Mixed markets on new tariff threat

Dow rose 69, advancers remained ahead of decliners about 5-4 & NAZ added 17.  The MLP index slid back, but staying above 250, & the REIT index shot up 6+to the 388s.  Junk bond funds were a little higher & Treasuries advanced in price, taking the yield on the 10 year Treasury down to 1.97% (lowest since Nov 2016).  Oil dropped 2+ to the 56s after yesterday's rally (more below) & gold rallied, up 26 to 1415, after yesterday's plunge.

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The Commerce Dept said construction spending declined 0.8%, the biggest drop since last Nov. Data for Apr was revised to show construction outlays rising 0.4% instead of being unchanged as previously reported.  The forecast was for construction spending to rise 0.1%  in May.  Construction spending fell 2.3% on a year-on-year basis in May.  Weak construction spending was the latest indication that economic growth slowed in Q2 after getting a temporary boost from exports & an accumulation of inventory.  Consumer spending is rising moderately, while the pace of job & wage growth has slowed.  In addition, manufacturing & the housing market are struggling & the goods trade deficit widened in May.  Construction spending surged in Q1, boosted by increased investment in roads & highways by state & local governments.  Spending on private construction projects dropped 0.7% in May to the lowest level since Jan 2017 & that followed a 1.0% decline in the prior month.  Private construction outlays also fell in Mar.  Investment in private residential projects fell 0.6% in May to its weakest level since Dec 2016, after a 0.6% decrease in Apr.   Private residential construction outlays have now declined for 5 straight months.  Homebuilding has remained weak even as mortgage rates have dropped sharply from last year's high levels.  Spending on residential construction has contracted for 5 straight qtrs.  Spending on private nonresidential structures, which includes manufacturing & power plants, decreased 0.9% in May after plunging 1.4% in the prior month.  In May, investment in public construction projects fell 0.9% after surging 4.5% in Apr.  Spending on state & local gov construction projects slipped 0.6% after jumping 4.3% in Apr.  Outlays on federal gov construction projects tumbled 5.2%  in May after rising 7.3% in the prior month.

US construction spending falls; private outlays near 2-1/2-year low

Major automakers posted mixed US sales results for Jun & Q2, with demand still fairly strong for SUVs & pickup trucks while passenger car sales continued a long-running decline.  Overall, US auto sales are slowing after a long bull run that has satiated replacement demand.  In a significant development for the pickup truck segment, Fiat Chrysler Automobiles's (FCAU) Ram pickup outsold General Motors (GM) Chevrolet Silverado in Q2.  GM reports sales on a quarterly basis instead of each month.  The Silverado has long held second place behind Ford's (F) F-Series pickup trucks, with Ram often a distant 3rd.  But for the first 6 months of 2019, FCAU sold more than 40K additional Ram pickups than the Chevy Silverado.  FCAU, GM & Ford escalated a price war in Jun over pickup trucks - one of the few vehicle market segments on the planet that offers substantial profits, which matters at a time when overall US new vehicle sales are expected to fall this year.  High interest rates, plus competition from Ms of nearly new, off-lease vehicles have translated into fewer consumers splurging on new cars.  FCAU sales rose 2% in Jun, driven by a 56% jump in Ram sales.  GM Q2 sales fell 1.5%, with strong sport utility vehicle sales offset by a poor performance for its pickup trucks.  The #1 US automaker said sales of its trucks would pick up in Q3 as both its most popular & most affordable versions of the Silverado will hit dealer showrooms.  Toyota (TM) reported a 3.5% drop in sales for Jun, led by falling sedan sales.  In the last few years, Americans have increasingly shunned passenger cars in favor of larger, more comfortable SUVs & pickup trucks.  Nissan's sales plunged nearly 15%, with huge drops for much of its lineup including the best-selling Rogue SUV.  After years of relying on steep discounts to increase US market share, Nissan is trying to pull back so it can sell vehicles more profitably.  Hyundai reported a 1.5% rise in US sales for Jun, lifted by strong demand for SUVs & trucks.

Automakers post mixed US June sales; SUVs, truck sales stay strong

Oil futures slumped, more than erasing gains from a day earlier that followed word of extended OPEC-led production cuts, with investors unable to shake demand worries tied to a vulnerable global economy & trade negotiations.  The expected production extension packed few surprises, failing to offset the clouds forming on the demand side.  Aug West Texas Intermediate crude fell $2.84 (4.8%), to settle at $56.25 a barrel.   Yesterday, prices settled 1.1% higher on expectations that OPEC would extend its output-cut agreement.  It announced the extension after Nymex futures settled.  Intl benchmark Sep Brent finished at $62.40, down $2.66 (4.1%).  Both crude benchmarks marked the lowest finish for a front-month contract since Jun 19.  Futures prices had settled higher yesterday, then held on to most of those gains in electronic trading after Venezuela's oil minister Manuel Fernandez said OPEC will extend its production-cut agreement by 9 months thru Mar 2020.  The cartel also fully supports a charter to formalize its alliance with non-OPEC producers.  Saudi Energy Minister Khalid al-Falih said OPEC & its allies “enthusiastically came together” to support the charter to formalize their alliance.  OPEC & non-OPEC ministers held a separate meeting in Vienna today, confirming the decision extend production curbs to Mar 31, 2020.  As for demand, the US & China agreed at the G-20 leaders summit last weekend to restart trade talks, which initially soothed concerns that a trade war may lower energy consumption.  But Pres Trump raised fresh fears of a bumpy road ahead on trade when he said any deal with China would need to be “somewhat tilted” in favor of DC.  Trade negotiations play out against a backdrop of recent data exposing vulnerabilities in the global expansion.  Factory activity slowed across much of Europe, Asia & the US in Jun.

