Wednesday, January 23, 2019

Markets wobble on growth trade concerns versus earnings reports

Dow rose 171, decliners slightly ahead of advancers & NAZ crawled up 5.  The MLP index was steady in the 244s & the REIT index fell 1 to the 346s.  Junk bond funds continued mixed & Treasuries fell.  Oil is back in the 52s (more below) & gold lost 1 to 1282.

AMJ (Alerian MLP Index tracking fund)

Pres Trump’s outside advisor on China said that he didn't expect a breakthrough in trade talks in the “near term.”  Michael Pillsbury, director of the Center for Chinese Strategy at the Hudson Institute & a noted China hawk with the ear of the pres, suggested that he expected a planned meeting between US & Chinese negotiators scheduled for the end of the month to conclude without a trade deal.  “Over the last 45 years, a lot of American presidents have negotiated with China,” Pillsbury said in response to a question about the meeting.  “And there are some patterns to what has gone on. One of them is that the Chinese prefer to make a last-minute deal, to get the best deal they can. So I am not among those who think there is going to be a breakthrough in the next few days.”  The meeting between US negotiators & 2 Chinese vice ministers was canceled, though the White House has said “the teams remain in touch in preparation for high level talks” at the end of the month.  Pillsbury remained optimistic about the US & China reaching a deal in the longer term.  “I don’t expect this to be a smooth deal. But I do expect success, because President Trump cares so much about the issue,” he added.

Trump's outside China advisor says there will not be a breakthrough in trade talks soon

The chairman of Pres Trump's Council of Economic Advisers said the US could post no economic growth in Q1 if the federal gov does not reopen.  “If [the shutdown] extended for the whole quarter, and given the fact that the first quarter tends to be low because of residual seasonality, then you could end up with a number very close to zero in the first quarter,” Kevin Hassett said.  Asked whether GDP growth could hit zero in the qtr, Hassett said “Yes, we could.”  “But then again, the second-quarter number would be humongous if the government reopened. It would be like 4 or 5 percent,” Hassett added.  In recent decades, GDP growth in Q1 has been notably weaker than growth in other qtrs.  The federal gov shutdown was in its 33rd day, with little sign of relief for the roughly 800K federal workers going without pay.  The Senate tomorrow is holding votes on competing GOP & Dem proposals that would fund the gov thru Feb 8.  Neither measure is expected to pass because of the parties' standoff over Pres Trump's demand for $5.7B for a wall along the Mexican border.  Hassett added later that he believes the US & China could reach a trade deal by the Mar 2 deadline.

White House chief economist: We could see 'zero' growth in first quarter because of shutdown

The oil market fell as a widespread economic slowdown, which may dent growth in demand for fuel, weighed on energy prices.  Crude futures earlier got a boost from hopes that Japan & China would take fiscal stimulus measures to stem the slowdown.  Prices got further support from expectations that US crude stockpiles fell last week & official data indicated slowing growth in US shale oil output in the coming years.  Intl Brent crude oil futures fell 35¢ (½%) to $61.15 per barrel & US West Texas Intermediate crude futures finished the session down 39¢ (0.8%) at $52.62 per barrel.  Oil prices fell by 2% yesterday as financial markets reeled from concerns about a global economic slowdown & the heavy losses spooked investors into safe-haven assets such as gov bonds or gold.  A litany of poor economic data worldwide sapped Asian markets, though some optimism emerged as China & Japan said they would use fiscal spending to boost growth.  Falling US gasoline prices & rising crude output in the US were also pressuring the crude market.  Market participants said they are looking ahead to the US weekly petroleum inventories report, which is expected to show a 3rd weekly drawdown in crude stocks, but gasoline inventories were forecast to build for the 8th straight week.

Oil slips as slowdown worries offset outlook for lower supply

Earnings were a positive for the Dow but that enthusiasm did not spread to many other stocks.  The gov shutdown & lack of progress in trade talks is just plain dreary.  Investors are unhappy with this state of affairs, so they are staying home.  The confusion about Trump giving his state of the union address adds to uncertainty about where the country is going.  After the more than 2½K bull run, ordinary profit taking is setting in.

Dow Jones Industrials

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