Monday, January 7, 2019

Higher markets as trade talks begin

Dow rose 70, advanmcers over decliners better than 3-1 & NAZ went up 55.  The MLP index gained 3+ to the 242s & the REIT index rose 3+ to the 325s.  Junk bond funds received buying today & Treasuries were off a tad.  Oil gained 1+ to the 49s & gold added 4 to 1290, another recent high.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil48.77

GC=FGold   1,292.90

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Stocks opened cautiously amid hopes that this week's US-China trade talks produce a deal between the 2 economies.  American officials met their counterparts in Beijing Today for the first face-to-face talks since Pres Trump & China's Pres Xi Jinping agreed in Dec to a 90-day truce in a trade war that has roiled intl markets.  China & the US want to work together on trade, the Chinese foreign ministry said.  Stocks came off a strong Fri session when the Dow rose 746 after Federal Reserve Chair Jerome Powell said the central bank is prepared to adjust policy quickly & flexibly, which investors took as a dovish signal on interest rates.  His comments followed a blockbuster jobs report for Dec which saw annual wages jump the most since 2008.  The Dow's gain Fri of 3.2% is the best performance on a jobs day since 2002.  The S&P 500 also rose over 3% & the NAZ even more at 4.3%.  In Asian markets today, the Shanghai Composite closed up 0.7% & Hong Kong's Hang Seng finished the day up 0.8%.  The Nikkei climbed 2.4%, tracking sharp gains in the US.  In European trading, London's FTSE traded lower by 0.5%, Germany's DAX slipped 0.6% & France's CAC was off 0.7%.

Stocks cautious as US, China officials hold trade talks

The US services sector expanded at a slower-than-expected pace in Dec, according to data released today.  The institute for Supply Management said its non-manufacturing index clocked in at 57.6 last month versus the forecast  which called for the ISM non-manufacturing index to slip to 59 in Dec.  The index hit 60.7 in November.  A reading above 50 reflects expansion.  Prices in the services sector fell 6.7 percentage points to 57.6 last month, while employment slipped by 2.1 percentage points to 56.3.  The Dec reading was the lowest since Jul.  ISM's reading on the services sector comes after announcing last week its manufacturing index fell to its lowest level since Nov 2016.  Recently, weaker-than-expected economic data have stoked fears that the global economy may be slowing down.  This has sent ripples thru global markets as volatility in equities has risen sharply.

US services sector grows at slowest pace since July

More Americans think it is a bad time to buy a home, as fewer potential buyers can afford what is on the market.  The share of Americans who think it is a good time to buy a home just dropped sharply, according to a Dec survey from mortgage giant Fannie Mae.  Higher mortgage rates & increased home prices are likely to blame.  Homes are simply very expensive right now, in relation to income, & there are still very few entry-level homes for sale.  Yet while home prices are higher than they were one year ago, the pace of gains is decelerating.  That is not lost on potential buyers.  The share of people surveyed who think home prices will go up fell 2 percentage points & those who expect mortgage rates to drop was unchanged.  Mortgage rates did decline rather precipitously during Dec, from an average 4.85% on the 30-year fixed at the start of the month to 4.61% on New Year's Eve.  Still, the expectation in financial markets is that mortgage rates will rise throughout 2019 & the Dec drop was just a temporary correction.   Rates are still higher than they were one year ago.  “Consumer attitudes regarding whether it’s a good time to buy a home worsened significantly in the last month, as well as from a year ago, to a survey low,” said Fannie Mae.  “Although home price growth slowed in 2018, the cumulative impact of sustained, robust increases in home prices outpacing income growth likely helped drive the share of consumers citing high home prices as a primary reason for a bad time to buy a home to a survey high.”  Consumers are also less bullish on the direction of the economy.  The share of those who said their household income was significantly higher than a year ago fell compared with Nov, although it was up slightly from a year ago.  Consumers are, however, quite confident about employment.  79% said they were not concerned about losing their jobs in the next year, up 11 percentage points from a year ago.  Sales of both new & existing homes flatlined last year, as affordability took its toll on potential buyers.  The combination of higher rates & overheated home prices over the last 2 years made buying increasingly difficult, especially for first-timers who need to save for a down payment.  The rise in mortgage rates also kept more potential sellers from moving up or down, as they were likely unwilling to trade in their rock-bottom rate.  That kept supplies low.  The slowdown in sales may actually help the health of the housing market this year.  “Looking ahead, consumers expect the pace of home price growth to slow over the course of 2019, which may temper growing concern over housing affordability,” Fannie Mae added.  That will depend, however, upon how many current homeowners decide to put their homes on the market this spring.  Just 36% of those surveyed said now is a good time to sell a home.

More Americans think it's a bad time to buy a home

As officials from Beijing & DC met to attempt to hash out their countries' ongoing trade dispute, China's foreign ministry said today that both sides had expressed a will to work together in order to implement the consensus of their respective presidents.  A spokesman at the foreign ministry, told reporters that China is willing to resolve its trade disputes with the US — on equal footing.  Those comments come as Deputy US Trade Representative Jeffrey Gerrish leads a working team in China for a 2-day round of trade discussions set to conclude tomorrow.  Trade tensions between the world's 2 largest economies escalated last year, putting global stock markets on edge.  The US announced tariffs on $250B worth of Chinese goods, while Beijing countered with its own.  In early Dec, Pres Trump & Chinese Pres Xi Jinping agreed to a temporary ceasefire, giving both sides until Mar to reach some agreement on trade & issues such as the forced transfer of technology.

US-China trade war: Beijing says both sides have expressed a desire to hammer out a deal

Following the stellar performance by stocks on Fri, buyers returned after today's opening.  Resumed trade talks sound good although economic data is coming in mediocre.  The Dow is up about 2K from its Christmas eve lows, but an extension of the mini rally is uncertain with so many balls in the air, starting with the partial gov shutdown.  Additionally, safe haven gold remains in demand.

Dow Jones Industrials

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