Markets climb on hopes US will delay Mexican tariffs

Dow jumped up 181, advancers over decliners about 3-2 & NAZ gained 40.  The MLP index rose 1+ to the 246s.  Junk bond funds continued to be purchased & Treasuries were sold, slipping back a tad after recent strength.  Oil went up 1+ to the 52s & gold added 5 to 1339 (7th straight session of gains).

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The IMF raised its economic growth assessment for the US this year, but warned that escalating global trade disputes could pose a threat to that outlook.  In an overarching review of the US economy, the IMF said it anticipates the economy to grow by 2.6% this year (a 0.3% increase from the initial growth forecast) & by 2% in 2020, boosted by tax cuts & an increase in both defense & non-defense spending.  As the effects of the 2017 Tax Cuts & Jobs Act, which injected a fiscal stimulus into the economy, begin to fade, the IMF said it anticipates growth to return to about 1.75%.  However, the IMF noted that the US economy is currently exposed to multiple vulnerabilities, chief among them the tariffs imposed by the Trump administration on multiple countries across the world in hopes of overhauling the global trading system.  “That is the risk we are most concerned about for the U.S. economy,” the IMF said.  The report urged the US to reconsider tariffs, noting that the bilateral trade deficit between the US & China is likely to remain & instead pushed for fiscal adjustment & supply-side reforms to improve productivity & overall competitiveness.  Over the past year, the US has hiked tariffs on hundreds of Chinese goods worth more than $200B & recently threatened to slap a 5% tariffs on all goods imported from Mexico.  “Rising import tariffs and other steps taken by the administration are undermining the global trading system, increasing restrictions on trade in goods and services, and catalyzing a cycle of retaliatory trade responses,” the report said.  Other threats to the economy also exist, the IMF noted.  That includes the US public debt, which the IMF said is on an "unsustainable path," high corp leverage & weakening underwriting standards; & the widening inequality gap in the US.  "There is a lot of room for improvement," IMF Director Christine Lagarde said.

IMF bullish on US economy, but warns of trade war wildcard

German factory orders rose for the 2nd month in a row during Apr, a positive sign for Europe's biggest economy at a time of global trade uncertainty.  The Federal Statistical Office said that industrial orders rose 0.3% in Apr over Mar, after adjusting for seasonal & calendar factors.  It also revised the Mar increase to 0.8% from a preliminary 0.6%.  However, on an annual basis, orders were down 5.3%, a clear indicator of the slowdown in global trade growth.

German factory orders rise in April in positive sign

US officials are set to meet with Mexican negotiators for a 2nd day of immigration talks, with Pres Trump's threat to slap 5% tariffs on all Mexican imports looming over the discussions.  The duties are set to kick in in just 4 days.  Trump threatened to implement rising tariffs on all Mexican imports if the country did not stop the rising tide of undocumented migrants crossing the southern US border.  The first day of high-level talks at the White House, which included VP Mike Pence & Mexican Foreign Minister Marcelo Ebrard, ended without a deal, with both sides failing to bridge their differences on the immigration issue.  Staff-level meetings between US & Mexican officials were expected to continue at the White House today.  There were also meetings between the 2 countries at the State Dept.  Trump, who was in Europe meeting with world leaders told reporters today that “I think a lot of progress was made yesterday, but we have to make a lot of progress.”  “We’ll see what happens,” Trump added.  “But, something pretty dramatic could happen. We’ve told Mexico, ‘the tariffs go on,’ and I mean it too. I’m very happy with it.”  Pence was not expected to join the talks in DC.  If no agreement is struck at today's talks, Trump tweeted, then the tariffs “will begin on Mon, with monthly increases as per schedule.”  The tariffs could rise to 25% on all Mexican goods by Oct.  A senior administration official said that the White House asked Mexico to hold Central American asylum seekers by striking a “safe third country” agreement, like the one the US has with Canada.  Such countries provide protections from persecution for asylum seekers.

Trump’s demand to Mexico: Keep migrants or suffer tariffs

NY Federal Reserve Pres John Williams called for central banks to change their strategy to combat low inflation, which he labeled “a symptom of deeper problems affecting advanced economies.”  “In the pre-2008 era, inflation was a major concern for the public and central banks alike,” the leader of the Fed’s key district said in prepared remarks for a speech at the Council on Foreign Relations in NY.  “And, while I will always be vigilant about inflation that’s too high, inflation that’s too low is now a more pressing problem.”  The comments come amid rampant speculation about the Fed’s next move, but Williams did not address monetary policy in specifics.  He did say that “low neutral rates” or the level that neither promotes nor restricts growth “are very real, and they’re here to stay.”  The Fed considers 2% a healthy level of inflation, but it has been unable to consistently meet that goal throughout an economic recovery that is nearing the longest on record.  Markets lately have been betting that the Fed will begin cutting rates later this year, as many as 3 times, in part because inflation has remained so low.  Williams attributed the issue to 2 factors: longer life spans & slower population gains that hold back productivity & thus keep the US & other developed economies in a low-growth pattern.  With those factors likely to persist, he called on the Fed & its global counterparts to change their approach to monetary policy.  “Persistently low inflation creates a vicious circle, where expectations of low inflation drag down current inflation. If inflation falls, central banks will have even less room to maneuver when faced with a slowdown,” Williams said.  “Starting with monetary policy, central banks should reassess their strategies, goals, and the tools they use to achieve them.”  He suggested encouraging investment across a broad spectrum & removing barriers to labor force & economic participation.

NY Fed President John Williams rails against low inflation and calls for ce…

The number of Americans filing applications for unemployment benefits was unchanged last week, suggesting the labor market remains on solid footing despite slowing economic activity.  Initial claims for state unemployment benefits were unchanged at a seasonally adjusted 218K, the Labor Dept said.  Data for the prior week was revised to show 3K more applications received than previously reported.  The forecast called for claims to be unchanged at 215K.  The 4-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2K to 215K last week.  The claims data has no bearing on May's employment report, which is scheduled for release tomorrow.  Nonfarm payrolls likely to increase by 185K jobs in May after surging by 263K in Apr.  The pace of job growth is well above the roughly 100K needed per month to keep up with growth in the working age population.  The unemployment rate is forecast to be unchanged near a 50-year low of 3.6%.  Sustained labor market strength is seen supporting growth amid signs that economic activity is slowing after a temporary boost from volatile exports & inventory accumulation in Q1.  Manufacturing production & home sales slumped in Apr & consumer spending increased moderately.  The Atlanta Federal Reserve is forecasting GDP rising at a 1.3% pace in Q2.  The economy grew at a 3.1% annualized rate in Q1.  Today's claims report also showed the number of people receiving benefits after an initial week of aid rose 20K to 1.68M last week.  The 4-week moving average of continuing claims slipped 1K to 1.67M.

US weekly jobless claims unchanged, point to labor market strength

Nothing like thoughts about delaying new tariffs to bring out buyers.  Stocks were higher, but took off like a rocket in the last 2 hours (with profit taking in the last ½ hour).  Tomorrow there will be a better understanding about tariffs & the May jobs report is going to be released before the market opens.  The Dow is up a staggering 900 in the last 3 days from an oversold condition.  Fri should be an exciting day for traders.  Meanwhile demand for safe haven gold & Treasuries is still strong.

Dow Jones Industrials