Oil prices drop to 2-week low as global demand worries offset OPEC output-cut extension

Jun economic stats are coming in underwhelming & now there are more tariff issues to deal with, this time it's with Europe.  Jun was an outstanding month for stocks with the popular averages finishing essentially at record levels.  Jul is shaping up as a time for retrenchment, especially if earnings disappoint.  Buyers today were mostly interested in safe have gold  & Treasuries.

Dow Jones Industrials

Markets rise ahead of Trump Xi meeting

Dow went up 48, advancers over decliners about 3-1 & NAZ gained 15.  The MLP index rose 1 to 248 & the REIT index added 1+ to the 382s.  Junk bond funds fluctuated & Treasuries were a tad lower following recent strength.  Oil slid lower in the 59s & gold continued in demand, rising 4 to 1416.

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CL=F

Crude Oil

59.09

-0.34

-0.6%

GC=F

Gold

1,412.90

+0.90

+0.1%

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Stocks traded mixed as investors look ahead to tonight's meeting between Pres Trump & China's Pres Xi Jinping, which could potentially ease trade tensions between the 2 nations.  Hopes of a deal were tempered this week after reports that Xi would give Trump a set of conditions to be met by DC before reaching any settlement.  There is also the threat of further tariffs on Chinese goods, which Trump mentioned this week.  For the month, all 3 major averages are on pace for gains of more than 6%.  Trump tweeted about the market's performance, taking credit for the market's strong performance.  Large-cap US banks rose after the Federal Reserveapproved capital plans of 16 banks.  In Asia, China's Shanghai Composite slipped 0.6% & was down 0.8% for the week.  Hong Kong's Hang Seng lost 0.3% but crawled up 0.2% for the week.  Japan's Nikkei ended 0.5% lower & lost 0.2% for the week.  In Europe, London's FTSE added 0.2%, Germany's DAX added 0.6% & France's CAC was higher by 0.5%.

US stocks trade mixed as Trump attends G20

Consumer sentiment rose to 98.2 in Jun, coming in slightly above the forecast of 98.0.  The Univ of Mich preliminary reading earlier in the month was 97.9.  Though sentiment rose slightly from the reading in early Jun, it fell compared to the May readings.  Consumer sentiment had hit a 15-year high in early May at 102.4.  But those robust gains were recorded mostly before US-China trade talks collapsed & Pres Trump hiked tariffs on $200B in Chinese goods, provoking Beijing to respond with its own levies.  Sentiment had started slip toward the end of May, declining to 100.0 as consumers grew increasingly concerned about the impact tariffs would have on prices.

Consumer sentiment slightly beats expectations in June

Nike (NKE), a Dow stock, sold more sneakers & sports gear during the fiscal Q4 than expected, helping to boost revenues by 4% to just over $10B.  The earnings, however, missed expectations by a few pennies a share, & the stock initially fell.  EPS was 62¢ on an adjusted basis, short of the forecast for 66¢.  Revenues for the Nike brand, which excludes Converse merchandise, jumped 10% from the same qtr last year to $9.7B.  Converse sales were about flat at $491M.  Total sales in North America, excluding fluctuations in currency rates, were up 8% to $4.17B & sales in the China region surged 22% to $1.70B.  Footwear sales in North America, excluding fluctuations in currency rates, were up 9% during the last qtr, while the apparel business grew 6% & equipment sales were up 7%.  Despite an ongoing trade war between the US & China, NKE said “we are and remain a brand of China and for China.” The company said it hasn’t seen any impact to date on its business from the ongoing tensions overseas.  It added that, “the consumer sentiment around Nike in China has been actually quite strong.”  The stock rose 20¢.
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Nike misses on earnings, but beats on revenues as customers buy more sneakers and sports gear

