Friday, April 5, 2019

Markets edge higher on jobs data and trade hopes

Dow climbed 40, advancers over decliners 5-2 & NAZ gained 46.  The MLP index rose 1+ to the 257s & the REIT index went up 1+ to the 382s.  Junk bond funds hardly budged in price & Treasuries were bid higher.  Oil jumped up 1+ to the 63s as Brent topped 70 (more below) & gold inched up 1 to 1295.

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Boeing (BA), a Dow stock, is reportedly looking at slowing production of its popular 737 Max jets amid mounting evidence that bad data feeding into an automated flight system played a role in 2 plane crashes that killed 346 people since Oct.  The 737 Max has been grounded following a Mar 10 crash in Ethiopia.  Ethiopian Airlines is also reportedly reconsidering its order for 25 additional 737 Max jets in the aftermath of the crashes.  CEO Dennis Muilenburg acknowledged for the first time yesterday that faulty data feeding to the jet's automated control system played a role in the crashes.  His statement came after Ethiopian aviation officials released a preliminary report that found pilots followed BA's standard safety procedures in the Ethiopian Airlines crash in Addis Ababa on Mar 10.  The stock fell 3.94.
If you would like to learn more about BA, click on this link:

Boeing is considering slowing down 737 Max production: report

Oil prices rose more than 1% on bullish US employment data that tempered fears about a decline in global crude demand & on expectations that an escalating conflict in Libya could tighten oil supplies.  West Texas Intermediate (WTI) crude settled 98¢ higher at $63.11 a barrel, rising 1.6% to a new 5-month closing high.  WTI posted its 5th consecutive weekly gain, rising 4.9% over the last 5 days.  Brent crude futures rose 94¢ (1.4%) to $70.34 a barrel, marking the first time the intl benchmark has settled above $70 in 5 months.  Brent finished the week 2.9% higher.  Both contracts hit new 5-month highs after today's settlements.  Crude futures rose with the US stock market after the Bureau of Labor Statistics said the US added 196K jobs in Mar, marking a return to solid employment growth after a weak report in Feb.  Military action in Libya, which could disrupt supply from the OPEC member, also supported prices.  Eastern Libyan commander Khalifa Haftar ordered his troops on yesterday to march on the capital Tripoli, escalating a conflict with the internationally recognized gov.  Crude futures also received a boost from news of a potential slowdown in crude production out of Venezuela, as US sanctions & energy blackouts hit the OPEC nation's oil industry.  Venezuelan state-owned oil company PDVSA expects its crucial crude upgraders to operate well below capacity this month, according to industry sources & documents.  Venezuela depends on the upgraders, which are mostly operated by joint ventures with foreign companies, to convert the extra-heavy crude oil produced in the Orinoco Belt into exportable grades usable in overseas refineries.

Oil prices hit 5-month highs on strong US jobs report, Libya conflict

Consumer borrowing decelerated but only slightly in Feb, according to the Federal Reserve.  Total consumer credit increased $15.2B in Feb to a seasonally adjusted $4T.  That’s an annual growth rate of 4.5%.  Economists has been expecting a $17B gain.  Credit rose a revised $17.7B in Jan, up slightly from the prior estimate of $17B.  Over the prior three months, credit borrowing expanded at a 17.2% pace.  Revolving credit, like credit cards, accelerated in Feb, rising by 3.4% after a 3% gain in Jan.  Nonrevolving credit, typically auto & student loans, had a smaller gain, rising 4.9% in Feb after a 6.1% rise in Jan.  Consumer spending decelerated in Q1 in the wake of the stock-market rout in final 3 months of 2018.  But spending will still likely add to Q1 growth.  It has been estimated that spending will grow at a 1.4% rate in Q1, down from a 2.5% rate seen in Q4 & the tax-cut-fueled 3.7% average rate of credit growth seen over the 2nd & 3rd qtrs last year.

Consumers continue to borrow at steady rate in February

British Prime Minister Theresa May again sought to delay Brexit until Jun 30 to avoid a chaotic withdrawal from the EU in one week, although a key leader of the bloc suggested an even longer pause in the difficult divorce proceedings.  The question over timing is vital because Britain is set to leave the EU without a withdrawal deal in place on Apr 12 unless an agreement is reached at a Brussels summit set to take place 2 days earlier.  In a letter to European Council President Donald Tusk, May asked for an extension until the end of Jun & agreed to make contingency plans to take part in European Parliament elections on May 23-26 if necessary.  An earlier British request for a delay until Jun 30 was rejected last month, amid rising irritation from EU leaders about the political chaos in London.  There also having been increasing fears that the longer the UK stays, the more it will obstruct EU policies & plans.  Tusk proposed a longer time frame today & he urged the 27 remaining EU nations to offer the UK a flexible extension of up to a year to make sure the nation doesn't leave the bloc in a chaotic way that could undermine commerce & hurt many EU nations.  2 EU officials said Tusk wants a one-year period, which has been dubbed a "flextension" & hopes to get it approved at the EU summit on Apr 10.  Such a move would mean that the UK would need to take part in the elections to the European Parliament, something May has long argued would not be in either side's interest.  The elections pose a substantial stumbling block because Britain would be expected to take part, if it is still an EU member, so its people have representation in the European Parliament.  Officials worry that the legitimacy of European institutions could be jeopardized if the population of a member state is not involved in the process.

UK's prime minister asks EU to delay Brexit until June 30

Pres Trump announced yesterday that a “monumental trade agreement” between the US & China is not yet ready but could come in the next month.  According to Secretary of State Mike Pompeo, IP theft is a challenge & why negotiations are taking so long. “The work that’s being done is about this enforcement mechanism,” he said.  Pompeo said Trump has been using tariffs as leverage in order to get China to “come to the table” & "take seriously" a responsibility to engage in “fair” & “reciprocal” trade with America.  “We’ve seen the Chinese enter into deals before where they didn’t follow through,” he added.  “And the mission that Secretary Mnuchin, Ambassador Lighthizer have is to get this deal done in a way that after the deal is done, after the signing ceremony, American companies can count on the fact they can do business in China without substantial risks their IP will be stolen.”  Pompeo recently visited Europe to warn against China, in particular Huawei's infrastructure, which is used by many European nations.  In Feb, he said that the Chinese telecom giant threatens the ability of Europe to work alongside the US.  After urging nations to secure their devices around the world & not use Huawei technology, Pompeo said that although Huawei “will do what the Chinese gov asks it to do,” he is optimistic that European countries will take the threat “very seriously” & “real progress” will be made on protecting the world from the dangers of the Chinese surveillance state.  “Each of the European countries, including Italy, is working its way through this problem set,” he said in regards to meeting with Italy's foreign minister after Rome announced that it would sign a memorandum of understanding with China.  “I think they have now become aware of the risk to their own people, not only directly from the technology but from the risk that America won’t be able to work as closely with them, something they often count on and depend upon,” he added.

Pompeo: China IP theft stalling trade negotiations

The Dow went up 500 this week & is more than 3K higher (from depressed levels this year) YTD.  There is a lot riding on the US-China talks, &, to a lessor extent, the Brexit mess.  The US economy is lumbering along after today's jobs report.  However a nagging thought is the length of the China trade talks.  Meanwhile the bulls are looking at last year's record for the Dow, just 400 away.

Dow Jones Industrials

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