Wednesday, May 15, 2019

Markets turn positive on reports for a delay in auto tariffs

Dow crawled up 9, advancers modestly ahead of decliners & NAZ went up 43.  The MLP index added 1 to the 251s & the REIT index rose 1+ to 382 (close to record territory).  Junk bond funds were mixed & Treasuries continued in demand, bringing lower yields.  Oil fell in the 61s & gold added 1 to 1297.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil61.39
  -0.39 -0.6%

GC=FGold   1,300.20

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Stocks opened lower on as China reported surprisingly weaker growth in retail sales & industrial output last month & American retail sales & industrial production for Apr came in weaker than expected.  The 2 Chinese economic reports reversed positive investor sentiment that stemmed from Pres Trump saying late yesterday on Twitter that a US-China trade deal could be possible soon.  China retail sales grew at an annualized rate of 7.2%, the slowest pace in 16 years & well below the 8.6% that had been forecast.  In addition, US retail sales unexpectedly fell 0.2% in Apr versus estimates for a 0.2% rise.  Further, American industrial production fell last month on a big drop in the production of autos & auto parts.  The disappointing reports & ongoing trade tensions fueled fears about slowing global growth.  That has the yield on the 10-year Treasury note touching a 7-week low of 2.36% today, which is only slightly above the 2019 low of 2.34%  on Mar 28, which, in turn, was also the lowest since Dec 2017.  China's Shanghai Composite closed up 1.9%, the Hang Seng ended higher by 0.5% & Japan's Nikkei 225 finished down 0.6%.  Britain's FTSE 100 was off a tad, France's CAC 40 was down 0.3% & Germany's DAX fell 0.4%.

US stocks lower after weak US, China data

The Trump administration plans to delay auto tariffs by up to 6 months, stopping itself for now from further widening global trade conflicts, 4 sources said.  The White House faces a May 18 deadline to decide whether to slap duties on car & auto part imports.  By law, the administration has another 180 days to come to a decision as long as it is negotiating with its counterparts.  Trump sees the tariffs as a way to gain leverage over trading partners such as the EU & Japan during trade talks.  Pres Trump risks sparking fresh global trade clashes if he goes thru with car tariffs.  The EU, for example, has already prepared a list of retaliatory duties to implement if Trump targets autos.  The delay, confirmed by officials, comes as the White House tries to strike a potential trade deal with China to end an escalating conflict.  The world's 2 largest economies increased tariffs on one another in recent days, amplifying a fight that has rattled financial markets & threatened to drag on the global economy.  Trump is mulling whether to use a national security justification to slap tariffs as high as 25% on cars.  In Feb, the Commerce Dept delivered a report to the pres saying that he could justify duties citing a national security threat.  He also used the rationale to put tariffs on steel & aluminum imports.  Lawmakers from both major parties have pushed Trump not to move forward with the auto duties.  US automakers have also opposed the potential tariffs.

Trump administration to delay auto tariffs by up to six months: Sources

The nation's homebuilders are reporting a rebound in sales & that's making them more optimistic about the housing market.  Builder confidence in the newly built, single-family home market rose 3 points to 66 in May, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI). That’s  the HMI's highest reading since Oct, but lower than last May's level of 70.  Anything above 50 is considered positive.  “Builders are busy catching up after a wet winter and many characterize sales as solid, driven by improved demand and ongoing low overall supply,” said NAHB Chairman Greg Ugalde, a homebuilder & developer.  “However, affordability challenges persist and remain a big impediment to stronger sales.”  Of the index's 3 components, current sales conditions, rose 3 points to 72.  Sales expectations in the next 6 months rose 1 point to 72 & buyer traffic moved up 2 points to 49, the only component still in negative territory.  “Mortgage rates are hovering just above 4 percent following a challenging fourth quarter of 2018 when they peaked near 5 percent. This lower-interest rate environment, along with ongoing job growth and rising wages, is contributing to a gradual improvement in the marketplace,” said NAHB Chief Economist Robert Dietz.  “At the same time, builders continue to deal with ongoing labor and lot shortages and rising material costs that are holding back supply and harming affordability.”  Regionally, on a 3-month moving average, sentiment in the Northeast jumped 6 points to 57; in the West, it rose  2 points to 71; in the Midwest up 1 point to 54; & in the South, it gained 1 point to 68.

Stronger home sales boost builder confidence in May

US retail sales declined last month, as Americans cut back their spending on clothes, appliances, & home & garden supplies.  Sales dropped 0.2% in Apr, the Commerce Dept said, after a big 1.7% jump in Mar.  Car sales dropped 1.1% last month & sales at electronics & appliance stores fell 1.3%.  It's difficult time gauging the mood of consumers this year.  Retail sales have been on a seesaw pattern, rising at a healthy pace in Jan, then falling in Feb, followed by the big jump in Mar & now a drop in Apr.  The data suggests Americans are reluctant to spend freely, despite steady job gains & modest wage increases.  Retail sales are closely watched because they make up about 1/3 of consumer spending, which drives most economic activity.  Overall consumer spending, which includes spending on services such as haircuts & travel, jumped in Mar by the most in nearly a decade, but that followed small increases in the previous 2 months.  As a result, even though the economy grew a healthy 3.2% at an annual rate in Q1, consumer spending grew at a modest pace & was not a primary driver of that growth.  The weakness sales last month was widespread.  Sales at clothing stores fell 0.2% & plunged 1.9% at home & garden supply stores.  Furniture store sales were unchanged.  Even the category that includes online retailers dropped.  Excluding the volatile auto & gas categories, retail sales also fell 0.2%.

Retail sales declined in April as Americans cut back on spending

A delay in imposing auto tariffs brought out stock buyers.  They are bidding prices up after the indices began the day lower.  Of course, in this world time is measured in a few hours.  Market whims come & go.  However for the time being, the bulls are not in charge.

Dow Jones Industrials

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