Friday, September 20, 2019

Markets slide lower after China delagation cancels visit with US farmers

Dow sank 160 closing at session lows, advancers slightly ahead of decliners & NAZ lost 65.  The MLP index was steady at 240 & the REIT index inched higher to the 408s.  Junk bond funds were little changed & Treasuries had modest gains.  Oil was flattish near 58 & gold gained 14 to 1520 (more on both below).

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Chinese trade negotiators had a sudden change of plans today, canceling a visit to meet US farmers after they wrapped up trade talks in DC this week.  The Chinese delegation has changed its travel schedule & is headed back to China earlier than planned, according to Nicole Rolf, the Montana Farm Bureau Federation's director of national affairs.  There was no explanation as to why they were cutting their trip short, Rolf said.  Nebraska depat of agriculture also said the Chinese officials called off a visit to farms in Nebraska.  Secretary of Agriculture Sonny Perdue confirmed yesterday the meetings were in the works as a way for China to build goodwill with American farmers.  The Chinese delegation, led by Vice Minister for Agriculture & Rural Affairs Han Jun, had planned follow-on visits to Bozeman, Montana, and Omaha, Nebraska.  The cancellation put a damper on hopes that China would restart purchasing US agricultural goods, which it had halted in Apr in retaliation against Pres Trump's tariffs.  China made up $5.9B in US farm product exports in 2018, according to the US Census.  It's the world’s top buyer of soybeans & purchased roughly 60% of US soybean exports last year.  Tensions between the US & China had eased ahead of the low-level trade talks this week as Trump granted tariff exemptions to many Chinese products & China also said it will exempt US agricultural products & other 16 types of US goods from additional tariffs.  Trump also decided to delay increasing tariffs on $250B worth of Chinese goods from Oct 1 to Oct 15 as a “gesture of good will” to China.  China also said its domestic companies have made inquiries about prices of American farm goods.

Chinese trade negotiators cancel US farm visit, cut trip short

Thousands of Canadian auto industry workers have been furloughed, with more temporary layoffs coming, as negotiations on a new labor contract between General Motors (GM) & the United Auto Workers (UAW) drags into a 5th day.  Jerry Dias, pres of Canadian trade union Unifor, which represents GM & other auto workers in Canada, said that roughly 4500 of his members have been temporarily laid off because of the strike so far.  He said that includes about 2500 workers at GM's Oshawa Assembly plant in Ontario, Canada, & 2000 people who work for GM's suppliers.  The suppliers are “getting clobbered,” Dias said, adding non-unionized plants are being affected as well.  Roughly 48K UAW members with GM have been on strike since Mon after the 2 sides failed to reach a deal by a Sat night deadline.  It is the union's first national strike against the automaker since a 2-day work stoppage in 2007.  The strike at GM's US plants has disrupted operations at the automaker's other facilities as well as at some of its suppliers.  While GM wouldn't confirm Dias' numbers, the company said toay that it has fully idled production at the Oshawa plant & temporarily laid off 2000 workers there.  The automaker initially said it furloughed roughly 2000 workers at the plant earlier this week, but it has since revised that number higher & expanded the temporary layoffs at the Oshawa plant.  “We plan to resume these operations as quickly as possible upon resolution of the UAW strike,” GM said.  According to Dias, GM plans to temporarily lay off 700 additional workers at the company's St Catharines, Ontario, plant on Mon & will “re-evaluate” production at its CAMI plant in Ontario next week, depending on the length of the strike.  GM spokesman Dan Flores declined to comment on the automaker's plans next week, saying the company is “monitoring the situation on an ongoing basis.”  The stock fell 41¢.
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Thousands more workers furloughed with more coming as GM, suppliers idle plants in UAW strike

Oil futures finished lower, but registered a sharp gain for the week, their largest in months, after attacks on Saudi Arabian production facilities last weekend raised concerns over the amount of spare capacity in the oil market.  Oil pared gains seen on Mon, when futures jumped nearly 15% in the aftermath of weekend attacks, which DC & Riyadh have blamed on Iran, that shut down ½ of Saudi Arabia's daily oil production.  Saudi officials on Tues subsequently said they were on track to restore production by month end.  But reports that Saudi Arabia has moved to import substantial amounts of crude from its neighbors as it scrambles to maintain export commitments & maintain market share has underlined concerns that the country, viewed as the primary source of spare capacity in the global market, would be unable to respond to any further shocks.  West Texas Intermediate crude for Oct fell 4¢ to finish at $58.09 a barrel, with the contract logging a 5.9% weekly advance (the biggest for the US benchmark since the week ended Jun 21).  The Oct contract expired at the end of the session.  Nov WTI  which is now the front month, shed 10¢ to settle at $58.09.  The global benchmark, Nov Brent crude  lost 12¢ to $64.28 a barrel & marked a 6.7% weekly advance, the largest since Jan.  Meanwhile, data form Baker Hughes revealed a 5th straight weekly decline in the number of active US rigs drilling for oil, suggesting a further slowdown in production.

Oil posts biggest weekly gain in months after attacks on Saudi facilities

Gold prices finished higher to end the week with a gain for the first time in about a month, as Pres Trump announced more sanctions on Iran & China reportedly cut short its trade negotiations with the US, fueling haven demand for the precious metal.  Trump called the Iran sanctions the highest ever imposed on a country.  He had promised earlier in the week to impose new Iran sanctions in retaliation for Tehran's alleged role in strikes on Saudi Arabian oil facilities.  Trump also said that he was looking for a “complete” trade deal with China& it didn't need to come before the 2020 election.  Reports said that a Chinese delegation cancelled plans to visit farms in Montana as part of its trade negotiations with the US.  Gold for Dec rose $8.90 (0.6%) to settle at $1515 an ounce, after retreating 0.6% yesterday.  For the week, the yellow metal saw a 1% gain based on last Fri's closing price, which put a halt to 3 consecutive weekly declines.  Prices had ended last week below the psychologically significant level of $1500.

Gold futures gain 1% for the week, after 3 straight weekly declines

Negotiations for US-China trade & the GM strike were stumbling blocks that hit the market around midday.  The Dow suddenly dropped 200 on the news & finished the week down 300 with a gloomy outlook for next week.  However, the bulls have been able to keep it near the record highs reeached in mid Jun.

Dow Jones Industrials









Markets climb cautiously towards new records

Dow added 65, advancers over decliners about 2-1 & NAZ was off 2.  The MLP index went up 1+ to the 341s & the REIT index was fractionally higher to the 408s.  Junk bond funds barely budged in price & Treasuries inched higher.  Oil rose a fraction in the 58s & gold went up 4 to 1511.

stock chart

CL=FCrude Oil58.54
 +0.41+0.7%

GC=FGold   1,508.90
+2.70 +0.2%







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Stocks were closing in on record highs after the Trade Representative said it was exempting more than 400 Chinese goods from tariffs.  The announcement comes as US & Chinese officials meet in DC for the 2nd day of trade talks, which they hope will pave the way for higher-level meetings next month.  All 3 of the major averages opened higher, with the Dow up 80 (0.3%).  The S&P 500 & NAZ held similar gains.  The New York Fed this AM injected another $75B into money markets thru a repo operation designed to provide liquidity & keep its fed funds rate within its target range of 1.75-2%.  The central bank has injected $278B into the overnight funding market after short-term rates spiked as high as 10% earlier in the week. Overnight, China's central bank reduced its 1-year loan prime rate to 4.2% from 4.25%. The Shanghai Composite rose 0.2%, but lost 0.8% for the week.  Hong Kong's Hang Seng was little changed, ending the week down 3.4%.  In Europe, London's FTSE, Germany's DAX & France's CAC swung between gains & losses.

US & Chinese officials are meeting in DC for a 2nd day to prepare trade negotiations next month in the trade war that has cast a shadow on growth.  But expectations have remained modest, with both sides indicating there is little too maneuver on the key sticking points over Beijing's industrial & technology policies.  Commerce Secretary Wilbur Ross said that it remained unclear what China wanted & that "we will find out very, very shortly in the next couple of weeks."  "What we need is to correct the big imbalances, not just the current trade deficit," Ross added.  "It's more complicated than just buying a few more soybeans."  In an unexpected twist, some members of the Chinese delegation will stay in the US to visit US farming regions next week.  The 13th round of high-level negotiations is scheduled to take place in DC next month.  Pres Trump said last week a deal would not happen unless it was a good & fair agreement for the US.  “We cannot go back to a situation where [the U.S.] giving hundreds of billions of dollars to China becomes standard fare. Not going to happen,” he said before a crowd in North Carolina.  In a gesture of goodwill, Trump recently made the decision to delay a new round of tariff increases on $250B of goods from China, which were scheduled to take effect on Oct 1 & the increases will take effect on Oct 15, instead.  These increases will follow the new round of tariffs that went into effect on goods from both countries at the outset of Sep.  The US implemented tariffs worth 15% on a host of goods from China, a decision that was met with countermeasures.  China subsequently filed a complainty with the World Trade Organization (WTO), asking it to facilitate “consultations” with the US to reduce or end tariffs.  The countries were close to striking a trade deal in the spring, but the Chinese ultimately decided not to move forward because of some of the demands the US was making.  Since then there has been little progress toward reaching a comprehensive agreement.

