Tuesday, January 29, 2019

Mixed markets struggle after earnings reports

Dow rose 51, advancers over decliners about 3-2 & NAZ was off 57.  The MLP index rose 2+ to the 249s & the REIT index went up 3+ to the 355s.  Junk bond funds fluctuated & Treasuries were purchased today.  Oil went up 1+ to the 53s & gold climbed 7 to 1310 (more below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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The chance of recession in the next 12 months spiked to its highest level in 3 years as market participants ratcheted up their worries about global economic weakness, Fed rate hikes, the market sell-off, trade tensions & the gov shutdown.  The CNBC Fed Survey, conducted last week while the gov was still shut down, saw the probability of a recession in the next 12 months rise to 26%, the 3rd straight increase.  The probability was last higher at nearly 29%  in Jan 2016, following another market sell-off, showing how sensitive the outlook for survey respondents can be to market gyrations.  Neither the 2016 spike, nor the one that saw the series hit the all-time of 36% in 2011, preceded a recession.  But the Fed reacted both times to the deterioration in underlying conditions: it launched its 3rd round of quantitative easing in 2012 & delayed rate hikes for a year in 2016.  The Fed's 2-day policy meeting began yesterday & will end tomorrow followed by a news conference from Chairman Powell.  Similarly, the 46 respondents to the Fed Survey believe the central bank will now hike just once in 2019, down from a forecast of 2 in the Dec survey.  And just 48% of respondents believe the Fed will hike in 2020, while 37% believe the Fed will cut rates.  100% expect no rate hike from the Jan meeting, the first where Powell will hold a news conference after every meeting.  Meanwhile, approval of Pres Trump's handling of the economy fell nearly 10 points to just 43%, a low percentage in a survey where respondents have given the president high marks for his economic stewardship.  Protectionist economic policies, global economic weakness & a Fed policy mistake are seen as the biggest threats to the expansion.  Yet, respondents actually raised their forecast for 2019 growth to 2.4% from 2.3% in the prior survey & from 1.8% to 2.05% for 2020.  Unemployment is seen edging higher this year.

Odds of a recession spike to a three-year high, according to CNBC’s Fed survey

Gold futures finished higher for a 3rd straight session as haven support from geopolitical risks helped the metal shake off pressure from some gains in global stock markets & a steady $.  Bullion's ascent comes on the first day of the Federal Reserve's 2-day policy meeting that is likely to signal a central bank that appears inclined to dial back a seemingly aggressive path of rate increases, a potentially bullish development for precious metal prices that don't offer a yield.  Gold for Feb delivery climbed $5.80 (0.5%) to settle at $1309 an ounce & Apr gold ended at $1315, up $5.90 (0.5%).  Both finished at their highest levels since Jun.  The Fed has penciled in 2 qtr-point rate increases this year, down from an early estimate of 3, although officials have stressed the moves aren't set in stone.  So far in 2019, after the Dec market turmoil, many Fed officials have emphasized that the central bank intends on being “patient” in its policy normalization plans.  That could create a felicitous atmosphere for gold & other precious metals to clamber higher, commodity experts have said.

Gold ends at highest since June, up a third straight session

3M (MMM), a Dow stock & Dividend Aristocrat, stock rallied after the consumer consumer, industrial & safety products company beat Q4 earnings & revenue expectations.  As part of the revenue beat, consumer sales rose 0.1% to $1.21B, above the consensus of $1.19B, as growth in the US & Latin America/Canada regions offset a decline in Asia-Pacific & EMEA (Europe, Middle East & Africa).  CFO Nicholas Gangestad said consumer sales in the Asia-Pacific region fell 5% amid continued lower demand for its consumer respiratory products, particularly in China Hong Kong, "due to improved air quality."  Its consumer respiratory products include Nexcare Earloop Masks & 3M Air Pollution & Pollen Respirators.  The stock finished up 3.75.
If you would like to learn more about MMM, click on this link:

3M consumer sales in Asia hurt by cleaner air in China

Chinese net purchases of US commercial real estate last year dwindled to their lowest level since 2012, as Beijing kept up the pressure on Chinese investors to bring cash home during a period of worsening economic growth.  Insurers, conglomerates & other investors from mainland China were net sellers of $854M of US commercial property in Q4, according to Real Capital Analytics.  That marked the 3rd-straight qtr Chinese investors sold more US property than they bought, the first time ever these investors have been sellers for that long a stretch.  The selling during most of 2018 marked a powerful reversal from the previous 5 years, when Chinese investors went on a massive buying spree, often handily outbidding other investors for US trophy properties.  They spent 10s of B$s on luxury hotels like the landmark Waldorf Astoria in New York, a nearly $1B skyscraper development in Chicago & a glitzy residential project in Beverly Hills, Calif.  Now, many of China's biggest overseas real-estate investors are unloading some of the same prized assets, or at least reducing their US exposure by selling stakes to new partners.  The turnabout last year reflects an effort by the Chinese gov to stabilize its currency, reduce corp debt & help arrest the country's economic slowdown by clamping down on certain overseas investments.  Some Chinese developers, now facing tighter credit conditions at home, have tried to raise money instead by selling some of their US properties.

Chinese companies dumping U.S. real estate by most since 2012 as Beijing directs money back home

NAZ was weak on nervousness about earnings reports about coming from the big tech stocks.  They could be affected by the faltering trade talks with China.  The Fed announcement on interest rates tomorrow should be pretty much a non-event.  No surprises are expected.  The Dow had a choppy day.  It was up in the AM, followed by selling & then buying around midday.  In the PM, sellers were in charge, paring gains for the day.  NAZ sank in early trading & buyers stayed home for the rest of the day.  The stock market remains overbought after its recent rally & could remain on defense for the rest of the week.

Dow Jones Industrials

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