Monday, May 13, 2019

Markets plunge as China reatliates in the trade war

Dow tumbled 564 (close to session lows), decliners over advancers better than a whopping 7-1 & NAZ sank 221.  The MLP index fell 1+ to 251 & the REIT index gave back 2+ to the 377s.  Junk bond funds were sold & Treasuries climbed higher in price.  Oil rose to the 62s& gold jumped up 10 to 1298 as stocks were being sold.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil62.88

GC=FGold1   ,298.50

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Stocks tumbled by triple digits as trade tensions rise between the US & China sending the averages to lows not seen since Mar.  China slapped $60B on US imports set to begin on Jun 1.  This as Pres Trump continued to razz the Chinese in a series of weekend & this AM Tweets.  The latest had Trump threatening that the lack of a deal may mean it will become "too expensive to buy in China" among other things.   All of the large S&P 500 sectors fell led by technology & consumer discretionary names, while utilities saw modest gains.  On Fri, Chinese Vice Premier Liu said trade talks between China & the US, which lasted for just 2 hours, “went fairly well” & that “talks would continue.”  This as the US increased tariffs on $200 billion of Chinese exports to 25% from 10% that same day.  After trade talks broke up later in the day, US officials said they were preparing to expand those tariffs to cover another $300B of goods, covering most imports from China.  The back-&-forth between the 2 nation's is wreaking havoc in global equity markets, with some investors speculating that a deal may not happen at all.  In commodities, oil prices surged after Saudi Arabia said 2 of its oil tankers were sabotaged in the Gulf of Oman near the coast of the UAE.  The kingdom said the unspecified act of sabotage did not lead to any casualties or oil spills, but the attack Sun raised concerns about the security of oil supplies.  US benchmark crude oil traded around the $62 per barrel level while Brent crude, the intl standard, rose to nearly $72 per barrel.  The Shanghai Composite index fell 1.2% to 2903.  Japan's Nikkei 225 index gave up 0.7% to 21,191 & Australia's S&P ASX 200 declined 0.2% to 6297.  South Korea's Kospi fell 1.4% to 2079 while the Sensex in India lost 0.1% to 37,420.  Hong Kong's markets were closed for a holiday.  Shares also fell in Taiwan & Southeast Asia.

Stocks tumble as US-China tariff war intensifies

China will hike tariffs on roughly $60B in US imports, a retaliation against the Trump administration's decision to increase duties on shipments of Chinese goods to America as the 2 nations continue discussions on a trade deal.  Poised to affect over 5K US products, the tariffs will range to as high as 25%, up from 5-10% currently, & take effect Jun 1.  The US stock market opened roughly 450 points down amid the trade tensions.  Shares of companies with robust operations in China led the decline.  Earlier in the day, Pres Trump warned China against the retaliatory maneuver, tweeting that it "will only get worse!"  Ahead of the latest round of negotiations last week in DC, Trump said the US would raise tariffs on an existing $200B in Chinese imports, from 10%-25% & take effect on Fri.  The White House is also starting work to impose tariffs on an additional $325B in shipments, effectively covering all trade from the Asian nation after China allegedly back-tracked on previously agreed upon terms for the trade deal.  While no additional negotiations are scheduled between the US & China, White House officials expect them to continue.

China retaliates against Trump admin with tariffs on $60B in US goods

Pres Trump blamed China's President Xi Jinping for a trade deal falling apart between the 2 countries in the final week.  Trump said to Pres Xi "you had a great deal...& you backed out" in a tweet.  Following the tweet the Chinese Finance Ministry said China will raise tariffs on $60B of US goods is response to Trump's tariff hike.  Trade talks broke down last week after the White House accused China of reneging on key portions of an agreement & then hiked the tariff rate to 25% on $200B of Chinese goods on Fri.  Pres Trump also warned China not to retaliate to those new tariffs.  It "will only get worse!," he wrote, prior to news that Beijing will increase the tariffs to 25% from 10% on Jun 1.  Trump said Fri that trade talks would continue with China but there are no official meetings planned in the future yet.  Pres Trump warned China Saturday to 'act now' on trade or face a 'far worse' deal in his s2nd term.  White House Economic Advisor Larry Kudlow said yesterday that Beijing invited Trade Representative Robert Lighthizer & Treasury Secretary Steve Mnuchin to engage in talks but travel plans have not been made.  Kudlow also said that Trump & Pres Xi would likely meet at the Jun G-20 summit in Japan.  Traders reacted negatively to Trump ratcheting up the rhetoric amid this tenuous time & China's retaliatory tariffs with the Dow dropping 550, while the S&P 500 was down 2.3% & NAZ 100 sank 2.9%.  The Dow lost 1.9% last week as the trade deal fell apart.  China's yuan was set for its worst daily fall in 9 months on today.  The yuan fell 0.8% to 6.9040, its weakest since Dec 27.

Trump to China President Xi: 'You backed out!'

Even amid substantial bouts of market tumult, Minneapolis Fed Pres Neel Kashkari sees the US as holding the upper hand in its trade showdown with China.  Stocks took anothe sharp drop today, but Kashkari said broader economic indicators are showing little signs of stress as the 2 sides ratchet up their tariff duel.  “Relative to China, the U.S. is in a very strong position,” he said.  “Not only is our economy bigger, our economy is much less sensitive to trade. Trade is important to the U.S. economy, but it’s much more important to the Chinese economy, just as a share of its economy.  So if there’s a tit-for-tat strategy, and I’m not advocating it, but a tit-for-tat strategy would seem to lean toward the U.S. strength rather than the China strength.”  As Kashkari spoke, China announced it was levying another round of tariffs on $60B in American goods. The news coincided with another leg down for stocks.  Despite jangled nerves over the swaying trade developments, Kashkari said the tariffs have yet to have a big impact in the real economy.  Indeed, US GDP rose a solid 3.2% in Q1, & nonfarm payrolls swelled by 263K in Apr while the unemployment rate hit a 50-year low of 3.6%.  “By and large, most businesses in my region are still feeling quite optimistic about the U.S. economy,” he said.  “If that sentiment would change, that would be something we would have to pay attention to.”  As things stand, he doesn’t see a need for the Fed to make adjustments to its current policy stance.  Central bank officials have indicated they will be patient about future adjustments & do not have plans on raising or cutting rates for the remainder of 2019.  Market expectations are for a ¼-point rate cut by the end of the year, though Kashkari said he's comfortable at the current level, which has the Fed keeping its benchmark interest rate of 2.25-2.5%.  “I think that I was more nervous [about policy] six months ago. I was more nervous about what the monetary path would do to the real economy,” he added.  “I think we have rates roughly at neutral.”

Fed’s Neel Kashkari says US is ‘in a very strong position’ in escalating trade war with Ch…

The trade wars are getting ugly.  Stocks were heavily sold today & some of that money went into safe haven gold & Treasuries.  The REIT index, mentioned above, is still hanging in near its record levels.  Real estate properties are largely in the US & should not be negatively affected by the trade war.  So far the Dow has not been hurt too badly, down about 1500 from its record highs.  But these are going to be tough times for investors.

Dow Jones Industrials

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