Friday, July 12, 2019

Markets end week with more gains as the Dow reaches another record

Dow soared 243, advancers over decliners better than 2-1 & NAZ went up 48.  The MLP index crawled hardly budged in the 257s & the REIT index was off 1 to the 391s (still near its recent record at 400).  Junk bond funds did little today & Treasuries were purchased again, bringing lower yields.  Oil at 60+ inched higher (more below) & gold jumped up 10 to 1417.

AMJ (Alerian MLP Index tracking fund)

This week Pres Trump & his team have been working on the final touches of the US Mexico Canada Agreement [USMCA] & today he is expected to push the trade deal during a visit to Lockheed Martin's (LMT) subsidiary Derco Aerospace, which provides parts & service to aircraft, in Wisconsin.  In advance of the trip, the Pres tweeted a dig at the old trade deal, NAFTA, noting... "We stupidly lost 30% of our auto business to Mexico."  Trump is expected to urge Congress to pass this deal later today, according to Judd Deere, White House Deputy Press Secretary, who said that “The USMCA is the best trade agreement ever negotiated. It is a bipartisan agreement that delivers a win for America’s farmers, ranchers, businesses, and workers."  Sources also said the Pres would like USMCA ratified this summer, but he is going to let Ambassador Lighthizer address Dem's concerns.  Yesterday, Lighthizer met with House Speaker Nancy Pelosi’s working group on Capitol Hill to discuss passing the new trade deal with Mexico & Canada.  Both the administration & House Dems are believed to be working “in good faith” to get an agreement.  The day before White House adviser Marc Short said he is optimistic the deal will come together on both sides.  “We think that it has the votes,” Short said.  “The reality is that there are 31 congressional Democrats residing in districts that Donald Trump won in 2016. But more importantly, those are districts that create an enormous number of manufacturing jobs in the auto industry or agriculture jobs because we’ve now provided ... additional access to dairy farms in Wisconsin, in Minnesota. And so we think the votes are there on a bipartisan basis to pass it, but there still needs to be, I think, some additional work with [House] Speaker [Nancy] Pelosi because she holds the keys about when she gets to bring it to the floor for a vote.”  As for the timing of the deal, “I think that the reality is it's more likely to happen this fall. We are certainly hopeful of that happening this summer but we're going to remain encouraged and we're going to keep pushing for this,” said Short.  The administration sent Pelosi notice last month that it was ready to submit the USMCA deal, which would replace the 1993 North American Free Trade Agreement.

Trump to push USMCA at Lockheed Martin Wisconsin plant

Global demand for OPEC oil looks likely to fall to its lowest in over 16 years as the US's production share rises, the International Energy Agency (IEA) said.  The IEA added demand from OPEC in Q1-2020 will fall to 28M barrels a day.  This means that despite efforts by the group & its allies to cut supply global oil supply climbed 300K barrels in Jun.  OPEC+ nations recently extended their ongoing output reduction thru Mar.  OPEC said in its own report it expects world demand for its crude will decline next year, to an average 29.3M barrels per day, down by around 1.3 mb/d from 2019.  The IEA said despite the OPEC agreement, it's not enough to change expectations for an oversupplied market.  In H1-2019, oil supply exceed demand by roughly 900K barrels a day.  “This surplus adds to the huge stock builds seen in the second half of 2018 when oil production surged just as demand growth started to falter,” the group said.  “Clearly, market tightness is not an issue for the time being and any re-balancing seems to have moved further into the future.”  The IEA had already joined the US-based Energy Information Administration & OPEC in cutting the 2019 global oil demand forecast.  The IEA & other energy-market watchers have cited slowing manufacturing activity globally, especially in hubs like Germany, & ongoing risks for global trade spats, although the mood between the US & China seems to have improved.  US production rose 110K barrels in Jun.  IEA said that in addition to greater US output, Kazakhstan & Brazil have been major contributors to non-OPEC higher output.  And major producer Russia pumped 50K more barrels a day last month.  Among the OPEC majors, Saudi Arabia’s production rose 70K barrels in Jun, although both it & Russia remained within their compliance targets, while Nigeria's production rose 110K barrels.  Iraq & Angola were among the nations responsible for OPEC's overall cut, as was Iran, which remains in a tense standoff with the West after the Trump administration last year pulled out of a 2015 agreement that sought to contain Iran's nuclear capabilities.  Aug West Texas Intermediate crude gained earlier today, setting it up to challenge Wed's highest settlement for front-month WTI prices since May 22.  WTI had dipped yesterday despite a looming Gulf of Mexico storm.  It's down about 11% over the past 3 months, though remains up nearly 20% YTD.

IEA sticks to view of slower global oil demand growth, sees U.S. biting into OPEC’s share of market

Lower US interest rates are needed to combat weak inflation, Federal Reserve Bank of Chicago Pres Charles Evans said.  Evans, a voting member of the Fed's rate-setting committee, said he expects to see 2 reductions in the central bank’s benchmark federal-funds rate this year to lift inflation above its 2% target.  He added the timing of the cuts was less important than discussing the need for them & setting inflation expectations.

Fed’s Evans Sees Two Rate Cuts Needed This Year

Investors say growing fears that Congress will fail to raise the US borrowing limit in sufficient time is cropping up in short-term Treasury bill yields.  Elevated yields for Treasury bills due between Sep & Oct reflects concerns that Dems & Reps will struggle to reach a deal on the debt ceiling before the drop-dead date when the US gov runs of cash after hitting its borrowing limit in Mar this year.  Treasury Secretary Steve Mnuchin said Congress should try to lift the borrowing limit before lawmakers went out on its summer recess for most of Aug & the first week of Sep.  But House Speaker Nancy Pelosi has said the House would not pass legislation raising the debt ceiling, unless the Trump administration agreed to increase spending limits on domestic programs.  White House officials also want to avoid another chaotic gov shutdown if Congress doesn't approve a funding bill by the end of Sep after many agencies were caught unprepared during the ­35-day shutdown that began lsat Dec.  A Treasury bill due to mature in Sep 12 was trading higher than its neighboring maturities at around 2.20%.  A bill maturing in Aug 22 had a yield of 2.16%, & a bill maturing in Nov 14 was sporting a rate of 2.09%.  Debt prices move in the opposite direction of yields.

U.S. debt ceiling fears surface in “kink” in Treasury bill yield curve as drop-dead date approaches

The bulls were firmly in command  today, taking the Dow to yet another record.  The Dow kept climbing during the session, finishing at the highs.  And the bulls have their eyes on 28K.  Besides trade deals being stuck in limbo, earnings season begins in force next week & expectations are not high.  That may be why gold & treasuries were also in demand.

Dow Jones Industrials

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