Consumer spending rose at a healthy clip in May for the 3rd month in a row, suggesting the US economy is still on solid ground even as growth has waned.  Consumer spending increased 0.4% last month, the gov said.  That’s a tick below the MarketWatch forecast, but the increase in spending in Apr was doubled to 0.6% from 0.3%, revised figures show.  Incomes advanced 0.5% for the 2nd month in a row to help support higher household spending.  Inflationary pressures, meanwhile, remained quite low.  Although prices rose slightly in May, the pace of inflation over the past 12 months tapered off to 1.5% from 1.6% using the Federal Reserve's favorite PCE price gauge.  That's well below the Fed's 2% target.  Americans bought more new cars & trucks, rented more hotel rooms & spent more on prepared food or eating out.  Yet since incomes rose slightly faster than spending, the savings rate was unchanged at 6.1%.  Inflation as measured by the PCE index rose 0.2%.  Prices excluding the up-&-down food & energy categories also rose 0.2%.  The core number is viewed as a more reliable barometer of inflation trends because its less prone to sharp swings.  Diminishing inflation & slower growth have positioned the Fed to cut interest rates as soon as Jul to help prolong a record 10-year-old economic expansion & reassure investors, households & businesses.  Consumers are still spending at levels that are very healthy, but the Fed is worried that spending will taper off if Americans begin to lose confidence in the economy.  Earlier this week, a closely followed measure of consumer confidence fell to the lowest level in almost 2 years.  Incomes & wages are not increasingly as rapidly as they were last year, either.

Consumers boost spending in May as incomes rise and inflation stays low

While stocks had an excellent month, so did safe haven gold & Treasuries.  The Dow is up more than 1700 in Jun while gold had its best month in 3 years & Treasury yields are close to multi year lows.  Equities & safe haven investments are no supposed to attract investors at the same time.  Trade talks may cause that relationship to change.

Dow Jones Industrials

 

Markets climb cautiously on hopes for easing trade tensions

Dow was off 10, advancers over decliners better than 2-1 & NAZ jumped up 57.  The MLP index fell fractionally to the 247s  & the REIT index gained 2+ to the 381s.  Junk bond funds inched higher & Treasuries were purchased, bringing the yield on the 10 year Treasury down to 2%.  Oil was off pennies in the 59s & gold fell 4 to 1411.

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San Francisco Fed Pres Mary Daly said that she is not sure the central bank needs to cut its benchmark interest rate in Jul.  "It is too early to know if we should use the tool [interest rates] at all," Daly said.  The San Francisco Fed pres, who is not a voting member of the Fed's interest-rate committee this year, said she was watching to see if the slowing data, seen over the past 6 weeks, "sticks."  There is no evidence trade tariffs have slowed the economy or caused inflation to rise, she added.  But the tension surrounding trade has caused businesses to become more cautious.  "It is the uncertainty that is holding back the economy," she continued.

Fed's Daly says not sure if interest rates need to be cut

Filings for US unemployment benefits increased by more than expected to a 7-week high, a possible sign of strains in the labor market that could factor in to the Federal Reserve's debate over whether to cut interest rates next month.  Jobless claims rose by 10K to 227K last week, according to the Labor Dept.  That exceeded all estimates in a recent survey.  The 4-week average, a less-volatile measure, increased to 221K, the highest in more than a month.  The uptick in claims may heighten concerns about the strength of the labor market after job gains trailed estimates in May.  Even so, the Jun employment report due next week will likely prove more important as it will provide a detailed picture ahead of Fed meeting in late Jul.  Even with the increase nationally, jobless claims remain near historically low levels as higher wages & low unemployment support consumer spending, which accounts for most of the economy.

U.S. Jobless Claims Increase to Highest Level in Seven Weeks

Boeing (BA), a Dow stock, shares fell after an intl aviation body added pressure on the company to coordinate 737 Max pilot training for all regulators & airlines around the world, asking for an “alignment on additional training requirements for Boeing 737 MAX flight crew.”  The statement from the International Air Transport Association (IATA) came after the Federal Aviation Administration (FAA) said yesterday it found another software issue with the company’s grounded 737 Max aircraft.  While the intl aviation body said it trusts the FAA, it added that US regulators need to work in step with intl regulators, as “aviation cannot function efficiently without this coordinated effort.”  The IATA's statement followed its summit in Montreal about the 737 Max, with representatives of over 40 airlines, regulators & other companies attending.  “The Boeing 737 MAX tragedies weigh heavily on an industry that holds safety as its top priority,” IATA Director General & CEO Alexandre de Juniac said.  “Aviation is a globally integrated system that relies on global standards, including mutual recognition, trust, and reciprocity among safety regulators.”  Pressure on BA stock has mounted since yesterday, when the FAA said it had found a new issue with the 737 Max aircraft.  “The FAA’s process is designed to discover and highlight potential risks. The FAA recently found a potential risk that Boeing must mitigate,” the agency said.  With the new delay, the best-case scenario for the first certification flight of the 737 Max is the 2nd week of Jul.  But that could add an additional 6-9 months.  BA disclosed in a filing with the SEC that this new issue was not covered by the changes it had planned for MCAS, a software system that has been the focus of regulators after 2 airplanes crashed since Oct, killing 346.  BA stock sank 10.92 (3%).
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Boeing shares fall after new uncertainty about the 737 Max return

By midday, stocks were bought bringing the Dow into the black.  However that enthusiasm faded in the last 2 hours.  The Dow was also hurt by the decline at BA.  Trade talks are the main driver of the bigger picture for stocks.  Uncertainty about the outcome is likely to last well beyond next week.  While gold has pulled back in the last couple of days, it remains above 1400 because negative thinking investors have not deserted it.

Dow Jones Industrials