Friday, August 30, 2019

Markets edge higher as trade worries ebb

Dow gained 34 (off early highs), advancers over decliners about 2-1 & NAZ crawled up 1.  The MLP index rose fractionally in the 231s & the REIT index was even in the 402s.  Junk bond funds inched higher & Treasuries drifted sightly lower.  Oil gave back 1+, falling to the 55s, & gold was steady at 1537.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil56.35

GC=FGold   1,536.30

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The University of Mich's final consumer sentiment index came in at 89.8 for Aug, falling below the preliminary reading from 2 weeks ago. The index was at 98.4 in Jul, making this the largest monthly decline since 2012.  The forecast called for a final read on Aug consumer sentiment to reach 92.1.  The drop comes after a turbulent month in the trade war between the US & China.  “Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs. Such tactics may have some merit in negotiations with China, but they act to increase uncertainty and diminish consumer spending at home,” Richard Curtin, chief economist for the Survey of Consumers, said.  Pres Trump announced on Aug 1 that the US would impose tariffs on an additional $300B of goods imported from China.  The tariffs were originally slated to take effect in Sep, but some have been delayed until Dec 15 or removed.  China announced last week that it would retaliate with new tariffs on products from the US & resume those on cars & auto components.  The survey found that consumers who mentioned tariffs unprompted were more likely to expect higher inflation & rising unemployment.  One-in-3 consumers mentioned the tariffs spontaneously, Curtin said.  “While the overall level of sentiment is still consistent with modest gains in consumption, the data nonetheless increased the likelihood that consumers could be pushed off the ‘tariff cliff’ in the months ahead,” Curtin added.

US consumer sentiment falls to 89.8 in August for biggest monthly drop since 2012

US consumer spending increased solidly in Jul as households bought a range of goods & services, which could further allay financial market fears of a recession, but the pace of growth in consumption is unlikely to be sustained amid tepid income gains.  The Commerce Dept said consumer spending, which accounts for more than 2/3 of US economic activity, rose 0.6% last month after an unrevised 0.3% gain in Jun.  The forecast called for consumer spending to advance 0.5% last month.  The report added to trade & inventory data in suggesting that while the economy was slowing, it was not losing altitude rapidly.  A year-long trade war between DC &China has spooked financial markets.  The US yield curve has inverted, stoking fears that the longest economic expansion in history was in danger of being interrupted by a recession.  The economy is largely losing speed as the stimulus from the White House's $1.5T tax-cut package & a gov spending blitz fades.  The US-China trade conflict has weighed heavily on manufacturing & business investment, which contracted in Q2.  Given the trade war-driven weakness in business investment & manufacturing, slowing global growth as well as persistently low domestic inflation, the Federal Reserve is expected to cut interest rates again next month.  Fed Chairman Jerome Powell said last week that the economy was in a “favorable place,” but reiterated that the central bank would “act as appropriate” to keep the economic expansion on track.  The Fed lowered its short-term interest rate by 25 basis points last month for the first time since 2008, citing trade tensions & slowing global growth.  Consumer prices as measured by the personal consumption expenditures (PCE) price index rose 0.2% in Jul as a drop in the cost of food was offset by a surge in energy goods & services.  The PCE price index edged up 0.1% in Jun.  In the 12 months thru Jul, the PCE price index increased 1.4% after gaining 1.3% in Jun.  Excluding the volatile food & energy components, the PCE price index rose 0.2% last month, matching Jun's increase.  That kept the annual increase in the PCE price index at 1.6% in Jul.  The core PCE index is the Fed's preferred inflation measure & has undershot the central bank's 2% target this year.  When adjusted for inflation, consumer spending increased 0.4% in Jul.  This real consumer spending rose 0.2% in Jun.  Last month's jump in core consumer spending suggested consumption remained strong early in the 3rd qtr after it surged at its fastest pace in 4½ years in Q2.  Last month, spending on goods surged 0.9%, driven by outlays on recreational goods & motor vehicles & spending on services increased 0.5%.  Consumer spending in Jul was supported by savings as personal income edged up 0.1%, the smallest rise since last Sep, following a 0.5% increase in Jun.  Wages increased 0.2% & personal interest income fell 1.8%.  Savings fell to $1.27T , the lowest level since Nov 2018, from $1.32T in Jun.

US consumer spending increases solidly; income tepid

Hurricane Dorian gained strength as it crept closer to Florida's coast, raising the risk that parts of the state will be hit by strong winds, a storm surge & heavy rain for a prolonged period after it makes landfall early next week.  The Miami-based National Hurricane Center (NHC) issued a hurricane watch for northwestern Bahamas & said Dorian was likely to remain an extremely dangerous hurricane as it approaches Florida thru the weekend.  “The biggest concern will be Dorian’s slow motion when it is near Florida, placing some areas of the state at an increasing risk of a prolonged, drawn-out event of strong winds, dangerous storm surge, and heavy rainfall,” the center said.  The storm began today over the Atlantic as a Category 2 but was already expected to be classified a Category 3 later in the day, with sustained winds of at least 110 miles per hour.  The entire state of Florida was under a declaration of emergency & Governor Ron DeSantis has activated 2500 National Guard troops, with another 1500 on standby.  Forecasters predicted the storm would grow more ferocious as it gained fuel from the warm waters off Florida, slamming into the state late on Mon or early Tues.  Tropical storm winds could be felt in Florida as soon as Sat.  No evacuations were ordered as of today, but many were expected as the storm's path becomes clearer before it makes landfall.  If, as expected, the storm reaches Category 4 over the weekend, its winds will blow at more than 130 mph.  There was concern that it could slow from its current 12-mph (9-kph) march across the map, giving it more time to draw fuel from warm seas.   Along with the dangerous winds, the storm was expected to drop 6-12 inches of rain on the coastal US, with some areas getting as much as 15 inches.  “This rainfall may cause life-threatening flash floods,” NHC forecasters said.

‘Absolute monster’: Hurricane Dorian gains strength as Florida braces for direct hit

After an unusually volatile month, the last day of trading is relatively calm.  Some traders are taking an early weekend & volume is light.  Next week, the full force should be back & bring more thrills to investors.  Enjoy the holiday weekend!

Dow Jones Industrials

stock chart 


Thursday, August 29, 2019

Higher markets on hopes for US-China trade talks

Dow shot up 326 (near sesion highs), advancers over decliners about 4-1 & NAZ advanced 116.  The MLP index rose 3+ to the 231s & the REIT index went up 2+ to 401.  Junk bond funds fluctuated & Treasuries were sold, but the 10 year Treasury yield is at an extremely low 1.51%.   Oil went up to the 57s & gold dropped 14 to 1534 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Live 24 hours gold chart [Kitco Inc.]

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Pres Trump confirmed that US-China trade negotiations are scheduled for today.  “We’re dealing with China," Trump said.  "They really want to make a deal, and the reason they want to make a deal is they've lost millions and millions of jobs, they’re losing thousands of companies, they're leaving China.”  As the Trump administration’s trade negotiations with China continue, some are raising concerns about the impact of the trade tensions & tariffs on the US economic outlook.  “For 25 years China’s been ripping off the United States. You know that, I talked about it a long time ago. That’s one of the reasons I’m probably here as president, I’m in the White House,” Trump added.  He said, “There is a talk scheduled for today, at a different level.”  Trump said talks have been ongoing & “we have been talking, we continue to talk.”  Trump says he does not believe the trade tensions are impacting the US economy in a negative way.  “I don’t know if it’s having an impact on us, I don’t think so, I mean, other than we’re getting richer,” Trump continued.

Trump: China talks at a 'different level'

More American companies are hurting as the US-China trade war intensifies, a new survey of businesses shows, with many saying they are losing sales in China & either slowing or canceling investments.  Some 37 of 100 respondents to an annual survey conducted in Jun by the US-China Business Council said their China sales have suffered due to concerns from Chinese companies about doing business with American companies.  That’s about 7 times higher than the percentage of respondents surveyed in 2018.

U.S. Companies Say Trade War Is Hitting China Operations

Gold prices fell for a 2nd day to their lowest in a week, as China calmed some fears over trade tensions, prompting gains in the stock market & dulling haven demand for the yellow metal.  Geopolitical worries were soothed after a spokesman for China's commerce ministry said that Beijing wasn’t planning to immediately respond to the latest round of US tariffs.  Gold for Dec fell $12 (0.8%) to settle at $1536 an ounce.  That was the lowest most-active contract settlement since Aug 22.  Gold has climbed nearly 7% so far in Aug, driven by fears surrounding an escalating US-China trade war, which has seen Treasury yields fall toward or below all-time lows & maintained pressure on global yields, where a large chunk of debt carries negative interest rates.

Gold falls for second session in a row to settle at a 1-week low

US oil futures found support as Beijing moved to tamp down fears of an immediate escalation of the US-China trade war, allowing the US crude benchmark to build on gains scored a day earlier after an unexpectedly large drop in domestic inventories.  Natural-gas prices, meanwhile, headed higher for a 2nd session in a row, getting a lift as traders eye the predicted path for Hurricane Dorian which, for now, is expected to stay away from the Gulf of Mexico production region.  West Texas Intermediate crude for Oct rose 44¢ (0.8%) to $56.22 a barrel.  Oct Brent crude, the global benchmark, traded at $60.43 a barrel on ICE Futures Europe, down 6¢, ahead of the contract's expiration at the end of trading tomorrow.  A spokesman for China’s commerce ministry said the country wouldn't immediately respond to the latest round of tariffs, helping to defuse worries around an escalating US-China trade war.  The intensifying battle has stoked fears of a global economic slowdown & the potential for a US recession, which would hit demand for energy.  The Energy Information Administration yesterday reported that U.S. crude supplies fell 10M barrels last week.  That was the biggest one-week decline reported by the gov agency since the 10.8M -barrel fall for the week ended Jul 19.

