Thursday, January 17, 2019

Markets slide on Morgan Stanley earnings

Dow dropped 40, advancers over decliners 5-4 & NAZ crawled up 2.  The MLP index was a tad lower in the 247s & the REIT index went up 2+ to the 344s.  Junk bond funds drifted lower & Treasuries were sold.  Oil fell 1+ to 51 & gold pulled back 4 to 1289 (a 2 week high).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil51.73
-0.58 -1.1%

GC=FGold   1,290.30
-3.50 -0.3%

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Stocks traded lower as Morgan Stanley (MS) fell short on Q4 profit & revenue.  Concern over China's economic outlook & possible US tariffs on European cars also shook global markets.  Initial jobless claims for state unemployment benefits decreased by 3K to a seasonally adjusted 213K.  Europe's carmakers fell as much as 1.5% after Senate Finance Committee Chairman Chuck Grassley said he thought Pres Trump was "inclined" to impose tariffs on European cars to win better terms on agriculture.  London's FTSE fell 0.8%, Germany's DAX was down 0.6% & France's CAC was off 0.7%.  In Asian markets, China's Shanghai Composite closed down 0.4% as China's economy looked poised to report its worst growth figures in a decade.  Hong Kong's Hang Seng ended the day 0.5% lower & Japan's Nikkei index closed down 0.2%.  Stocks closed higher following better-than-expected profit reports from Goldman Sachs (GS), a Dow stock, & Bank of America (BAC).  The 2 big banks helped lift all 3 major stock averages into positive territory & offset worries stemming from the overwhelming defeat of British Prime Minister Theresa May's Brexit plan.

Stocks trade lower on global growth, tariff concerns

China's soybean imports in the opening weeks of 2019 have plunged from recent years, raising concerns for American farmers who were hoping that a trade deal would offer swift relief.  Soybean shipments offloaded in China this year are down about 37% from the first 2 weeks of 2018, according to tanker-tracking firm ClipperData.  A couple weeks of data represent a small sample size, but the drop is very concerning in light of market conditions and trade tensions.  The ongoing US-China trade dispute is now being complicated by an outbreak of African swine flu that threatens to suppress Chinese demand for soy meal, a common hog feed, for months to come.  Along with soft auto sales & dismal manufacturing data, China's remarkably weak soybean imports add more evidence of a slowdown in the world's 2nd-largest economy.  China, the world's top soybean consumer, has turned to Brazil & other exporters for its supplies since slapping tariffs on US-origin soybeans.  The trade tension has weighed on prices, with soybeans losing more than $2.50 per bushel, roughly a ¼ of their value, between the 2017 peak in Mar & the trough in Sep.  As Beijing & DC endeavor to end the dispute, prices have rallied about 80¢.  China is the world's biggest consumer of soybeans, so the faltering imports are a major red flag for demand.  Meanwhile, the world's top 3 soybean suppliers — the US, Brazil & Argentina — have all produced sizable crops.

China’s soybean imports show American farmers have more to fear than the trade war

The number of Americans filing applications for joblesss benefits unexpectedly fell last week, pointing to sustained labor market strength that should continue to underpin the economy.  Initial claims for state unemployment benefits decreased 3K to a seasonally adjusted 213K for last week, the Labor Dept said.  The forecast claims rising to 220K.  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 221K last week.  The claims data covered the survey period for the nonfarm payrolls portion of Jan's employment report.  The 4-week average of claims fell 2K between the Dec & Jan survey periods.  While that would suggest little change in labor market conditions after the economy created 312K jobs in Dec, an ongoing partial shutdown of the federal gov raises the risk of a drop in payrolls.  800K gov workers missed their first paycheck last Fri because of the partial shutdown.  About 380K workers have been furloughed, while the rest are working without pay.  Furloughed workers will probably be counted as unemployed.  Private contractors working for many gov agencies are also without pay.  The administration has been recalling some employees to work without pay in an effort to minimize the effects of the shutdown.  The claims report showed the number of federal employees filing for jobless benefits increased by 6K to 10K last week.  Claims by federal workers are reported separately with a one-week lag & are unadjusted for seasonal fluctuations.  The report also showed the number of people receiving benefits after an initial week of aid increased 18K to 1.74M for last week.  The 4-week moving average of continuing claims rose 8K to 1.73M.

US weekly jobless claims unexpectedly fall

MS reported Q4 EPS of 80¢ on revenue of $8.5B. The forecast called for 89¢ on revenue of $9.24B.  On an adjusted basis due to a 7¢ tax benefit, EPS came in at 73¢.  MS had beaten expectations in each of the last 8 qtrs.  Fixed income revenue fell 30% to $564M, while equities revenue was flat.  "The bank does not think the down fourth quarter is 'the new normal," said CEO James Gorman.  In the year ago period, the bank reported EPS was 29¢ on revenue of $9.5B.  The company points to the market volatility for the revenue miss.  “In 2018 we achieved record revenues and earnings, and growth across each of our business segments – despite a challenging fourth quarter," said Gorman.  "We delivered higher annual returns, producing an ROE of 11.8% and ROTCE of 13.5%, as we continued to invest in our businesses."  "While the global environment remains uncertain, our franchise is strong and we are well positioned to pursue growth opportunities and serve our clients,” added Gorman.  Q3 EPS came in at $1.17 on revenue of $9.87B.  The board declared a 30¢ div.  The stock sank 2.36 (5%).
If you would like to learn more about MS, click on this link:

Shares of Morgan Stanley fall after earnings miss estimates

This is turning into another quiet day for stocks.  But China trade talks are going nowhere, the gov shutdown is more & more looking like it could last for months & Britain is trying to get its Brexit plan organized.  The stock market has not been phased by these problems for several weeks.  Hard to believe.

Dow Jones Industrials

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