Thursday, January 3, 2019

Markets retreat on Apple warning and soft economoic data

Dow sank 660, decliners over advancers a relatively modest 4-3 & NAZ retreated 202.  The MLP index gained 2 to the 227s & the REIT index dropped 7+ to the 319s.  Junk bond funds inched higher & Treasuries shot up in price, taking the yield on the 10 year Treasury down a huge 11 basis points to 2.55%.  Oil rose fractionally to 47 & gold jumped 11 to 1295 (not seen since early Jun).

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Federal Reserve Bank of Dallas Pres Robert Kaplan pushed for a pause in interest rate hikes by the central bank in 2019 amid uncertainties about global growth & tighter financial conditions.  “We should not take any further action on interest rates until these issues are resolved, for better, for worse,” Kaplan said.  “So I would be an advocate of taking no action and -- for example -- in the first couple of quarters this year, if you asked me my base case, my base case would be take no action at all.”  The Dallas Fed chair -- who said he carefully watches the markets, which just experienced the worst rout since the Great Depression -- noted “three big issues” in the economy & the markets: decelerating global growth, weakness in interest-sensitive & economically sensitive industries & tighter financial conditions.  “I think those three issues -- I’m sure -- are affecting the markets, but they’re also affecting my thinking about monetary policy. It’s going to take some time so see the depth and breadth of those three issues,” he added.  Policymakers at the Federal Reserve voted in Dec to raise short-term interest rates for the 4th time in 2018, despite pressure from Pres Trump to do otherwise.  They signaled a slower pace of gradual rate hikes in 2019.  "There's a fairly high degree of uncertainty," Fed Chair Jerome Powell said about the future of further rate hikes during his quarterly press briefing.  He noted, however, that rates have arrived effectively at the lower-end range of neutral.  Although still low by historical standards, this latest hike put interest rates at the highest level in nearly a decade.  It marks the 9th time the Fed has raised interest rates since 2015.  Higher rates can affect consumers by increasing borrowing costs, like auto loan rates & the 30-year-fixed mortgage rates.

Dallas Fed president advocates for pause in interest rate hikes

If congressional leaders are unable to pass legislation to end a partial gov shutdown that began at the end of Dec, it could hurt the number of jobs the US economy adds in Jan, according to Kevin Hassett, chair of the Council of Economic Advisers.  That's largely because if gov employees affected by the shutdown are still furloughed on Jan 10, which is when the household survey that's used to calculate unemployment starts, they will say they're not working.  The Dept of Labor will release the payroll data for Jan on Feb 1.  “So when we see the January jobs number, it could be a big negative,” Hassett told reporters.  “But it would be because of the furloughed workers, who are ultimately going to get paid.”  If that happens, Hassett said the White House would adjust for the furloughed workers to better gauge what the employment situation is without the partial gov shutdown.  Tomorrow the Labor Dept will release the jobs report for Dec, its final one for 2018, which will offer an in-depth evaluation of the labor market, including job additions, unemployment rate, wage growth & labor participation rate.  The economy is expected to have added 177K jobs, signaling a robust labor market.  The 13-day shutdown began Dec 22 after lawmakers failed to reach a bipartisan funding deal because of a dispute about how much money to allocate to a wall along the US-Mexico border.  Although ¾ of the gov remained open, there are still hundreds of Ks of furloughed employees affected by it.

Partial government shutdown could hurt January jobs numbers: Kevin Hassett

The new Dem-held House voted Nancy Pelosi its speaker, vaulting the representative back to the pinnacle of her power at a critical moment for her party.  Pelosi, starts her 2nd stint leading the House after 8 years of Reps controlling the chamber.  She will lead a Dem majority at a time when the party has to decide when, & how forcefully, to challenge Pres Trump & the GOP-held Senate.  She received 220 votes out of a possible 430.  After numerous Dems pledged to oppose Pelosi, only 15 members of the party voted against the representative on the House floor following her efforts to quash the opposition.  After the vote was announced, Pelosi embraced colleagues as Dems stood & applauded.  Pelosi takes the post again on the 13th day of a partial gov shutdown, amid a spat with Trump over whether to fund his proposed border wall.  On immigration, health care & other issues, she has pledged to claw back against the pres & the GOP.  But she has promised to find areas to work with Reps, potentially on updating infrastructure & lowering drug prices.  To reclaim the speaker's gavel, Pelosi navigated 2018 midterm elections in which she took a drubbing from Reps & even many Dem.  After her party gained a net 40 GOP-held seats, she struck a series of deals to hold off rebellion within her party.  Some Dems who called for new leadership ended up opposing Pelosi for speaker, but she secured enough votes to lead the House again.  Dems plan a flurry of activity with their new 235-199 majority in the House.  They aim to pass bills tonight to reopen the 9 unfunded US depts, though the Senate has pledged not to take up the proposals as Trump threatens to veto them.  Dems also plan to quickly pass a sweeping anti-corruption bill, among other largely symbolic measures meant to set a tone for their majority.  Pelosi has stressed that she wants to focus first on noncontroversial measures with broad public support.

