Friday, January 11, 2019

Markets drop on government shutdown worries

Dow fell 136, decliners over advancers 2-1 & NAZ lost 30.  The MLP index was off 2 to the 246s & the REIT index rose 4+ to the 339s.  Junk bond funds fluctuated & Treasuries rose while stocks were sold.  Oil slid back to the 51s & gold went up 3 to 1290 with 1300 in sight.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil51.61
-0.98  -1.9%

GC=FGold   1,287.90

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Stocks opened lower after a 5-session winning streak that pulled 2 key equity averages out of correction territory.  Shortly before the opening bell the Labor Dept reported that, as of Dec, inflation was 2.2%, on a year-over-year basis.  American equities appeared caught in a downdraft of European stocks.  London's FTSE traded down 0.5%, Germany's DAX fell 0.8% & France's CAC was off 0.9%.  China's Shanghai Composite up 0.7% & Hong Kong's Hang Seng finished the day higher by 0.6%.  Japan's Nikkei closed the session with a 1% gain.  For the week, it added 4.1%.  Stocks spent yesterday in a tug-of-war between discouraging company news & encouraging statements from the Federal Reserve chairman.  Initially, downbeat company reports held sway; but by the close, stocks had booked their 5th straight day of gains.  The week of daily market gains resulted in 2 major equity averages, the Dow & the S&P 500, exiting correction territory.

Stocks lower after five-day winning streak

US consumer prices fell for the first time in 9 months in Dec amid a plunge in the cost of gasoline, but underlying inflation pressures remained firm as rental housing & healthcare costs rose steadily.  The Labor Dept said the Consumer Price Index (CPI) dipped 0.1% last month, the first drop & weakest reading since Mar.  The CPI was unchanged in Nov.  In the 12 months thru Dec, the CPI rose 1.9% after increasing 2.2% in Nov.  Excluding the volatile food & energy components, the CPI increased 0.2%, advancing by the same margin for a 3rd straight month.  In the 12 months thru Dec, core CPI rose 2.2%, matching Nov's increase.  Dec's inflation readings were in line with expectations.  The Federal Reserve, which has a 2% inflation target, tracks a different measure, the core personal consumption expenditures (PCE) price index, for monetary policy.  The core PCE increased 1.9% year-on-year in Nov after rising 1.8% in Oct.  It hit 2% in Mar for the first time since 2012.  A sharp decline in oil prices amid an oversupply & slowing global economic growth is keeping overall inflation in check.  Lower oil prices are also filtering thru to core inflation via cheaper airline tickets.  While the Fed has forecast 2 rate hikes this year, moderate inflation pressures likely support recent statements by several policymakers, including Chairman Jerome Powell, for caution about raising interest rates this year. 

US consumer prices drop for the first time in nine months

Apple's (AAPL), a Dow & NAZ stock, latest iPhone models are facing huge discounts in China as retailers try to sell the struggling devices.  That comes as its top-of-the-line smartphones have posted poor China sales on what experts say are too-high prices for the world's largest smartphone market & a lack of innovative features compared to local competitors like Huawei.  The technology giant itself acknowledged earlier this month that unexpectedly low sales in the Chinese market would likely lead to worse-than-anticipated Q1 revenue.  One of the most recent iPhone cost cuts in the country came from Suning, a large Chinese retailer, which changed the price of the 128GB version of the iPhone XR from 6999 yuan ($1036) to 5799 yuan ($858) — a 1200 yuan ($178) discount.  Other 3rd-party sellers on the site had the devices for even cheaper, offering flash sales to try to unload iPhones.  One seller had a 256GB version of the iPhone XS Max, the most premium device, for 9699 yuan ($1436), far below the official selling price of 10,999 yuan ($1628).  Still, that remains more expensive than in the US, where the same phone would sell for $1249.  Other retailers in China are also putting their iPhones on sale.  AAPL issues in China are down to 2 major factors, experts & local consumers say: It got its pricing wrong & it has failed to introduce features to excite consumers in a forward-thinking technology market.  Now, analysts said, competitors have taken market share in the premium smartphone space.  In a public letter released on last week, CEO Tim Cook blamed the slowing Chinese economy & rising trade tensions with the US as one of the key reasons for lowering Q1 sales guidance.  Analysts, however, said that much of the iPhone's China problem comes down to the company setting the wrong prices.  The stock fell 1.23.
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Retailers are slashing iPhone prices across China

General Motors (GM) CEO Mary Barra said the automaker's full-year 2018 earnings exceeded its previous expectations & that 2019 is looking even better, citing strong sales in China & high demand for its truck and utility vehicles in the US.  “From a 2018 perspective, it is not only a focus on really capitalizing on the new trucks we have out there, the light duty trucks, but also the focus on cost reduction so it was across the board. Every element of the company,” she said.  The 2nd largest US automaker had previously said it expected 2018 adjusted EPS of $5.80-6.20 & adjusted automotive free cash flow of $4B.  It now expects to surpass those projections & painted an even better picture of 2019.  She forecast diluted adjusted EPS of $6.50-$7 & adjusted automotive free cash flow $4.5-6B for 2019.  Barra added that GM tightened its belt last year, helping to boost earnings.  She announced several plant closures & 14K job cuts in Nov.  The reorganization is estimated to save about $6B by the end of 2020, with about ½ of those cost savings realized by the end of 2019.  Barra said the job cuts were a “proactive” move in an otherwise strong labor market.  “We have been transparent with the [United Auto Workers union], helping them and making sure they understand the business and that customers’ preferences are changing,” she added.  Cadillac will become the company's lead electric vehicle brand & is projecting just over 17M in total US vehicle sales in 2019 & 27M in China — about flat from 2018.  She said annual auto sales in China will eventually climb to 30M.  The stock  jumped up 2.68 (8%).
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GM says 2018 earnings exceeded expectations and 2019 looks even better

Stocks are taking a breather after the 5 day mini rally.  The gov shutdown is weighing on traders' minds as it has the potential of doing serious damage to the economy.  Then there is the US-China trade talks which have not produced any announcement.  That's a sign of problems.  Meanwhile economic activity while good, is also spotty.  Sluggish holiday sales reported yesterday were not encouraging.  But today's selling may be just routine profit taking.

Dow Jones Industrials

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