Dow sank 354 (closing at the lows), decliners over advancers 5-2 & NAZ slumped 114. The MLP index was off 1+ to the 243s. Junk bond funds were sold & Treasuries continued in heavy demand. Oil tumbled to the 53s & gold surged 18 to 1310 (more on both below).
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Trump’s Mexico tariffs draw immediate rebuke, threaten USMCA deal and China trade talks
US household sentiment fell at the end of May from earlier in the month as consumers worried about renewed trade tensions. The University of Michigan said its final index of May consumer sentiment index was 100, up from 97.2 in Apr but down from May's initial estimate of 102.4. The forecast called for a final reading of 101.
Gold prices surged, advancing to their highest level since early Apr with fears about a slowing economy pushing some investors toward safer assets & the $ declining. Gold for Jul delivery, the most-active futures contract, rose 1.4% to $1311 a troy ounce. Despite recent stock-market volatility, prices are only slightly higher for the month & year with many analysts preferring the safety of Treasuries & the $.
This was an usually dreary day for stocks. Trump's surprise announcement about new tariffs on Mexico caught investors by surprise. Stocks were sold at the opening & the bulls stayed away all day. The Dow closed at its low, finishing the month down 1800. Worse, the outlook is for more selling with so much nervousness about global growth, beginning with the US economy. Until the trade scene calms, selling will continue in stocks.
Dow Jones Industrials
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AMJ (Alerian MLP Index tracking fund)
The Trump administration is ramping up pressure on House Speaker Nancy Pelosi to take up a new trade deal between the US, Canada & Mexico, but fresh tariffs on Mexico could further complicate a process already mired by a bitterly divisive political environment in DC. Outside
of the future of the US–Mexico–Canada Agreement (USMCA)
which is designed to replace NAFTA, the new duties could also impact
ongoing trade negotiations with China & lead to higher consumer
prices, particularly if the White House scales the tariffs at the pace
it forecasted. The administration is hoping the
latest trade threat will force Mexico to take action to curb the
crossing of undocumented individuals into the US, though it has
largely avoided providing any specific metrics. Should
the demands not be met, the 5% tariffs beginning on Jun
10 would rise to 15% on Aug 1, 20% on Sep 1 &,
ultimately, 25% on Oct 1. Combined
with the existing tariffs on $250B in Chinese goods, as well as
the potential that administration imposes duties on another $300B , by Oct the US could have a 25% tax on nearly $900B in goods from China & Mexico, 2 of the country's largest
trading partners. Domestic firms would have difficulty importing the
products they need from elsewhere if double-digit tariffs are imposed
on both Canada & Mexico, given the other large US trading partners –
including Canada, the UK & Japan – are insufficient
substitutes. That would likely mean higher
prices for consumers, as businesses seek to mitigate the impact on their
own operations. In a sign of the significance of the action, the
tariffs drew near nearly unanimous backlash from industry groups.
Trump’s Mexico tariffs draw immediate rebuke, threaten USMCA deal and China trade talks
Consumer spending slowed in Apr while inflation was up, but still far below the target set by the Federal Reserve. The
Commerce Dept said that spending increased 0.3% in Apr
following a 1.1% surge in Mar that had been the largest increase in
nearly a decade. Personal income growth, which had been lagging in
recent months, jumped 0.5% in Apr. Inflation,
as measured by a gauge tied to consumer spending, increased 1.5% in
Apr compared with a year ago, up slightly from a 1.4% 12-month change
in Apr. The Fed tries to manage interest rate
policy to achieve annual price gains of 2%. However, in the first 3 months of this year, inflation fell farther from this goal. Pres Trump has argued that the slowdown in inflation shows that the
Fed is keeping monetary policy too tight & should start cutting
interest rates. The Fed raised rates 4 times
last year but then reversed course in Jan & has signaled that it
plans to keep rates unchanged this year. However, Trump has argued that
Fed policies are hurting the economy & the central bank should
be slashing rates instead of keeping them steady. Fed
Chairman Jerome Powell & other Fed officials have attributed the
slowdown in inflation to temporary factors which should reverse in
coming months & have argued that the Fed's wait-&-see approach on
further changes in interest rates is appropriate given how low
unemployment is currently. The 0.5% gain in incomes followed 3 months of tiny changes & was the best showing since a 0.9% jump in Dec. With incomes rising faster than spending, the saving rate increased to 6.2% of after-tax income in Apr, up from 6.1% last Apr. The
gov reported yesterday that the overall economy, GDP, grew at a solid 3.1% rate in Q1. But ½ of that gain was based on temporary
factors that are expected to fade in the current qtr. Economists
believe that consumer spending, which accounts for 70% of economic
activity, will rebound this qtr after slowing in Q1 but they still think overall GDP will slow to a
growth rate of around 1.5%. For Apr, spending
on durable goods such as autos fell 0.8% after a 3.6% jump in Mar,
while spending on nondurable goods such as food & clothing rose 0.7%.
Spending on services such as utilities & doctor visits rose 0.3%.
US consumer spending slows to 0.3% gain in April
US household sentiment fell at the end of May from earlier in the month as consumers worried about renewed trade tensions. The University of Michigan said its final index of May consumer sentiment index was 100, up from 97.2 in Apr but down from May's initial estimate of 102.4. The forecast called for a final reading of 101.
U.S. Consumer Sentiment Dropped in May
Oil prices slumped to a 3-month low as concerns about Pres trump's trade policy & the slowdown in the Chinese economy cast doubt on the outlook for global demand. Front-month
Brent crude futures, the intl benchmark, traded down 2.6% at
$63.60, having earlier dipped to their lowest level since mid-Feb. US benchmark WTI dropped 2.4% to $55.25, its lowest price since
early Mar. The steep declines came alongside a broad retreat
in riskier assets after Pres Trump announced a plan to impose
escalating tariffs on Mexican imports starting Jun 10. The US is a
major importer of Mexican crude, & refineries relying on the supply
could face difficulties replacing it once tariffs are imposed. Adding to the gloom was disappointing manufacturing data in China, which raised concerns that Beijing's efforts to rejuvenate growth are faltering in the face of trade tensions with the US. The combination of US sanctions on Venezuela & Iran, along with tariffs on Chinese & Mexican goods, is harming investor confidence in the global economy, analysts said. The
latest price fall completes a torrid month for oil markets. Brent lost more than 11% in May, which would be its worst single
month since Nov. Energy
prices made a strong start to 2019 as major producers cut back output,
but fears that trade frictions & a downturn in the world economy will
hit demand have sent prices spiraling lower in recent weeks. Global
oil supplies fell by 300K barrels a day in Apr, according to the
most recent report by the International Energy Agency, partly driven by
declining output in Iran. In the US, the Energy Information Administration reported yesterday
that inventories of crude oil fell slightly last week, though the
decline wasn't as much as expected.
Crude oil prices tumble to 3-month low
Gold prices surged, advancing to their highest level since early Apr with fears about a slowing economy pushing some investors toward safer assets & the $ declining. Gold for Jul delivery, the most-active futures contract, rose 1.4% to $1311 a troy ounce. Despite recent stock-market volatility, prices are only slightly higher for the month & year with many analysts preferring the safety of Treasuries & the $.
Gold Hits Highest Point Since Early April
This was an usually dreary day for stocks. Trump's surprise announcement about new tariffs on Mexico caught investors by surprise. Stocks were sold at the opening & the bulls stayed away all day. The Dow closed at its low, finishing the month down 1800. Worse, the outlook is for more selling with so much nervousness about global growth, beginning with the US economy. Until the trade scene calms, selling will continue in stocks.
Dow Jones Industrials
