half growth.”

US economy on track to slow in 2019, Fannie Mae says

In a closely awaited report, the US Intl Trade Commission reported that the US-Mexico-Canada Trade Agreement (USMCA) would increase US real GDP by $68.2B (0.4%) & help create 176K more US jobs, or increase employment by 0.1%.  ITC's report analyzing the economic impact of USMCA also found that the trade deal, which needs to be ratified, would increase US exports to Canada by $19B to Mexico by $14B.

ITC says U.S.-Mexico-Canada trade deal would lift GDP by 0.35%

Treasury prices rose, pushing yields lower, after a weak eurozone purchasing managers index & the release of the Mueller report, drew investors into gov paper.  In a holiday-shortened week, the Securities Industry & Financial Markets Association recommends the bond market close early at 2PM & stay closed on Good Friday.  The 10-year Treasury note yield slipped 2.9 basis points to 2.563%, while the 2-year note yield edged lower by 1.6 basis points to 2.386%.  The 30-year bond yield fell 3.2 basis points to 2.960%.  Bond prices move inversely to yields.  Treasuries & European bonds rallied after soft eurozone data dealt a blow to the hopes that the global economy & the eurozone was turning a corner.  Still, analysts are optimistic that China’s fiscal stimulus & subsequent stabilization will boost export-dependent European economies later this year.  The eurozone composite purchasing managers index for Apr to 51.3, from 51.6 in Mar, below expectation for 51.8.  A reading above 50 indicates an increase in economic activity.  In the US, retail sales in Mar jumped 1.6% last month, versus the 1.1% increase forecast.  Weekly jobless claims for last week fell 192K, close to a 50-year low.  But in less positive data, the Philadelphia Fed index for Apr fell to 8.5, from a reading of 13.7 in Mar.  The Markit composite purchasing managers index fell to 52.8 in Apr, its lowest in more than 2 years, from 54.6 in Mar.  The bond market maintained its rally after attorney general William Barr released the full report of Robert Mueller's investigation into links between Moscow & Pres Trump's presidential campaign.

Treasurys rally as investors grapple with economic and geopolitical jitters

Oil futures settled higher, with US prices up 0.2% for the holiday-shortened week.  There will be no oil trading in US & UK on Good Friday.  Traders continued to weigh the outlook for production, ahead of the expiration of the OPEC-led production cut agreement in Jun.  May West Texas Intermediate oil rose 24¢ (0.4%) to settle at $64 a barrel on the NY Mercantile Exchange.

U.S. oil futures tally a gain for a seventh straight week

The number of people who applied for unemployment benefits in mid-Apr fell for the 5th week in a row to a nearly 50-year low of 192K, a remarkably small level of layoffs that gives the economy a sturdy foundation on which it can continue to grow despite recent hiccups.  Jobless claims slipped by 5K to 192K last week, the gov said.  The forecast called for a 204K reading.  New claims have totaled less than 200K for the 2nd week in a row, a feat last accomplished in the fall of 1969.  Reduced layoffs, steady hiring & the lowest unemployment rate in ½ a century have produced the strongest labor market in decades & fueled a nearly record long economic expansion.  Jobless claims have fallen steadily in the past 5 weeks after a brief spike in Feb tied to seasonal changes in employment.  The 4-week average of new jobless claims dropped by 6K to 201K, also the lowest mark since 1969.  The monthly average is viewed as more stable since it smoothens out the weekly gyrations.  The number of people already collecting unemployment benefits, known as continuing claims, declined 63K to 1.65M.  That’s also near a multi-decade low.  Diminished layoffs, steady hiring & the lowest unemployment rate in ½ a century have produced the strongest labor market in decades, fueling a long economic expansion that will turn 10 years old in Jun.

Jobless claims dive even lower to 192,000, sit at nearly 50-year low

Sales at US retailers surged in Mar by the most in a year & a ½, the latest in a string of reports suggesting the economy is firming up after a soft spell of growth earlier in the year.  Retail sales soared 1.6% last month, the gov said.  The forecast called for sales to climb 1.1%.  Sales of new cars and trucks rose 3.1%, the best performance this year, to give the broader retail industry a boost.  Auto receipts represent about 1/5 of all retail sales.  As a result, sales at auto dealers jumped 3.5%, the 2nd big increase in a row.  In less welcome news, Americans also spent more to fill up their gas tanks.  The average price of gas nationally rose almost 10% in Mar to $2.62 a gallon, gov figures show.  The last time prices were that high was in Nov.  Oil prices have risen sharply in early 2019, though prices are at similar level compared to the same time last year.  Even if gas & autos are set aside, retail sales still rose a robust 0.9%.  Among the big winners: internet retailers, clothing stores, home-furnishing outlets & grocers.  Sales rose 1-2% in those segments.  Sales rose in every category except for stores that sell books, musical instruments & hobby items.  Traditional brick-&-mortar department stores were also laggards: sales were flat.  The turnaround in retail sales last month adds to mounting evidence that the economy is perking up as spring gets underway.  Growth is unlikely to match last year’s scorching 4.2% pace, but a sturdier expansion should ease lingering worries about the threat of recession later this year.

Retail sales post biggest gain in 1 ½ years, point to rebounding economy

The Dow crawled up 150 in a short week with choppy trading.  Not impressive, but the bulls are happy to see any gain.  The Dow is 265 under the Oct record, not bad considering global economies have been sluggish & major trade deals are stuck in the mud.  Hopes are running high on a US-China trade deal.  Best holiday wishes for all!!

Dow Jones Industrials

Wednesday, April 17, 2019

Mixed markets as investors wait for more earnings reports

Dow dipped all of 3, advancers over decliners about 3-2 & NAZ gave back 4.  The MLP index lost 2+ to the 253s & the REIT index fell 2+ to 371.  Junk bond funds did little & Treasuries were flat in price.  Oil slid back to the 63s & gold was about even at 1276 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Economic activity across the US expanded at a slight-to-moderate pace in Mar & early Apr with tight labor markets and moderate wage growth, according to the Federal Reserve's Beige Book.  All of the Fed's 12 districts reported slight-to-moderate gains in recent months, the Fed said in its region-by-region roundup of anecdotal information known as the Beige Book.  The report, prepared by the Federal Reserve Bank of St Louis, was based on information collected thru Apr 8.  Employment continued to increase nationwide, with 9 districts reporting modest or moderate growth.  The employment increases were largely concentrated in high-skilled jobs.  3 districts reported slight growth.  The labor markets remain tight, however, restraining the rate of job growth.  A majority of districts cited some difficulties finding qualified workers for both technical & professional positions.  In fact, some firms were enticed to offer bonuses & expanded benefits packages in order to woo new employees.  Prices have also risen modestly since the release of the last report in March -- partially because of tariffs, freight costs & rising wages.  The Beige Book, released 8 times per year, precedes next week's 2-day FOMC hearing, during which policymakers are expected to vote to keep interest rates steady.  During the Mar meeting, policymakers largely approved a patient approach to monetary policy in the year ahead, signaling there will be no rate hikes in 2019 unless the economy improves.  “With regard to the outlook for monetary policy beyond this meeting, a majority of participants expected that the evolution of the economic outlook and risks to the outlook would likely warrant leaving the target range unchanged for the remainder of the year,” the minutes said.

Fed Beige Book reports slight-to-moderate growth

As the US & China work thru the final stages of trade negotiations, Chinese officials are identifying intl travel dates on Pres Trump's calendar that might offer potential for a summit off of US soil.  One trip in particular that’s risen to the top of the list:  Trump's expected visit to Japan at the end of May, putting him in the Asia-Pacific region around the time negotiations are expected to conclude.  Neither the White House nor the Embassy of Japan would confirm the trip, in which Trump would be the first foreign leader received by Crown Prince Naruhito after he accedes to the throne on May 1.  But leakers said it's one option being considered.  An administration official acknowledged holding the summit in Asia is China's preference, though it remains unclear where the final location will be.  Trump has said the summit could happen on either continent and & he expects a resolution by the end of May.  “I would say we’ll know over the next four weeks,” Trump told reporters last week.  “It may take two weeks after that to get it papered, but over the next fairly short period of time, we’re going to know.”  While that timeline would put the target end date right around Trump's trip to Japan, Treasury Secretary Steve Mnuchin said talks would not be bound by an “arbitrary timeline,” & the South China Morning Post threw cold water on a deal being done by then.

China eyeing Trump’s late May Japan trip for potential Xi summi…

Gold fell for a 3rd straight session to settle at another low for the year, with prices finding little reason to make any significant moves on the back of a steady $ & mixed trading this week among US benchmark stock indices.  Prices for the metal also barely budged in the immediate wake of the Federal Reserve's Beige Book. The snapshot of US economic conditions, released after gold futures settled, showed that economic activity expanded at a “slight-moderate” pace in Mar & early Apr.  Gold for Jun delivery lost 40¢ to settle at $1276 an ounce after trading as high as $1282 during the session.  The settlement marked the lowest finish for a most-active contract since Dec 26.  Gold has moved lower this week as equity benchmarks in the US flirted with records & the 10-year Treasury note yield pushed higher.  Rising yields can undercut demand for bullion because the commodity doesn't carry a coupon.  Bond yields were little changed today as gold futures settled, but higher week to date.  US stocks moved modestly lower for the session & were mixed so far for the week.  Evidence of Chinese economic stabilization provided support to equities in Europe & Asia, fueling some risk-on sentiment.  In today's economic data, market participants got a handle on a shrinking trade balance for Feb.

Gold falls for a third session, settles at a low for the year

Oil futures finished lower (down 29¢), pressured by uncertainty surrounding global crude production, despite data from a US gov report that revealed the first weekly decline in US crude stocks in a month.  A report from China also revealed better-than-expected quarterly economic growth, easing concerns over a slowdown in energy demand.  The EIA data also showed inventory declines of 1.2M barrels for gasoline & 400K barrels for distillates last week.  Earlier, oil prices found support as data showed that China's economy, the world's 2nd largest, expanded by 6.4% over a year earlier in the three months ending in March.  That matched the previous qtr for the weakest growth since 2009, but beat expectations of 6.3%.  Oil had pulled back earlier this week after Russia's finance minister reportedly questioned his country’s participation in a production-cut deal led by OPEC that has been credited in part for a rally that has seen the US benchmark surge nearly 40% since the end of last year as Brent rose more than 30%.  The deal is set to expire at the end of Jun & OPEC with its allies have scheduled their next official meetings for Jun 25-26.  Renewed fighting in Libya has raised concerns about the durability of a pickup in oil exports by the country.  Sanctions on Venezuela & the approaching expiration of US waivers for importers of Iranian oil have also contributed to supply jitters.

Oil ends lower amid global output uncertainty; U.S. supplies dip

Stocks were not able to get any traction & the popular indices were pretty much even today.  US-China negotiations still need more work as talks are expected to last into May, at a minimum.  And earnings have not been inspiring for investors.  Dysfunctional DC is another drag.  It may be hard to quantify, but it worries investors which is keeping them from bidding up stock prices.

Dow Jones Industrials

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