Monday, May 6, 2019

Markets stages comeback after China trade talks will continue

Dow was off 66 (sharply above lows at the opening), decliners over advancers  a relatively modest 4-3 & NAZ fell 40.  The MLP index lost 1+ to the 246s & the REIT index was fractionally lower to the 381s.  Junk bond funds inched higher & safe haven Treasuries remained in demand all day.  Oil climbed higher in the 62s & gold was steady at 1281.

AMJ (Alerian MLP Index tracking fund)

A Chinese delegation will come to the US this week for trade talks after Pres Trump upended negotiations by threatening new tariffs yesterday, according leakers familiar with the matter.  A source briefed on the status of talks said the Chinese would send a smaller delegation than the 100-person group originally planned.  It is unclear whether Vice Premier Liu He would still helm this smaller group, an important detail if the team were traveling to DC with an eye toward sealing a deal.  2 senior administration officials described Liu as “the closer,” since he had been given authority to negotiate on Pres Xi Jinping's behalf.  The team from Beijing was set to start talks with American negotiators Wed as the world's 2 largest economies push for a trade agreement.  It is unclear whether the talks will still start Wed.

Chinese delegation will come to the US for trade talks after Trump tariff threat

US stock prices remain “elevated” & business debt is at historic levels, but the financial system overall “appears resilient” with low levels of leverage & less susceptibility to risks of a destabilizing run, the Federal Reserve said in its latest report on financial stability.  “Investor appetite for risk appears elevated by several measures, and the debt loads of businesses are historically high,” the Fed said in a report that noted the 20% growth in leveraged loans between the start of last year & this year, & other aspects of corp debt.  The ratio of debt to assets among publicly traded, nonfinancial firms is near a 20-year high, & the share of new loans going to the most indebted companies is near peaks reached in 2014 & just before the 2007-2009 financial crisis.  While the Fed sees the system overall as healthy, the levels of corp debt stand out, said Fed Governor Lael Brainard.  “With financial volatility easing since the end of last year, the Federal Reserve Boards Financial Stability Report suggests stretched asset valuations and risky corp debt merit continued vigilance against a backdrop of low- to moderate- vulnerabilities in the household & banking sectors,” Brainard reported.

Fed: US stock prices are elevated, business debt is high, but the financial sy…

A threat from Pres Trump to extend existing tariffs & impose new duties on China would be the most significant escalation to date in the trade skirmish between the 2 nations & could have a sweeping impact on corp America & US consumers.  Companies say the existing 25% tariffs on $50B in Chinese products & the 10% tariff on $200B in goods from the country, coupled with the double-digit duties on steel & aluminum imports, have added Bs of $s in operating costs.  Products currently impacted by the tariffs include everything from sweet potatoes & luggage to copper alloys, vehicle parts & television antennas.  But despite concerns from US businesses, some experts say consumers have largely avoided any significant increase in prices.  The core consumer pricing index, a closely watched indicator for changes in the cost of American goods, grew 2% from Sep 2018 - Mar 2019, the lowest level in a year.  The American economy has also remained resilient.  The US, for example, added 263K jobs in Apr, far exceeding expectations.  One study, however, estimated that all the tariffs, including both the China duties, as well as those on imports of steel, aluminum & washing machines, have added $3B in tax costs per month.  Regardless, Trump's latest threat to increase all tariffs on Chinese products to 25%, as well as extend them to an additional $325B in goods, the entirety of imports from the Asian nation, would have a more far-reaching effect on consumer-facing industries & could force companies that have avoided price hikes to increase costs to mitigate the impact.

Trump’s tariffs: Where we are, where we might be going

Stocks pared losses after it was learned that a delegation from China will come here this week to continue trade talks.  At the opening the Dow was down a massive 471, but buyers came in during the trading session & pretty much eliminated that loss.  However, tomorrow is a new day & anything is possible in this volatile situation.

Dow Jones Industrials

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