Wednesday, January 30, 2019

Higher markets on strong earnings

Dow jumped up 201, advancers over decliners 2-1 & NAZ gained 60.  The MLP index fell 1 to the 248s & the REIT index added 3 to the 358s.  Junk bond funds traded higher & Treasuries drifted lower.  Oil rose to the 54s & gold added 1 to 1310.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil53.87

GC=FGold   1,315.90

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Stocks rose on the back of better-than-expected results from Dow components Boeing (BA), Apple (AAPL) & McDonald's (MCD).  Investors will also be waiting for a decision on interest rates when the Federal Reserve concludes its monetary policy meeting followed by a news conference with Fed Chairman Jerome Powell.  In Asian markets, China's Shanghai Composite index settled 0.7% lower & Hong Kong's Hang Seng finished the day up 0.4%.  Japan's Nikkei ended the day down 0.5%.  In Europe, London's FTSE gained 1.8%, Germany's DAX slipped 0.3% & France's CAC added 0.7%.

Stocks jump on strong earnings

Private sector employment increased by 213K jobs in Jan, according to the ADP National Employment report, surpassing expectations of 178K jobs, despite a 35-day partial gov shutdown that experts believed could take a toll on small business.  “The job market weathered the government shutdown well," Mark Zandi, the chief economist of Moody's, said.  "Despite the severe disruptions, businesses continued to add aggressively to their payrolls. As long as businesses hire strongly the economic expansion will continue on.”  The services-providing sector added the most jobs, at 145K, followed by services-providing at 68K.  “The labor market has continued its pattern of strong growth with little sign of a slowdown in sight,“ Ahu Yildirmaz, VP & co-head of the ADP Research Institute, said.  “We saw significant growth in nearly all industries."  In Dec, the private sector added a whopping 271K jobs, soaring past expectations of 178K.  Manufacturing, meanwhile, added the most jobs in more than 4 years.  On Fri, the Labor Dept will release its highly anticipated Jan jobs report, which will offer an in-depth look at the labor market, including job additions, the unemployment rate, the labor participation rate & wage growth.  Analysts expect the US economy will likely add 166K jobs, down sharply from Dec's much larger-than-expected addition of 321K.

Private sector adds 213,000 jobs, crushes estimates

House hunters signed 2.2% fewer contracts to buy existing homes in Dec, according to the National Association of Realtors (NAR).  Pending sales are a future indicator of closings in one to 2 months.  The pending home sales index was also down a dramatic 9.8% compared with Dec 2017.  This marks 12 straight months of annual declines & is also the lowest Dec sales reading since 2013.  Some observers expected sales to get a boost in Dec from a drop in interest rates.  Mortgage rates moved markedly lower to end 2018, with the average rate on the popular 30-year fixed loan falling from just over 5% in mid-Nov all the way to 4.61% by Dec 31, according to Mortgage News Daily.  Buyers had been struggling with high prices & higher rates for most of last year, & home sales declined as a result.  “The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December,” said NAR's chief economist, Lawrence Yun, suggesting that perhaps buyers were not aware of the lower rates.  The partial gov shutdown, which concluded last week after a record-long 35 days, would not have figured much into these numbers, as it didn't begin until toward the end of Dec.  “Seventy-five percent of Realtors reported that they haven’t yet felt the impact of the government closure. However, if another government shutdown takes place, it will lead to fewer homes sold,” Yun added.   Pres Trump & lawmakers agreed to re-open the gov until Feb 15, with the intention of reaching a longer-term funding deal before that deadline.  Closed sales of existing homes, which represent contracts signed in Oct & Nov, were also sharply lower in Dec, as the median home price hit a new high.

December pending home sales drop to lowest in five years

The US & China launch a critical round of trade talks today amid deep differences over demands by the US for structural economic reforms from Beijing that will make it difficult to reach a deal before a Mar 2 US tariff hike.  The 2 sides will meet next door to the White House in the highest-level talks since Pres Trump & Chinese Pres Xi Jinping agreed to a 90-day truce in their trade war in Dec.  People familiar with the talks & trade experts watching them say that, so far, there has been little indication that Chinese officials are willing to address core US demands to protect American intellectual property rights & end policies that DC says force US companies to transfer technology to Chinese firms.  US complaints, along with accusations of Chinese cybertheft of US trade secrets & a systematic campaign to acquire US technology firms, were used by the Trump administration to justify punitive US tariffs on $250B worth of Chinese imports.  Trump has threatened to raise tariffs on $200B of goods to 25% from 10% on Mar if an agreement cannot be reached.  He has also threatened new tariffs on the remainder of Chinese goods shipped to the US.  “Clearly on the structural concerns, on forced technology transfer, there remains a significant gap if not a wide chasm between the two sides,” a person familiar with the talks said.  Chinese officials deny that their policies coerce technology transfers.  They have emphasized steps already taken, including reduced automotive tariffs & a draft foreign investment law that improves access for foreign firms & promises to outlaw “administrative means to force the transfer of technology.”  China is fast-tracking that new law, with the country's largely rubber-stamp parliament likely to approve it in Mar.  A crucial component of any progress in the talks, according to top administration officials, is agreement on a mechanism to verify & “enforce” China's follow-through on any reform pledges that it makes.   This could maintain the threat of US tariffs on Chinese goods long term.

US and China face deep trade, IP differences in today's high-level talks

The bulls liked the earnings reports, but they represent history.  Today's FOMC meeting is not expected to produce any significant news.  Trade talks begin in DC & they represent the future.  Nobody knows how they will turn out although it looks like China may be ready to play hardball & hold firm on their positions.  Meantime, the Dow still has a more than 3K advance since the Christmas eve low (although gold remains in demand).

Dow Jones Industrials

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