Monday, January 7, 2019

Markets rise as trade talks begin

Dow went up 98 (closed off the highs), advancers over decliners 4-1 & NAZ gained 84.  The MLP index added 4+ to the 243s & the REIT index added 4 to the 325s.  Junk bond funds climbed higher & Treasuries were sold following recent gains.  Oil rose in the 48s (more below) & gold added 2 to 1288 in a volatile session.

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German factory orders dropped in Nov, dragged down by a fall in demand from other eurozone countries.  The Economy Ministry said that overall orders were 1% lower than in the previous month following a slight 0.2% gain in Oct.  The figure includes an 11.6% drop in orders from elsewhere in the 19-nation eurozone, which more than canceled out a 7.4% gain a month earlier.  Orders from inside Germany were up 2.4% & those from outside the eurozone rose 2.3%.  Factory orders are an important indicator for the German economy, Europe's biggest, which shrank in Q3, though that drop was blamed to a large extent on one-time factors stemming from new car emissions standards.

German factory orders down 1 percent in November

Pres Trump said that he will address the nation at 9PM ET tomorrow to discuss the standoff over his proposed border wall that has shut down large chunks of the federal gov.  The White House also announced that Trump will visit the US-Mexico border Thurs to “meet with those on the frontlines of the national security & humanitarian crisis” at the southern border, White House press secretary Sarah Huckabee Sanders tweeted.  The announcements came days after Trump confirmed reports that he has considered using his emergency powers as a tool to fund the border wall.  The pres does have the ability to declare a national emergency, though the specific powers at his disposal once he does are unclear.  Trump's visit to the southern border is scheduled to land on the 20th day of the partial shutdown of 9 federal depts.  While only about ¼ of the gov has been shuttered as a result of the impasse over a spending deal, the shutdown has already become the 3rd-longest on record.  Trump has demanded that any deal to fully fund the gov include more than $5B for a wall, a request Dem leaders are refusing to grant.  The amount of money requested would cover only about 234 miles of the nearly 2K-mile-long, according to a letter sent to Capitol Hill by the Office of Management & Budget.  The pres has argued that a wall offers the strongest possible form of border security. “You wouldn’t even have a country” without a wall, Trump said in Mar during a tour of border wall prototypes in San Diego.

Trump will address the nation before visiting the southern border amid shutdown

The Federal Reserve may only need to raise interest rates once in 2019, Atlanta Fed Pres Raphael Bostic said, focusing on business execs' nervousness about the economy & a global slowdown as factors that may hold the central bank back.  “I am at one move for 2019,” Bostic said.  Though US economic growth was faster than expected in 2018 & prompted the Fed to raise rates 4 times,  Bostic said his business contacts appear less confident about the coming months, while “clouds” have developed overseas.  “The clouds, the nervousness, has gotten me to a place where I want to make sure that we do not act too aggressively,” Bostic added.  Bostic is not a member of the Fed's rate-setting policy committee this year.  But his comments show how the combination of a recent selloff in stock markets and weak economic data from China & Europe has begun to shift the tenor of conversation at the central bank.  He added that the list of potential problems includes the current partial shutdown of the gov, which has left hundreds of Ks of federal employees without a paycheck. “If it lingers longer, this can become more material,” Bostic said, with families perhaps forced to reduce spending, & creditors facing decisions about what to do if people fall behind on rent & mortgage payments.  If the IRS, for example, can't process tax refunds, “that has implications for the robustness of the economy in real time,” Bostic said.  Those risks, whether small or large, have accumulated even as economic data remains strong.  The resulting hair-trigger moves in equity markets, doubts about the outcome of US trade negotiations with China, the risk of disruption in Europe & other factors have led Fed officials in recent weeks to indicate they are likely to slow down from the quarterly pace of rate increases enacted over the past 2 years.  Last week, Fed Chairman Jerome Powell said the central bank would be “patient” as it assesses what to do next.  Particularly as the Fed's short-term policy rate approaches neutral, Bostic said the central bank needs to be careful not to go too far & unintentionally tighten credit markets too much.  “This is an area where we have to watch robustly,” he said.  The current policy rate of 2.50% may be at or close to neutral & “if it is 2.50 and you go to two and three quarters or three, you might have tripped beyond neutral and that would be contractionary.”

Fed’s Bostic sees one US interest rate increase this year

Eli Lilly (LLY) will acquire Loxo Oncology for about $8B in cash, buying into a portfolio of targeted medicines to treat cancers.  The offer of $235 per share in cash represents a premium of about 68% over the Fri close.  “We’d like to grow our presence in oncology. We have a good set of medicines there but we’d like to expand that because there’s so much exciting science for patients emerging in oncology to invest in,” CEO David Ricks said.  LLY will update its financial outlook to include the full purchase price of the acquisition when it announces its Q4 earnings in Feb.  The cost of cash was already worked into its guidance for fiscal year 2019.  Last year, US regulators approved LOXO's first commercial medicine, Vitrakvi, which was shown to be effective against a wide variety of cancers driven by a single, rare genetic mutation.  The drug is sold in partnership with Bayer.  Pres of Lilly Oncology Anne White said that the company plans to continue that partnership.  “We believe that Lilly will bring a great deal of strength to this partnership in addition to what Loxo has already done,” she added.  LOXO is developing a pipeline of targeted medicines focused on such cancers that can be detected by genomic testing.  LLY stock gained 69¢ & LOXO jumped up 92 to the 232s.
If you would like like to learn more about LLY, click on this link:

Eli Lilly to buy Loxo Oncology for about $8 billion in cancer drug bet

Oil futures rose, buoyed by optimism tied to trade talks between the US & China as well as output reductions by major oil producers, but settled well below session’s highs on worries over energy demand & the potential for a supply surplus.  Saudi Arabia plans to cut its crude exports by 800K barrels a day from 7.9M barrels a day in Nov, in a move aimed at lifting prices above $80 a barrel.  That followed upbeat jobs numbers issued Fri that had calmed recession worries, helping to lift the outlook for energy demand.  WTI crude for Feb added 56¢ (1.2%) to settle at $48.52 a barrel, well below the session's high of $49.79.  The front-month contract rose 5.8% for last week.  Global benchmark Mar Brent crude added 27¢ (0.5%) to $57.33 a barrel, also paring much of its earlier gains, which saw prices rise to as high as $58.93.  The contract settled up about 7.2% for last week.  Oil demand optimism was lifted as senior officials from China unexpectedly attended negotiations between Beijing & their counterparts in DC, in an effort to resolve longstanding trade disagreements that have underpinned uncertainty in global markets.  Chinese Vice Premier Liu He, a top economic adviser to Pres Xi Jinping, was among attendees & some optimism has been drawn from the a top level official attended rather than lower-ranking officials.

Oil ends higher on U.S.-China trade talks, OPEC supply cuts

This was a relatively quiet day for stocks compared to recent history.  The Dow finished below session highs, but overall it was a good day for stocks.  However tomorrow is a new day, &, as has been the case recently, the future remains cloudy.  There was a little selling at today's close.  A lot is riding on the China talks & resolving the partial gov shutdown.

Dow Jones Industrials

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