US-China trade talks: Key sticking points on Day 2

The Federal Reserve is taking a meeting-by-meeting approach to setting interest rates and for now is not committed to a set course of action ahead, Vice Chair Richard Clarida said.  "We're gonna take this meeting by meeting. We're not on a preset course," Clarida added.  He spoke two days after the policymaking FOMC cut its benchmark interest rate by a qtr point to a target of 1.75-2%.  It was the 2nd reduction of the year & came after the Fed had hiked rates 9 times, the most recent coming in Dec.  Clarida used variations of the "meeting by meeting" theme several times as he sought to convey that committee members are basing their views on data as it comes in & will remain flexible.  "Clearly the center of gravity on the committee is the second adjustment was appropriate," he said.  "Going into October an beyond, we'll go one meeting at a time."  This week's meeting was notable for the number of dissents on the rate vote.  3 members cast "no" votes, with 2 wanting the Fed to hold the line & one, St Louis Pres James Bullard, calling for an even more aggressive 50 basis point cut.  The post-meeting statement again noted worries over a global economic slowdown & low inflation as justification for the cut.  However, Clarida called the US "the best pupil in the class" when comparing growth to other countries.  "I think a lot of other countries in the world would envy where we are now," he said.  "I'm not surprised by the resilience, but we don't take it for granted, either."

Fed Vice Chair Clarida says the Fed will take interest rate policy 'meeting by meeting

General Motors (GM) promised 5400 jobs & a $7B US  investment to the United Auto Workers (UAW) association in an attempt to end their ongoing strike, the company announced.  The funds would be distributed over the next 4 years.  The UAW has been on strike against GM over disputes on health care & the company shipping jobs to Mexico, where the auto manufacturer is the largest employer, instead of keeping them in the US, among other issues.  “We presented a strong offer that improves wages, benefits and grows U.S. jobs in substantive ways and it is disappointing that the UAW leadership has chosen to strike,” GM's statement said.  “We have negotiated in good faith  with a sense of urgency. Our goal remains to build a strong future for our employees and our business.”  And, per a letter from UAW VP Terry Dittes, "some progress has been made."  About ½ of the proposed jobs would be new & the rest would be considered “retained” because of the investment.  The funds are set to be invested into facilities with UAW representation, but a portion would go toward joint ventures that are separate from the union's contract with GM.  The offer reportedly includes a 2% wage increase for UAW workers for the first & 3rd year of the contract & 2% lump-sum payments in the 2nd & 4th years.  GM said it also offered to build assembly plants in Michigan & Ohio.  The stock slid back 7¢.
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GM promises 5,400 jobs and $7B in bid to end UAW strike


GM negotiations are moving forward & it looks like the strike may be settled soon.  But China trade talks just keep plodding along.  It's likely that very little will be accomplished in stock trading later today.  The Dow is 220 below its recent record high.

Dow Jones Industrials

stock chart







Thursday, September 19, 2019

Markets pare early gains as investors assess Fed rate cut

Dow finished down 52 (ending near the lows), advancers ahead of decliner 4-3 & NAZ finished up 5 at the close.  The MLP index fell 1+ to the 239s & the REIT index continued up 1+ to the 407s.  Junk bond funds were mixed & Treasuries had modest gains.  Oil was up pennies in the 58s & gold fell 10 to 1505 (more on both below).

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Whie House economic adviser Larry Kudlow said the “fundamental nature” of the US-Mexico-Canada trade agreement (USMCA) is very pro-growth.  “Canada and Mexico are so important, our total trade with those two countries is twice what our total trade is with China, for example,” he said.  “And China may be a sexier global story, but for the American economy -- various estimates -- half a point of additional GDP per year, maybe 180,000 jobs per year and maybe a $100 billion of direct investment.” he said.  Earlier, VP Mike Pence said the agreement would pass if it was brought to the floor of the House & the Senate.  “It so much comes down to Speaker Nancy Pelosi, who I believe has been dealing with our administration in good faith on this issue,” said Pence.  House Dems are seeking tougher enforcement mechanisms related to the USMCA's rules for labor & the environment.  Kudlow said Trade Representative Robert Lighthizer is looking to negotiate a deal that includes raising domestic content for manufacturers with higher wages, opening up farm & dairy areas with Canada, intellectual property rights & copyright protections, financial services, currency stability & digital services.  “That's a powerful deal. The sooner we get it passed the sooner it's going to act positively on the economy,” he said, adding that “the job implications are terrific.”  USMCA calls for a larger portion of autos to be made in the US with higher wages for auto workers.  Mexico, in Jun, became the first country to ratify the trade deal.  Trump, in May, removed steel & aluminum tariffs on Canada & Mexico.

