Monday, May 20, 2019

Markets slide as trade tensions continue

Dow fell 31, decliners over advances 3-2 & NAZ sank 77 on increased worries about China trade.  The MLP index lost 1+ to the 252s & the REIT index fell 2+ to the 381s.  Junk bond funds crawled higher & Treasuries drifted lower in price.  Oil went up to the 63s on signs OPEC may continue production cuts & gold added 1 to 1276.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil62.99

GC=FGold   1,275.80

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Atlanta Federal Reserve Pres Raphael Bostic said he does not see the central bank cutting interest rates, contrary to market expectations.  Bostic expressed confidence in the economy & in the Fed's position on monetary policy.  “The market is ahead of where I am,” he said.  “I would say I’m not expecting a rate cut to be imminent, certainly not by September. Things would need to happen in order for that to play out.”  Traders in the fed funds futures market & Fed officials have been at odds this year on the future direction of rates.  The market is pricing in about a 48% chance of a rate cut by Sep & a 73% chance of a move lower before the end of the year.  In fact, traders see a 31% chance of 2 cuts before 2019 comes to an end.  For their part, Fed officials have projected neither a cut nor a hike for the remainder of the year.  In separate speeches, members of the FOMC, of which Bostic is a nonvoting member, have expressed confidence in the “patient” approach the Fed has adopted this year.  “In general, my view is as long as we don’t see inflation running away, that would the sign that our policy is basically at a neutral level,” he said.  “We could sustain that for a long time and we don’t have to move.”  One obstacle for the Fed has been its consistent inability to hits its 2% target rate.  The central bank's favored inflation gauge is hovering around a 1.6% average, despite a decade of low rates & easing programs aimed at accelerating activity & driving up price pressures & wages.  However, Bostic said he’ largely unconcerned about the situation.  Fed Chaiman Jerome Powell said after the last FOMC meeting that he saw the downward inflation pressures as “transient” & likely to ease.  “I’m not super-concerned about that today, and mainly it’s because when you look at inflation expectations, they haven’t started to trail away in a significant way away from our target,” Bostic said.  “If I started to see a trend moving away to one and a half or one and a quarter [percent] for inflation expectations, then I’d be concerned. But right now, I don’t see our lack of hitting that target ... as being a material failure.”  As far as the economy overall goes, Bostic said he sees growth as still solid though decelerating from 2018's 3% or so pace.  In his district, he sees consumers & business owners as “confident,” “excited” & “very pleased with the way things are going.”

Atlanta Fed President Bostic does not see a rate cut this year like the mar…

Factories proved to be a significant drag on Apr economic activity, a setback reflected in the sharp pullback for the Chicago Federal Reserve's monthly index tracking the national economy.  The Chicago Fed's index registered at a negative 0.45 in Apr, down from a positive 0.05 in Mar & a negative 0.31 in Feb.  The volatile nature of the monthly data puts added emphasis on following the index’s less-volatile, 3-month moving average.  It decreased to a negative 0.32 in Apr from negative 0.24 in Mar.  The Chicago Fed index is a weighted average of 85 economic indicators, designed so that zero represents trend growth & a 3-month average greater than 0.70 suggests an increasing likelihood of a period of sustained increasing inflation.  33 of the 85 individual indicators made positive contributions in Apr, while 52 made negative contributions.  37 indicators improved from Mar to Apr (although 14 still made negative contributions), while 48 indicators deteriorated.  The contribution from production-related indicators, meaning factories, declined to negative 0.44 in Apr from negative 0.04 in Mar.  As the Fed reported earlier, industrial production decreased 0.5% in Apr.  There were declines last month in automotive, chemical products & consumer energy products in particular.  Employment-related indicators contributed positive 0.04 to the Chicago Fed index in Apr, up slightly from positive 0.03 in Mar.  The US created 263,000 new jobs in Apr to help drive the unemployment rate down to a 49-year low.  The contribution of the personal consumption & housing category moved down to negative 0.05 in Apr from neutral in Mar.

Chicago Fed national activity index falls in April, tugged lower by factory slump

Chinese stock markets fell amid increasing trade tensions with the US, while markets in most of the rest of Asia gained.  On Fri, China’s Commerce Ministry called the Trump administration's latest tariffs hikes “bullying behavior,” & Chinese state media suggested the gov was in no hurry to resume trade talks with the US.  Hong Kong's Hang Seng Index fell 0.6% & the Shanghai Composite slid 0.4%, while the smaller-cap Shenzhen Composite dropped 0.7%.  Japan’s Nikkei rose 0.2% after economists were surprised by stronger-than-expected Q1 economic growth, & South Korea's Kospi gained 0.7%.  Benchmark indices rose in Taiwan but fell in Indonesia.  Australia's advanced 1.4%.

China markets retreat on rising trade tensions with U.S.

Trade tensions are not going away any time soon & that is making investors cautious.  US economic data has been fairly good with consumer confidence at historically high levels.  While China trade negotiations are not moving forward, other deals were announced on Fri.  But that provided little comfort when all eyes are on China.

Dow Jones Industrials

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