Sluggish markets as yields dip on continued global growth fears

Dow fell 32, decliners modestly ahead of advancers & NAZ pulled back 48.  The MLP index was off 1+ to the 252s & the REIT index added 3+ to the 378s (& a new record high).  Junk bond funds fluctuated & Treasuries continued in demand, bringing the lowest yields in 14 months.  Oil drifted lower in the 59s & gold dropped 7 to 1307.

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Despite growing fears about an impending economic recession, Dallas Federal Reserve Bank Pres Robert Kaplan believes it’s too soon to cut interest rates.  On Fri, the yield curve inverted for the first time since 2007, meaning the yield on the 10-year Treasury note dipped below the yield on the 3-month Treasury note, triggering additional fears about a downward economic trajectory.  That's because the yield curve inversion has typically been considered a predictor of recession as it means the interest on long-term bonds is lower than that on short-term bonds.  Higher long-term rates reflect buyer sentiment that growth will continue, but when the difference between the long-term & short-term rates shrinks, it signals that buyers are worried about lasting growth.  The yield curve previously inverted in 2000 & 2007.  Kaplan said that before considering whether to lower rates, “I’d need to see an inversion of some magnitude and/or some duration, and right now we don’t have either.”  For that to happen, the yield-curve inversion would need to last for months, not weeks, Kaplan said.  “If you see an inversion that goes on for several months … that’s a different kettle of fish,” he added.  “We’re not there yet.”  Last week, the FOMC voted to keep the benchmark federal funds rate steady, while also signaling there will be no additional rate hikes for the remainder of the year.  “The Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes,” the Fed said.  In recent months, the Fed has appeared to take a more dovish approach to interest rates amid concerns about slowing global growth -- a result of a more than year-long trade war between the US & China, & uncertainties about Brexit.  "We still see sustained expansion of economic activity, strong labor conditions and inflation near 2 percent," Powell said during the Jan meeting.  "But the crosscurrents suggest a less favorable outlook.”

Dallas Fed's Kaplan thinks it's too soon to consider rate cuts

The Trump administration & Chinese officials are about to hold their 8th round of trade talks in Beijing with several tough issues unresolved, including a timetable for lifting tariffs & a way to enforce any agreement.  Many analysts expect some limited agreement to be reached in the coming weeks or months.  Yet it's unclear how far any accord would go to address the long-standing Chinese trade practices at the heart of the conflict, from the forced handover of foreign technology secrets to outright cyber-theft, that the administration insists must end.  The backdrop to the talks is a trade war that has exacted a toll on both economies & intensified pressure to reach an accord. Trump's tariffs on Chinese goods have raised costs for many US manufacturers.

Trump team and China seek elusive deal as latest talks near

UK Prime Minister Theresa May has told Conservative Party lawmakers that she will quit once the country has left the EU — but she didn't set a date.  Conservative lawmaker James Cartlidge told reporters as he left the 1922 Committee of Conservative lawmakers that May told the gathering "she would not remain in post for the next phase of the negotiations."  Those who will, will deal with Britain's future relationship with the EU.  Britain was due to leave the EU on Mar 29 but May has got a short delay after her divorce deal with the EU was rejected overwhelmingly by lawmakers on 2 occasions.  May, who is an ally of Pres Trump, had his support in recent weeks as he promised an expanded trade relationship with the country amid the Brexit chaos.  "You know all of the situation with respect to Brexit and the complexity and the problems, but we have a very good trading relationship with the U.K. and that's just been strengthened further," Trump said last month.  "So with the U.K., we’re continuing our trade, and we are going to actually be increasing it very substantially as time goes by" he added.

Theresa May will quit post Brexit

Boeing (BA), a Dow stock, previewed its software fix, cockpit alerts & additional pilot training for its 737 Max planes, saying the changes improve the safety of the aircraft which has been involved in 2 deadly crashes since Oct.  "We're working with customers and regulators around the world to restore faith in our industry and also to reaffirm our commitment to safety and to earning the trust for the flying public," Mike Sinnett, VP, said in previewing the changes.  Many of the details behind its plan to fix the Max have come out over the last 2 weeks.  "We're working with pilots and industry officials," said Sinnett.  "We have 200 of them today in our Renton facility and we'll be spending time with them today to explain the updates we're making to the 737 Max, to get their input and to earn their trust."  By the end of this week, BA plans to send the software updates & plan for enhanced pilot training to the FAA for certification approval.  The FAA's approval process has raised questions in the industry & is the subject of a Senate hearing today.  Industry officials believe it could take the FAA up to 2 weeks to certify the changes.  After the FAA approves the fix, BA will send the software update to customers. It takes a few days install & more time for training & testing.  Still, the FAA & other regulators around the world need to sign off on the safety of the 737 Max before they approve the planes to once again fly & carry passengers.  Some analysts believe that will take a minimum of 6 weeks & up to 12 weeks before the grounded jets are airborne again.  The stock recovered 3.83.
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Boeing unveils 737 Max fixes, says planes are safer

Stocks continue to drift with a downward bias, as they have for 6 weeks.  By midday the Dow sank more than 200, but buyers returned which limited the loss.  Without significant news events, i.e. Chinese trade negotiations drag on as does the Brexit mess, it is difficult for the bulls to make a good case for buying shares.  However the Dow has stayed within about 1K of its record, so all is not as gloomy as suggested by the strong demand for Treasuries & gold.  In a few hours China trade talks resume & the bull are hoping for a favorable outcome.

Dow Jones Industrials