Friday, January 18, 2019

Markets soar after talk about US-China trade deal

Dow jumped 310 (at session highs), advancers over decliners about 3-1 & NAZ  went up 65.  The MLP index added 2+ to the 249s & the REIT index rose 1+ to the 346s.  Junk bond funds crawled higher & Treasuries declined as stocks rallied.  Oil shot up 1+ to the 53s (a 2 month high) on hopes for a trade deal with China (more below) & gold was sold, dropping 11 to 1281.

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Kellyanne Conway, counselor to Pres Trump, is feeling confident about the prospect of reaching a trade deal with China.  “Trade is one of the most successful areas of the Trump presidency in its first two years,” she said today.  “This president promised and has delivered on renegotiating bad trade deals. On having reciprocal and fair trade. Not no trade. And not all these multilateral deals but really, a trade deal that works for America.”  China's top trade negotiator Liu He is expected to travel to the US later this month to begin negotiations ahead of a Mar deadline that resulted from a 90-day trade truce on the sidelines of the G-20 summit in Buenos Aires last year.  Conway said the fact that the Chinese are even discussing the future of trade proves the Trump's trade strategies are working.  “That’s exactly what we see happening because of President Trump’s trade policies that these other countries are going to open up their markets,” she added.  “Countries have been stealing our IP, our technology, we’ve had these tremendous trade imbalances. Why should we have billions of dollars in a trade deficit with countries that are prosperous?”  Trump’s trade policies so far have included keeping sanctions on certain countries, having tariffs & the US Mexico Canada Agreement.  Meanwhile, US stocks extended gains after a report said China had offered to ramp up US imports in order to reshape relations between the 2 countries.  This came on the heels of another report that said the US may ease tariffs imposed on some Chinese imports.  The US & China are the world's 2 largest economies & have been battling over trade practices for months.

Kellyanne Conway: Confident on US, China trade talks

Bank of NY Pres John Williams warned that the longest partial gov shutdown in history is starting to create “emerging headwinds” to economic growth.  While speaking, Williams, a voting member of the Federal Open Market Committee this year, called for an approach of patience, prudence & good judgment in the face of a softer economic outlook.  The Fed, Williams said, is “seeing some emerging headwinds to growth from the partial government shutdown in the United States and elevated geopolitical uncertainties abroad” -- & is responding to the outlook of slowing growth “carefully.”  If growth is stronger than expected, however, Williams said it’s likely that “somewhat higher interest rates” will be called for at some point.   In 2018, policymakers at the central bank voted to hike the benchmark federal funds rate 4 times & in 2017, they voted to do so 3 times.  Williams is the latest Fed president to signal a dovish approach to interest rates in 2019, on the heels of a tumultuous month for the stock markets & concerns over a nearly year-long trade war between the US & China.  As the shutdown is inching toward its 5th week, the White House has re-evaluated the toll it could have on the economy.  On Tues, a senior official for the administration forecast the partial shutdown would subtract about 0.13 percentage points from growth every week, double the White House's original estimate.

New York Fed's Williams warns of 'headwinds' from record government shutdown

China has offered a 6-year boost in imports during its ongoing talks with the US, officials familiar with the matter said.  Chinese officials made the offer during negotiations in Beijing earlier in Jan, according to leakers.  China would increase its annual import of US goods by a combined value of over $1T, which was first to report on the import boost offer.  China pegged its proposal to buy more US goods thru 2024.  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.

China offers 6-year import boost in trade talks with US: Sources

The level of crude output from the US will once again be a major factor this year, the Intl Energy Agency (IEA) said its closely-watched report, with the energy giant on track to reaffirm its position as the world's leading crude producer.  The IEA report comes shortly after OPEC & non-OPEC producers officially implemented a fresh round of supply cuts.  Alongside Russia & 9 other nations, top oil exporter Saudi Arabia struck a deal with the rest of OPEC in Dec to keep 1.2M barrels per day (b/d) off the market from the start of Jan.  “While the other two giants voluntarily cut output, the U.S., already the biggest liquids supplier, will reinforce its leadership as the world’s number one crude producer,” the Paris-based IEA said.  “By the middle of the year, U.S. crude output will probably be more than the capacity of either Saudi Arabia or Russia.”  Intl benchmark Brent crude traded at around $61.69, up 0.8%, while West Texas Intermediate (WTI) stood at $52.56, almost 1% higher.  Brent crude has fallen almost 30% since climbing to a peak of $86.29 in early Oct last year, while WTI is down more than 31% over the same period.  The collapse in oil prices was exacerbated by concerns about oversupply, as well as a stock market slump amid worries over rising US interest rates.  That prompted OPEC & non-OPEC producers to throttle back output at the start of 2019, in an effort to try to put a floor under falling oil prices.  The IEA has previously touted the “growing influence” of the US in global oil markets, saying such a dramatic rise in crude output could soon challenge the market share of OPEC kingpin Saudi Arabia & non-OPEC heavyweight Russia.  US crude production has soared in recent months, rising by more than 2M b/d to an unprecedented 11.9M b/d.  The IEA said that its estimates for global oil demand growth in 2018 & 2019 remained unchanged at 1.3M b/d & 1.4M b/d, respectively.  The group said the impact of higher oil prices in 2018 was “fading,” which should help to offset cooling economic growth over the coming months.

US will 'reinforce its leadership' as the world's top crude producer in 2019, IEA says

The Trump administration isn't giving up hope of pursuing a “significant” infrastructure initiative during Pres Trump's first term.  The White House held a high-level meeting Tues to discuss potential paths forward, according to leakers.  The hour-long meeting, convened by the National Economic Council & helmed by NEC Director Larry Kudlow, was described as a “status conference” to discuss how best to move forward on a package once the gov shutdown ends.  But it’s not clear whether the administration will move forward to publicly announce a new plan of its own, or wait for Dems in Congress to bring their own infrastructure proposal out first.  VP Mike Pence, senior advisor Ivanka Trump & acting chief of staff Mick Mulvaney were among more than 3 dozen White House officials in the meeting.  Among the issues debated: Reform in the permitting process, support for energy industry projects in the Permian Basin & potential revenue from a controversial hike of the federal gas tax.  Attendees were cautious that raising the gas tax would hurt Trump's prospects in the 2020 election.  Trump made clear he wanted a package to be of “meaningful” size & reiterated his oft-mentioned target of $1T.  An infrastructure proposal released last year by the White House suggested $200B in federal spending, coupled with private investment, would spur $1.5T in infrastructure improvements around the country.  Trump criticized the plan, & again argued – as he did before the plan's release – that public-private partnerships, or “P3s” are ineffective.

White House games out potential new Trump infrastructure plan

Stocks closed the week on a very high note.  The big trade deal looks to be ready for finalizing.  Oil had an excellent week with much of that advance due to growing optimism about economic growth.  Comments about a less robust US economy are being noticed by the Fed which could slow its plans to hike rates.  The Dow is up almost 700 this week & 2900 from the Christmas eve low.  Investors are feeling much better even with the gov shutdown stuck in the mud.

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