Dow sank 286, decliners over advances about 4-1 & NAZ retreated 122. The MLP index dropped 5+ to the 249s & the REIT index crawled higher in the 383s. Junk bond funds remained weak & Treasuries soared, with the yield on the 10 year Treasury sinking almost 10 basis points to under 2.3%. Oil had its worst day of the year, plunging 3½ to the 57s, (more below) & gold shot up 9 to 1283 while stocks were being sold.
AMJ (Alerian MLP Index tracking fund)
![Live 24 hours gold chart [Kitco Inc.]](https://www.kitco.com/images/live/gold.gif?0.2180338269244485)
Pres Trump's tariffs on imported Chinese goods could boost US inflation closer to the target rate of 2%, San Francisco Federal Reserve Pres Mary Daly said. "It will affect [inflation] in the way we hope which is to move it back up to 2 percent…but not above,” she added. Inflation rose 1.6% in Mar from a year ago, missing the central bank's 2% target adopted in 2012. The inflation rate measures the rise in the average price of goods & services in an economy. The US economy continued its pace of growth adding 263K new jobs in Apr, with wages rising & the unemployment rate at the lowest level in nearly 50 years. Daly said the economy will maintain its sustainable growth pace, but slightly slower than the previous year. “My expectation, it’ll be closer to our sustainable pace further tightening the labor market,” she said. “We should push up wage growth and push inflation towards our 2 percent target.” The Commerce Dept's recent data shows US GDP rose at a 3.2% annualized rate, higher than the 2.5% that was expected. Daly said the economy is moving rapidly & slower growth doesn't indicate the economy has stalled. “We are still growing with good momentum, strong domestic confidence and I see the future as good,” she added.
Oil prices tumbled nearly 6%, extending steep losses in the previous sessions, as the market braced for a prolonged US-China trade war & digested disappointing manufacturing data. Some analysts also pointed to signs that Middle East tensions are moderating. Brent crude futures sank $3.35 (4.7%) to $67.64 per barrel. The intl benchmark for oil prices hit a nearly 2-month low earlier in the session & is on pace for its worst week since Dec. US West Texas Intermediate (WTI) crude futures settled $3.51 lower at $57.91 per barrel, tumbling 5.7% to the lowest closing price since Mar 12. WTI is on track to end the week 7.7% lower & post the worst weekly performance in 5 months. Crude futures fell with the stock market as the ongoing US-China trade dispute entered a new phase. A wave of companies is suspending business with Huawei after the US blacklisted the Chinese telecom giant. DC & Beijing are set to increase tariffs on hundreds of Bs of $s of each others goods, raising concerns about a global economic slowdown & weaker demand for oil. US manufacturing activity grew at its slowest pace since 2009 this month, according to IHS Markit. Meanwhile, data released overnight showed Japanese manufacturing activity fell into contraction in May. Manufacturing activity for the EU & Germany also came in below expectations.
Oil plunges 5.7% to $57.91 as US-China trade war raises fuel demand worries
Sales of new US single-family homes fell from near an 11½-year high in Apr as prices rebounded, but demand for housing remains underpinned by declining mortgage rates & a strengthening labor market. The Commerce Dept said new home sales dropped 6.9% to a seasonally adjusted annual rate of 673K units last month. Mar's sales pace was revised up to 723K units, the highest level since 2007, from the previously reported 692K units. Apr's decline followed 3 straight monthly increases. The forecast called for new home sales, which account for about 10% of housing market sales, would decrease 2.8% to a pace of 675K units in Apr. Sales increased 7.0% from a year ago. The median new house price increased 8.8% from a year ago to $342K, the highest level since Dec 2017. New home sales had in recent months outperformed other housing market indicators, including building permits, which had dropped for 5 straight months in Apr. New home sales are drawn from permits. Economists attributed the recent strength in new home sales to declining mortgage rates. The new housing market has not been severely constrained by an inventory shortage, which has crippled sales of previously owned homes.
New home sales fall more than expected in April
ECB officials warned at their Apr policy meeting that the Eurozone's economic soft patch might last longer than expected & underscored their willingness to use all their policy tools to shore up the economy. Minutes of the Apr 9-10 meeting, published, reveal concerns among ECB policy makers over stubbornly low inflation & a run of soft economic data, especially in the key manufacturing sector.
While it is fashionable to say that the American worker is being displaced by technology, US businesses may be hurt more & this could lead to the next economic downturn, Dallas Fed Pres Robert Kaplan said. Consumer are not over-leveraged & the labor market is tight, giving a “pretty good underpinning” for the economy that relies on household spending for growth, Kaplan said. On the other hand, businesses are caught in a maelstrom of trade wars & tech disruption, Kaplan said. If you have enough tech disruption, combined with trade fights that limit the ability of firms to manage costs through their supply chains, this could cause such a pullback of business spending so that it will ultimately feeds into hiring & weaken the labor market, Kaplan added. “I’m more worried about businesses being the front end of this next slowing than I am the consumer being the front end,” Kaplan said.
Investors are worried that the trade war will be around for a long time. With negotiations stalled, it's hard to argue otherwise. The US economy is doing well with low unemployment & fairly good GDP data (at least for the time being). But a worsening condition for trade can hurt corp profits & dysfunctional DC can make matters worse. The Dow chart below shows in the first 6 weeks of this year buyers returned to an oversold market. However since then times have been unsettled & there is not much hope for improvement going forward. As result, demand for safe haven gold & Treasuries is very strong. For what it's worth, after a dreary day there was a little bargain hunting in the last hour of trading.
