Wednesday, May 8, 2019

Markets struggle with new reports on US-China trade deal

Dow inched up 3, advancers slightly ahead of decliners & NAZ fell 5.  The MLP index crawled higher in the 246s & the REIT index went up 1+ to the 376s.  Junk bond funds fluctuated & Treasuries were flat.  Oil climbed higher in the 61s (more below) & gold was off 1 to 1284.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil61.48

GC=FGold   1,287.40

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Pres Trump said that China “just informed” the White House that a team, including Vice Premier Liu He, is coming to the US to strike a trade deal.  “We’ll see, but I am very happy with over $100 Billion a year in Tariffs filling U.S. coffers...great for U.S., not good for China!” the pres wrote in a tweet.  Dow futures pared losses on the tweet, just one day after a market sell-off that was triggered by earlier tweets from the pres concerning the pace of US-China trade negotiations.  Although the Chinese were set to bring a 100-person delegation to the US this week, the trade talks were thrown into limbo after Trump threatened on Sun to slap an additional 25%  tariff on $325B worth of Chinese goods.  The US already imposes a 10% tariff, which is set to rise to 25% on Fri, Trump said, on $200B of goods & a 25% tariff on $50B of tech products.  Trump, however, said today that real reason for the pullback was hope among the Chinese that they could hold off on negotiations on the chance that a Dem wins the 2020 presidential election.  White House officials have stressed that both sides are eager to wrap up talks; last week, Treasury Secretary Steve Mnuchin said that although they still had “more work to do,” enforcement mechanisms were “close to done.”  “If we get to a completed agreement it will have real enforcement provisions,” he said at the time.

Trump says China's vice premier coming to US to 'make a deal'

The diplomatic cable from Beijng arrived in DC late on Fri night, with systematic edits to a nearly 150-page draft trade agreement that would blow up months of negotiations between the world's 2 largest economies, according to US gov sources & other private sector sources briefed on the talks.  The document was riddled with reversals by China that undermined core US demands.  In each of the 7 chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the US to launch a trade war: theft of US intellectual property & trade secrets; forced technology transfers; competition policy; access to financial services; & currency manipulation.  Pres Trump responded in a tweet on Sun vowing to raise tariffs on $200B worth of Chinese goods from 10 to 25% on Fri – timed to land in the middle of a scheduled visit by China's Vice Premier Liu He to DC to continue trade talks.  The stripping of binding legal language from the draft struck directly at the highest priority of US Trade Representative Robert Lighthizer - who views changes to Chinese laws as essential to verifying compliance after years of what US officials have called empty reform promises.  Lighthizer has pushed hard for an enforcement regime more like those used for punitive economic sanctions, such as those imposed on North Korea or Iran, than a typical trade deal.  "This undermines the core architecture of the deal," said a knowledgeable source.  The Chinese Foreign Ministry spokesman told a briefing today that working out disagreements over trade was a "process of negotiation" & that China was not "avoiding problems."  He referred specific questions on the trade talks to the Commerce Ministry, which did not respond immediately.  Lighthizer and Treasury Secretary Steve Mnuchin were taken aback at the extent of the changes in the draft.  The 2 cabinet officials on Mon told reporters that Chinese backtracking had prompted Trump's tariff order but did not provide details on the depth & breadth of the revisions.  Liu last week told Lighthizer & Mnuchin that they needed to trust China to fulfill its pledges thru administrative & regulatory changes.  Both Mnuchin & Lighthizer considered that unacceptable, given China's history of failing to fulfill reform pledges.

China backtracked on nearly all aspects of US trade deal: Sources

US crude-oil prices pushed slightly into positive territory, recovering from their lowest close in over a month a day earlier, as increasing tensions between the US & Iran & the threat of disruptions to supplies in the Middle East are weighed against worries that a protracted trade conflict between the US & China could hurt energy demand.  West Texas Intermediate crude for Jun delivery inched higher to $61.43 a barrel.  The contract finished yesterday at $61.40 a barrel after nearing a retest of $60 intraday.  Prices posted the lowest front-month contract finish since Mar 29.  Global benchmark Jul Brent crude fell 12¢ to $69.76 a barrel.  The settlement yesterday at $69.88 marked the lowest front-month contract settlement since Apr 4.  It settled Mon up 0.6% as back-&-forth trading persists.  Iran said today it would stop complying with some of its commitments under the 2015 nuclear deal, escalating tensions with the US & moving closer to a breakdown of the landmark accord.  Meanwhile, the US deployed 4 B-52 bombers to the Middle East, in response to what the Trump administration said are threats of a possible attack by Iran on American troops in the region.  Looking ahead, the Energy Information Administration (EIA) will release its weekly report on US petroleum supplies later today.  Analysts expect to see a fall of 2.2M barrels in crude stockpiles for last week.  They also forecast supply declines of 980K barrels for gasoline & 1.05M barrels for distillates, which include heating oil.  In its monthly Short-term Energy Outlook report released yesterday, the EIA raised its forecasts for oil prices & US crude production for this year & next.  For 2020, it forecast domestic crude output of 13.38M barrels a day, up 2.2% from the forecast released in Apr.

U.S. crude oil climbs up from one-month low as Iran, trade-deal tensions tug at market

The stock market has had unusually high volatility this week as more information on the status of trade negotiations was released.  Earnings & macro economic data have meant little.  Until the trade deal is finalized (or not), every whim about negotiations will continue to bring wild swings to the stock market.

Dow Jones Industrials

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