Nancy Pelosi reclaims House speaker's gavel as Democrats prepare to take on Trump

Activity in US manufacturing sector expanded at a much slower pace than expected last month, according to the Institute for Supply Management (ISM).  The ISM manufacturing index fell to 54.1 in Dec, its lowest level since Nov 2016.  The forecast called for the index to slip to 57.9 in Dec, down from 59.3 in Nov.  "Comments from the panel reflect continued expanding business strength, but at much lower levels," said Timothy Fiore, chair of the ISM.  "Demand softened, with the New Orders Index retreating to recent low levels, the Customers' Inventories Index remaining too low — a positive heading into the first quarter of 2019 — and the Backlog of Orders declining to a zero-expansion level."  "The manufacturing community continues to expand, but at much lower levels and at a sharp decline from November," Fiore added.  New orders fell to 51.1 in Dec from 62.1 in Nov.

Key reading of the manufacturing sector falls to lowest level in more than 2 years

Oil & gas business activity in Texas & neighboring states plunged in Q4, according to the Dallas Federal Reserve.  The survey from the Fed's 11th District also showed company sentiment turned negative for the first time in nearly 2 years & execs don't expect much of an oil price recovery in 2019.  The insight is from the Dallas Fed's latest quarterly Energy Survey, which comes on the heels of a nearly 40% plunge in US crude oil prices to about $45 a barrel in Q4.  The oil market has been hammered by fears of growing oversupply & slowing economic growth that could weigh on fuel demand.  One of the key findings in the survey shows that oil execs think US crude prices will end 2019 at $59.97 on average.  That would mark a fairly moderate recovery.  US trade in crude ended today at $47.09.  The Fed's 11th District includes Texas, northern Louisiana & southern New Mexico & is home to the nation's top shale oil region, the Permian Basin.  Rising output from the Permian has helped push US production to all-time highs above 11.5M barrels a day, making the US the world's biggest producer.  The Dallas Fed survey's business activity index, a broad measure of conditions impacting the region's energy firms, plummeted from 43.3 points in Q3 to 2.3 points in Q4.  That means activity was largely unchanged following 10 straight qtrs of increased activity.  The biggest driver of declining activity came from oilfield services firms, the companies that provide equipment & technical expertise to oil producers.  An index that measures utilization of equipment by oilfield services fell from 43 points to just 1.6 points in Q4.  The survey also shows companies are feeling less certain about the future.  An index of uncertainty jumped 34 points to 42.

Oil and gas business activity plunges, outlook turns negative: Dallas Fed survey

The number of Americans filing applications for jobless benefits increased more than expected last week, but the underlying trend continued to point to labor market strength despite ongoing financial market volatility.  Initial claims for state unemployment benefits rose 10K to a seasonally adjusted 231K for last week, the Labor Dept said.  Data for the prior week was revised higher to show 5K more applications received than previously reported.  The forecast called for claims increasing to 220K.  There was no indication of an increase in filings last week from federal workers furloughed because of a partial shutdown of the gov that is now in its 2nd week.  Data on claims filed by federal employees is released with a one-week lag.  800K employees from the Deps of Homeland Security, Transportation, Commerce & others have been furloughed or are working without pay.  Claims data tends to be noisy around year-end holidays.  The 4-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, slipped 1K to 218K last week.  Last week's claims data has no bearing on the Dec employment report which will be released tomorrow, as it falls outside the survey period.  Today's claims report also showed the number of people receiving benefits after an initial week of aid increased 32K to 1.74M for the latest week.  The 4-week moving average of continuing claims rose 26K to 1.70M.

US weekly jobless claims increase more than expected

This was just another brutal day for stocks, something that has become routine recently.  Markets plunged in the early hours & then a rally was attempted at midday.  That failed & the Dow finished near the lows.  For what it's worth, the market breadth showed a fair number of stocks were not hit with significant selling.  Besides the Apple (AAPL) warning, a Dow & NAZ stock, economic data is coming in soft.  Employment data is doing well but production has been struggling.  Then there is the gov shutdown which is beginning to make its presence felt.  That will seen in Jan data next month.  The "good old days" of a market rally are gone & investors need to adjust to this new world.  Popular stock averages finished the session near their lows led by AAPL dropping 10%!!

Dow Jones Industrials

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