Dow Jones Industrials
AMJ (Alerian MLP Index tracking fund)
Pres Trump's tariffs on imported Chinese goods could boost US inflation closer to the target rate of 2%, San Francisco Federal Reserve Pres Mary Daly said. "It will affect [inflation] in the way we hope which is to move it back up to 2 percent…but not above,” she added. Inflation rose 1.6% in Mar from a year ago, missing the central bank's 2% target adopted in 2012. The inflation rate measures the rise in the average price of goods & services in an economy. The US economy continued its pace of growth adding 263K new jobs in Apr, with wages rising & the unemployment rate at the lowest level in nearly 50 years. Daly said the economy will maintain its sustainable growth pace, but slightly slower than the previous year. “My expectation, it’ll be closer to our sustainable pace further tightening the labor market,” she said. “We should push up wage growth and push inflation towards our 2 percent target.” The Commerce Dept's recent data shows US GDP rose at a 3.2% annualized rate, higher than the 2.5% that was expected. Daly said the economy is moving rapidly & slower growth doesn't indicate the economy has stalled. “We are still growing with good momentum, strong domestic confidence and I see the future as good,” she added.
US tariffs on Chinese imports could help push inflation closer to 2%, Fed's Daly says
Oil prices tumbled nearly 6%, extending steep losses in the previous sessions, as the market braced for a prolonged US-China trade war & digested disappointing manufacturing data. Some analysts also pointed to signs that Middle East tensions are moderating. Brent crude futures sank $3.35 (4.7%) to $67.64 per barrel. The intl benchmark for oil prices hit a nearly 2-month low earlier in the session & is on pace for its worst week since Dec. US West Texas Intermediate (WTI) crude futures settled $3.51 lower at $57.91 per barrel, tumbling 5.7% to the lowest closing price since Mar 12. WTI is on track to end the week 7.7% lower & post the worst weekly performance in 5 months. Crude futures fell with the stock market as the ongoing US-China trade dispute entered a new phase. A wave of companies is suspending business with Huawei after the US blacklisted the Chinese telecom giant. DC & Beijing are set to increase tariffs on hundreds of Bs of $s of each others goods, raising concerns about a global economic slowdown & weaker demand for oil. US manufacturing activity grew at its slowest pace since 2009 this month, according to IHS Markit. Meanwhile, data released overnight showed Japanese manufacturing activity fell into contraction in May. Manufacturing activity for the EU & Germany also came in below expectations.
Oil plunges 5.7% to $57.91 as US-China trade war raises fuel demand worries
Sales of new US single-family homes fell from near an 11½-year high in Apr as prices rebounded, but demand for housing remains underpinned by declining mortgage rates & a strengthening labor market. The Commerce Dept said new home sales dropped 6.9% to a seasonally adjusted annual rate of 673K units last month. Mar's sales pace was revised up to 723K units, the highest level since 2007, from the previously reported 692K units. Apr's decline followed 3 straight monthly increases. The forecast called for new home sales, which account for about 10% of housing market sales, would decrease 2.8% to a pace of 675K units in Apr. Sales increased 7.0% from a year ago. The median new house price increased 8.8% from a year ago to $342K, the highest level since Dec 2017. New home sales had in recent months outperformed other housing market indicators, including building permits, which had dropped for 5 straight months in Apr. New home sales are drawn from permits. Economists attributed the recent strength in new home sales to declining mortgage rates. The new housing market has not been severely constrained by an inventory shortage, which has crippled sales of previously owned homes.
New home sales fall more than expected in April
ECB officials warned at their Apr policy meeting that the Eurozone's economic soft patch might last longer than expected & underscored their willingness to use all their policy tools to shore up the economy. Minutes of the Apr 9-10 meeting, published, reveal concerns among ECB policy makers over stubbornly low inflation & a run of soft economic data, especially in the key manufacturing sector.
ECB Officials Warned Eurozone Economy May Not Rebound as Expected
While it is fashionable to say that the American worker is being displaced by technology, US businesses may be hurt more & this could lead to the next economic downturn, Dallas Fed Pres Robert Kaplan said. Consumer are not over-leveraged & the labor market is tight, giving a “pretty good underpinning” for the economy that relies on household spending for growth, Kaplan said. On the other hand, businesses are caught in a maelstrom of trade wars & tech disruption, Kaplan said. If you have enough tech disruption, combined with trade fights that limit the ability of firms to manage costs through their supply chains, this could cause such a pullback of business spending so that it will ultimately feeds into hiring & weaken the labor market, Kaplan added. “I’m more worried about businesses being the front end of this next slowing than I am the consumer being the front end,” Kaplan said.
American businesses, not workers, may be hurt most by technological disruption, Dallas Fed chief says
Investors are worried that the trade war will be around for a long time. With negotiations stalled, it's hard to argue otherwise. The US economy is doing well with low unemployment & fairly good GDP data (at least for the time being). But a worsening condition for trade can hurt corp profits & dysfunctional DC can make matters worse. The Dow chart below shows in the first 6 weeks of this year buyers returned to an oversold market. However since then times have been unsettled & there is not much hope for improvement going forward. As result, demand for safe haven gold & Treasuries is very strong. For what it's worth, after a dreary day there was a little bargain hunting in the last hour of trading.
Dow Jones Industrials
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