USMCA CAN BRING $100B OF DIRECT INVESTMENT INTO US: LARRY KUDLOW


VP Mike Pence recommended that other nations plagued with slower growth ought to imitate US policies, even as he recommended the US imitate theirs.  In an interview, Pence bragged about how well the domestic economy is doing & said he has had conversations with multiple intl leaders on the subject.  “I’ve heard one foreign leader after another congratulate the president on America’s economic success,” he said.  Pence said those countries should “look in the mirror” because the global slowdown is “the result of their policies.”  “They ought to be emulating our policies,” he added.  However, a few minutes earlier he advocated that the US, at least in terms of monetary policy, should be taking after other regions like Europe & Japan who keep their benchmark interest rates near zero.  The Federal Reserve increased its short-term borrowing rate 9 times between Dec 2015 & Dec 2018, following that with 2 rate cuts this year.  But Trump has blasted the Fed for the rate hikes, saying they’re making the US less competitive on the global stage.  Pence would not commit to a zero-rate policy, saying only “I support the president” when asked whether he is a believer in the strategy the Fed followed for 7 years during & after the financial crisis.  He did reiterate Trump's criticisms, though in less harsh terms than a pres who has called the central bankers “boneheads.”  “I support the president in his call for monetary policy that levels the playing field for our economy with other economies around the world,” he said.

Pence says other countries should ‘emulate’ US, then says US should replicate their rate policies

After trade talks with Chinese negotiators wrap in DC this week, a small group of those officials are planning a trip to farm country to meet face-to-face with the producers whose finances have been deteriorating as the trade war drags on.  The delegation, led by Vice Minister for Agriculture Qu Dongyu, is currently planning follow-on visits to Bozeman, Montana & Omaha, Nebraska.  The Montana Farm Bureau confirmed a Chinese delegation would be visiting with farmers in the state early next week.  The visit could bring a welcome salve to farmers caught in the crosshairs of the trade war if it results in a reopening of the market.  In response to escalating US tariffs, China has placed tariffs on & halted state purchases of US agricultural products.  Wheat farmers in Montana saw sales to China drop to almost nothing since Mar of 2018.  That compares with $65M annually in 2012 -2017 in Montana alone.  In lieu of a trade deal, the Dept of Agriculture has rolled out a 2nd tranche of aid for farmers facing an absence of customers.  In total, USDA has authorized $28B in aid to help affected farmers.  “I think it’s very clear that our farmers this year, when these talks with China did not proceed as we had hoped, again continued to be affected by tariff damages,”  Agriculture Sec Sonny Perdue told reporters when the latest program was announced in Jul. “I think it’s entirely justifiable.”  Perdue said that Pres Trump was insisting China purchase ag products “as a way to unfreeze our discussions [with Beijing].”  In Jun, Pres Trump said China would be buying “massive amounts” of US farm products as a result of a bilateral meeting between himself & China’s Xi Jinping.  So far, those purchases have not materialized.  People briefed on the bilateral meeting say China said it would “consider” purchasing farm products but made no concrete commitment.

Chinese trade negotiators plan to visit US farm country after Washington talks

Sales of previously owned US homes rose in Aug, adding to recent modest signs of recovery in the housing market.  Existing-home sales rose 1.3% in Aug from the previous month to a seasonally adjusted annual rate of 5.49M, the National Association of Realtors said.  That was the strongest pace of sales since Mar of last year.  The forecast called for sales to fall 1.1% last month.

U.S. Existing-Home Sales Rose in August


Gold prices ended lower, marking their first loss in 4 sessions, a day after the Federal Reserve delivered a widely expected interest rate cut but left traders uncertain on the outlook for further monetary easing.  Fed policy makers yesterday cut the Fed's benchmark rate by a qtr of a point, but the move saw 3 dissents — with 2 officials urging rates to remain unchanged & one calling for a larger cut.  Gold for Dec fell $9.60 (0.6%) to settle at $1506 an ounce.

Gold logs first loss in 4 sessions after Fed delivers ‘hawkish cut’ to interest rates

Oil futures rose, but US prices gave up nearly all of their earlier gains by the settlement.  Prices found support as Saudi Arabia reportedly contacted foreign producers to help fill holes in its supply chain following last weekend's attacks on the country's production facilities.  However, news of storm disruptions to refining activity in Texas suggested a slowdown in demand for crude, prompting US prices to give up nearly all of the day's gains.  The Sabine Ship Channel, a major Southeast Texas waterway for transporting cargo, was closed early today because of flooding from Tropical Storm Imelda.  Oct West Texas Intermediate oil rose 2¢ to settle at $58.13 a barrel.

U.S. oil prices pare most of their gains as gasoline futures rally


With a lack of dramatic news, buyers went home early leaving sellers to run the market.  The US-Mexico-Canada trade deal remains in limbo & China talks are not moving forward.  Then there is growing uncertainty about the Fed's next move in interest rates.  But stock averages are close to record highs with all the uncertainty about intl trade.  War talk in the Mideast is a major dark cloud keeping some investors on the sidelines.

Dow Jones Industrials