Wednesday, January 2, 2019

Lower markets on China slowdown worries

Dow fell 180 (but above opening low), advancers over decliners about 5-4 & NAZ gave back 35.  The MLP index went up 1+ to the 224s & the REIT index was flattish.  Junk bond funds crawled higher & Treasuries were purchased.  Oil climbed 1+ to the 46s & gold added 5 to 1287 (another multi month high).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil44.62
 -0.79 -1.7%

GC=FGold   1,284.80

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Stocks started 2019 with a big drop, as the Dow tumbled more than 300 points at the opening bell before paring those losses.  Investors sold off on weaker-than-expected Chinese economic data, which could get worse if a trade deal with the US isn't reached soon.  That data showed the nation's economy contracting for the first time in over 2 years in Dec, highlighting the challenges facing Beijing as it seeks to end a bruising trade war with DC & reduce the risk of a sharper economic slowdown in 2019.  Worries about the health of China's economy hammered Asian & European stocks, which contributed to the downdraft on American exchanges.  There also were worries about the partial gov shutdown, now in its 12th day, & how businesses could be affected if the standoff between Pres Trump & Congress continues.  In addition, prospects for the more interest rate hikes this year weighed on sentiment.  The yield on 10-year Treasurys fell to a 12-month low, dropping to 2.65% in a measure of investors' rush to what are perceived as safe investments.  China's Shanghai Composite started the new year with a decline of 1.1% & Hong Kong's Hang Seng plunged 2.8%.  Japan's Nikkei was closed for a holiday.  In European trading, London's FTSE fell 0.8%, Germany's DAX declined 0.5% & France's CAC was off 1.5%.  Federal Reserve Chairman Jerome Powell will have the chance to comment on the economic outlook when he participates in a joint discussion with former Fed chairs Janet Yellen & Ben Bernanke on Fri.  Also looming are a closely-watched survey on US manufacturing due on Thurs, followed by the Dec payrolls report on Fri.

US stocks begin 2019 under intense pressure

US Trade Representative Robert Lighthizer has warned Pres Trump that additional tariffs on Chinese imports may be needed to get meaningful concessions in trade negotiations.  Lighthizer, who is taking the lead in trade negotiations with China, has told friends & associates he is intent on preventing Trump from accepting “empty promises” like temporary increases in soybean purchases, the newspaper said.  In order to avoid this, the US may have to slap tariffs on more Chinese goods, Lighthizer reportedly added.  China & the US have already slapped tariffs on B$ worth of their goods.  The US has been trying to get China to agree to what it thinks are fairer trade terms through tariffs, while the Chinese have retaliated with charges of their own.  The report stoked fears in global equity markets of more tariffs between China & the US.  European markets were down broadly while US stock futures also fell sharply.  Dow futures pointed to a decline of more than 350.  It also raised concern that the 2 countries may not be able to strike a deal before the end of the 90-day grace period that started Dec 1.

US Trade Rep. Lighthizer thinks more tariffs could be needed to get meaningful China concessions

Results of a private survey on China's manufacturing for the month of Dec showed factory activity contracted for the first time in 19 months amid a trade dispute with the US.  The Caixin/Markit Manufacturing Purchasing Managers' index (PMI), a private survey, fell to 49.7 in Dec from 50.2 in Nov.  Analysts predicted the PMI to come in at 50.1 in Dec.  A reading above 50 indicates expansion, while a reading below that level signals contraction.  In Dec, 2 separate measures for new orders & new export orders showed contraction, the Caixin survey showed.  “That showed external demand remained subdued due to the trade frictions between China and the U.S., while domestic demand weakened more notably,” the director of macroeconomic analysis at CEBM Group wrote.  “It is looking increasingly likely that the Chinese economy may come under greater downward pressure,” he added.  Economic data from the world's 2nd-largest economy is being closely watched for signs of damage inflicted by the ongoing trade war.  Official manufacturing PMI released on Mon showed a slowdown in activity for the month of Dec as the sector contracted for the first time in more than 2 years, dropping below the critical 50 level.  The private survey focuses on small & medium-sized enterprises, while the official PMI gauge focuses on large companies & state-owned enterprises.

Chinese manufacturing had an even worse December than expected, more data show

The partial gov shutdown entered its 12th day, as bipartisan congressional leaders prepared to go to the White House for a briefing on Pres Trump's proposed border wall.  9 federal depts remain unfunded & hundreds of Ks of federal workers face missing paychecks amid an impasse over funding for the barrier.  Dems have pledged to pass spending legislation without wall money when they take control of the House tomorrow.  But Trump has already promised to oppose the measure, leaving Congress & the White House still far from a solution.  8 lawmakers will attend the briefing on border security in the PM.  The group includes House Minority Leader Nancy Pelosi, who will likely become speaker & Senate Minority Leader Chuck Schumer.  In the lead-up to the shutdown last month, the Dem leaders got into a televised Oval Office spat with the president over the wall.  The briefing comes as neither side has shown willingness to cave on Trump's demand for $5B in taxpayer money for the project.  He has insisted on funding for the barrier, a core campaign promise that excited supporters at political rallies when he promised Mexico would pay for it.  Dems have flatly opposed the funding, calling the wall both inhumane & ineffective.  Trump's own messaging muddied his push for a wall as talks stalled over the holidays.  The pres has not made it clear what exactly he wants — calling at various times for a concrete barrier, fencing or a structure made of steel slats.  A tweet today also raised questions about why Trump still demands taxpayer money for the wall.  He claimed “Mexico is paying for the wall” thru revisions to the North American Free Trade Agreement.  The Trump administration has struggled to explain that assertion, & Congress still needs to approve the deal for it to take effect.  He also claimed “much of the wall has already been fully renovated or built.”  Congress has not passed funding for the wall as Trump proposed, but has put money toward replacing existing fencing or building new fences on the border.

Democrats head to the White House for border briefing as government shutdown enters its 12th day

The bulls did not come out today so Treasuries & gold are in demand.  Existing economic & gov problems dribble on, not encouraging for investors.  Dec data is coming in shortly & is not expected being strong enough to give the stock market a lift.  That's why safe haven investments are getting the bulk of investor attention.

Dow Jones Industrials

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