Wednesday, May 29, 2019

Markets tumble on recession fears

Dow sank 221, decliners over advancers 5-2 & NAZ retreated 53.  The MLP index fell 3+ to the 244s & the REIT index gave back 2+ to the 381s.  Junk bond funds fluctuated & Treasuries were purchased, bringing lower yields.  Oil dropped 1+ to the 57s (more below) & gold rose 4 to 1281 while stocks were being sold.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil57.52

GC=FGold   1,281.80

3 Stocks You Should Own Right Now - Click Here!

Stocks fell sharply, following Asian & European markets overnight as the US-China trade war rumbles on.  The 10-year Treasury bond yield fell to a 20 month low & crude oil prices fell to their lowest level since Mar, while the $ & gold rose.  Investors view the plunge in bond yields as a sign global economic growth is slowing as the trade war begins to disrupt supply lines & raise prices for companies & consumers, with the full impact of American tariffs yet to be felt.  The US & China have imposed tariffs on each others imports since the start of 2018, undermining business confidence & potentially disrupting complex global production chains.  In the latest move, Chinese state media this week raised the possibility of limiting the export of rare earth minerals which are key to the manufacture of high technology & are used in the production of mobile phones, memory chips & rechargeable batteries.  China supplies about 80% of the world's rare earth minerals.  Semiconductor makers in particular would be affected by a ban on such exports.  In commodities markets, West Texas Intermediate crude oil fell 2.6%  overnight to $57.55 per barrel, while gold prices & the $ edged higher.

Stocks tumble over 200 points as bonds rally

The biggest newspaper in China explicitly warned the US that it would cut off rare earth minerals as a countermeasure in the escalated trade battle, using an expression it only used twice in history, both of which involved full-on wars.  “We advise the U.S. side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!” the People's Daily said in a commentary titled “United States, don’t underestimate China’s ability to strike back.”  The paper is the official newspaper of the Communist Party of China.  The phrase “Don’t say we didn’t warn you” was only used two other times by the People’s Daily in history — in 1963 ahead of China’s border war with India & in 1987 right before China went to war with Vietnam.  “Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery,” the paper said.  The trade conflict between the 2 economies escalated quickly this month with both sides slapping tariffs on Bs of $s worth of each other's goods.  China's threat to restrict rare earth mineral sale to the US came after Pres Trump blacklisted Chinese telecom giant Huawei, which led to many chip makers & internet companies cutting ties with the company.  The speculation of China’s payback first surfaced when Xi Jinping visited rare earth mining & processing facilities in Jiangxi province during a domestic tour last week.  A Chinese official warned on yesterday that products made from the materials should not be used against China's development, which was seen as a veiled threat aimed at the US & its technology industry.

‘Don’t say we didn’t warn you’ - A phrase from China signals the trade war could get even worse

Germany.s jobless rate climbed unexpectedly in May, the first increase in more than 5 years, in a sign that a recent slowdown in growth is spreading further thru Europe's largest economy.  The adjusted jobless rate increased to 5% in May from a record low of 4.9% in Apr, data from the Federal Employment Agency showed.  In internationally comparable terms, that translated into a jobless rate of 3.2%, below the 3.6% rate recorded in the US for Apr, the most recent month for which figures are available.

German Unemployment Rises for the First Time in Five Years

Oil futures prices dropped, extending choppy trading that has marked recent sessions as risk-on markets, including stocks, took a fresh hit.  The downside was tempered somewhat as persistent tension in the Middle East, with the Trump administration's John Bolton making fresh comments toward Iran today, raises supply concerns that are generally supportive to prices.  West Texas Intermediate crude for Jul delivery fell $1.31 (2.2%) at $57.83 a barrel, after gaining in yesterday.  Front-month contract prices lost 6.8% last week as the contract hit its lowest level in more than 2 months.  Front-month WTI is down roughly 8% for May so far.  Global benchmark Jul Brent fell $1.77 (2.5%) at $68.34 a barrel.  It shed 4.9% last week, also the weakest weekly performance for a front-month contract this year.  The contract is down some 5% for the month to date.  Stock-index futures were lower start as worries about trade tensions & the outlook for global growth weighed on equity markets & kept front & center a question of continued strong demand for the world's oil.  Still, Middle East uncertainty hangs over trading, supporting prices on concerns that escalating tensions could lead to shipping disruptions.  Donald Trump's national security adviser Bolton said there was “no reason” for Iran to back out of its nuclear deal with world powers other than to seek atomic weapons, a year after the pres unilaterally withdrew America from the accord.  Bolton also claimed, without offering evidence, that the alleged sabotage of four oil tankers off the coast of the UAE came from naval mines placed “almost certainly by Iran.”  As for the bigger supply picture, the market is looking ahead to the meeting of members & some nonmembers of OPEC.  Analysts have pointed out that although the Saudis have said they wouldn't increase production, reports coming out ahead of that meeting leave some open questions.  Recently, there has been speculation that OPEC will decide to change the date of the next meeting to the first week of Jul from June 25-26.  The output-cut agreement expires at the end of Jun.  Weekly data on US petroleum supplies are delayed this week due to the Mon holiday.

Oil tracks stock-market weakness as trade-spat jitters persist

Stocks are facing many headwinds, starting with trade woes.  Today's shot from China is very worrisome for US investors.  Safe haven investments, gold & Treasuries are purchased by investors to get thru this storm.

Dow Jones Industrials

No comments: