Friday, January 18, 2019

Markets rise on US-China trade optimism

Dow shot up 213 (at session highs), advancers over decliners better than 3-1 & NAZ gained 67.  The MLP index went up 1+ to the 249s & the REIT index added 1+ to the 346s.  Junk bond funds fluctuated & Treasuries were lower.  Oil rose 1+ to the 53s & gold sank 10 to 1282 (a 2 week high).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil                      52.86

ZG=FGold 100 oz. Feb 191,287.003-5.30-0.4%

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Stocks are continuing a rally that started yesterday PM on word that the US may ease tariffs on China.  There is also a report that China's vice premier will come to the US later in the month to participate in trade talks.  All 3 major averages are trading higher ahead of a holiday weekend.  US stock markets will be closed on Mon for the Dr Martin Luther King Holiday.  In Asian markets, China's Shanghai ended the session up 1.4% & 1.7% for the week, a 3rd straight week of gains.  Hong Kong's Hang Seng finished the day 1.3% higher & 1.6% higher for the week.  Japan's Nikkei average ended the day 1.3% higher & up 1.5% for the week.  European markets traded higher. London's FTSE added 1.6%, Germany's DAX rose 1.8% & France's CAC gained 1.6%.  US stocks got a pop yesterday, curbing earlier losses for the Dow, on word that the US may ease tariffs on China.  The Treasury Dept pushed back on the reports as did the White House.  “No new tariff decisions have been made.  Still the Dow rose 163, the NAZ 49 & the S&P 500 nearly 20.

Stocks rise on optimism about China-US trade negotiations

China has offered to make up the trade imbalance with the US, telling US trade negotiators that China will ramp its purchases of US goods,according to officials familiar with the talks.  Chinese officials made the offer during negotiations in Beijing earlier in Jan, the report said.  China would increase its annual import of US goods by a combined value of over $1T.  The US had a trade deficit of $323B with China in 2018.  This deal would aim to reduce that annual trade difference to $0 by 2024, according to a leaker.

China to offer path to eliminate trade imbalance with US: Bloomberg News

Consumer sentiment dropped to its lowest level since before the US presidential election in 2016 amid growing concerns over US economic growth, according to data just released.  The Univ of Mich consumer sentiment index fell to 90.7 this month, its lowest since Oct 2016, from 98.3 in Dec, preliminary data showed.  The forecast called for the index to fall to 96.4.  “The loss was due to a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies,” said Richard Curtin, chief economist for the Surveys of Consumers.  “Aside from the direct economic impact from these various issues on the economy, the indirect effect meant that half of all consumers believed that these events would have a negative impact on Trump’s ability to focus on economic growth.”  Curtin also said the survey showed the year-ahead economic outlook was the worst since mid-2014.  Worries of an economic slowdown, fears of tighter monetary policy from the Federal Reserve & an ongoing trade war between China & the US all contributed to a recent spike in market volatility.  The S&P 500 fell sharply last month, briefly dipping into bear-market territory, before the recent rally.  Curtin added, however, that “while the January falloff in optimism is certainly consistent with a slowdown in the pace of growth, it does not yet indicate the start of a sustained downturn in economic activity.”

US manufacturing output increased by the most in 10 months in Dec, boosted by a surge in the production of motor vehicles & a range of other goods, which could allay fears of a sharp slowdown in factory activity.  The Federal Reserve said manufacturing production jumped 1.1% last month, the biggest gain since Feb.  Data for Nov was revised slightly up to show output at factories gaining 0.1% instead of being unchanged as previously reported.  The forecast called for manufacturing output rising 0.3% in Dec.  Production at factories increased at a 2.3% annualized rate in Q4 after expanding at a 3.7% pace in the Jul-Sep period.  Last month's surge in manufacturing production is unlikely to be sustained after a report earlier this month showed a measure of new orders received by factories tumbling in Dec to its lowest level since Aug 2016.  Manufacturing activity, which accounts for about 12% of the economy, is slowing as some of the boost to capital spending from last year's $1.5T  tax cut package fades.  In addition, a strong $ & cooling growth in Europe & China is hurting exports.  Lower oil prices are also slowing purchases of equipment for oil & gas well drilling.  Last month, motor vehicle production surged 4.7% after gaining 0.2% in Nov.  Excluding motor vehicles & parts, manufacturing advanced a solid 0.8% last month, boosted by a strong increase in the output of construction supplies, business supplies & material.  That followed a 0.1% gain in Nov.  Dec's surge in manufacturing output, together with a rise in mining production offset a drop in utilities, leading to a 0.3% increase in industrial production.  Industrial output rose 0.4% in Nov.  It increased at a 3.8% & gas well drilling fell 0.3% in Dec.  Capacity utilization for the manufacturing sector, a measure of how fully firms are using their resources, rose to 76.5% in Dec from 75.8%  in Nov.  Overall capacity use for the industrial sector rose to 78.7% from 78.6% in Nov.  It's 1.1 percentage points below its 1972 - 2017 average.  Industrial capacity use rose to 78.0% in 2018, the highest since 2014, compared to 76.1% in 2017.  Officials at the Fed tend to look at capacity use measures for signals of how much “slack” remains in the economy how far growth has room to run before it becomes inflationary.

US manufacturing output posts biggest gain in 10 months

China is bringing a $1T olive branch to trade negotiations & that will get anybody's attention.  They are offering to reduce the huge trade imbalance.  Sounds good, but that only represents words.  Meanwhile the US economy is lumbering along.  Good but short great.  Economic data is coming in more mixed than positive as evidenced by the weak consumer data above.  Traders are saying that problems will take care of themselves.  That's a tall order.  The Dow has had a spectacular rise from the Christmas eve low, nearly 3K.  It's clearly overbought.

Dow Jones Industrials

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