U.S. oil benchmark ends at a more than 2-week high after a big fall in crude inventories

The bears stayed home today, counting their profits made this month.  Some traders were on vacation for this traditionally slow week.  Next week, they will return & there will be a lot more excitement in the stock market.

Dow Jones Industrials


Markets climb higher after China says it won't retaliate on tariffs

Dow shot up 223 (but off 100 from the opening), advancers over decliners 5-1 & NAZ gained 91.  The MLP index rose 3+ to the 231s & the REIT index went up 2+ to the 402s (record territory).  Junk bond funds inched higher & Treasuries pulled back after the recent rally.  Oil rose to the 56s & gold was about even at 1549 (still elevated).

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil56.46

GC=FGold   1,547.90

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Stocks are sharply higher after China's commerce ministry said Beijing won't retaliate when the Trump administration raises tariffs.  "We are resolutely opposed to the escalation of the trade war and are willing to resolve the issue through consultation and cooperation in a calm attitude,"  Gao Feng, spokesman for China’s Ministry of Commerce, said.  These comments come after the Trade Representative's office said that $300B worth of Chinese goods would see tariffs raised 5% on a list of Chinese imports on Sun.  All 3 of the major market averages gained over 1% with the Dow tacking on 300 points at the open.  The Commerce Dept released the 2nd estimate of Q2 GDP, which showed the economy grew at a 2% pace.  That was in line with the expectations & just below the advance estimate of 2.1%.  In Europe, stocks were rallying as trade tensions eased, with France's CAC leading the way.  Overnight, Hong Kong's Hang Seng led a mixed session in Asia, closing up 0.3%.

US stocks jump as China blinks in trade war

The US economy grew somewhat more slowly in the spring than initially thought, according to revised data.  The Commerce Dept said the economy expanded at an annualized rate of 2% in Q2, down from the dept's original estimate of 2.1%.  Strong consumer spending (the gov increased its estimate to 4.7% from 4.4%, the strongest in more than 4 years) was offset by decreases in state & local gov spending, exports & private inventory investments.  Economists expect the 11-year economic expansion in the US to continue to moderate, a result of heightened tensions in the year-long trade war between the US & China.  Last week, during the Jackson Hole Symposium, Federal Reserve Chair Jerome Powell said the economic outlook remains strong but promised the central bank will "act as appropriate" to sustain the record economic expansion.  Most traders are pricing in a 2nd 25 basis point interest rate cut during the Fed's Sept meeting.  The gov will revise GDP once more at the end of Sep before it releases Q3.

US growth slowed to 2% in second quarter

China indicated that it might not move forward with the latest round of tariffs on the US, instead stressing the need for the 2 large economies to de-escalate the more than year-long trade war with a “calm attitude."  “China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war,” Ministry of Commerce spokesman Gao Feng said.  “China is lodging solemn representations with the U.S. on the matter.”  Gao’s comments come amid heightened tensions between DC & Beijing.  Both countries, in recent weeks, have announced additional tariffs on each other's goods; the Trade Representative's office confirmed yesterday the US will move forward with a 5% import duty on $300B worth of Chinese goods, beginning Sep 1.  Last week, China responded in kind, announcing its own higher tariffs.  That prompted Pres Trump to lift the existing tariffs on $250B in imports to 30% from 25%.  Gao would not explicitly say whether Beijing won't retaliate for that latest escalation, but said the country is “willing to solve the problem through consultation and cooperation with a calm attitude.  The escalation of the trade war is not conducive to China, or to the United States, and is not conducive to the interests of the people of the world."  "China’s counter-measures are sufficient," he said. "However, under the current situation, we believe that the issue that should be discussed is to lift further tariffs on US$550 billion of Chinese goods and prevent trade wars from continuing to escalate."  The Chinese economy is beginning to take a hit from the slew of tariffs:  In mid-Aug, Beijing's industrial output fell to a 17-year low, spurring fears of a potential slowdown.

China may pull punches in trade war

With Federal Reserve members meeting in Sep to consider the next move on interest rates, one member says she is in a "watch and see" mode.  San Francisco Federal Reserve Pres Mary Daly  said she is assessing the need for another US interest-rate cut.  Daly reiterated what others members including Chairman Jerome Powell, who have said the economy is strong, but there are headwinds to consider.  Among those issues are an overall global growth slowdown & the impact of the trade war going on between the US & China.  Among the issues that she is watching are consumer confidence & consumer spending as well as inflation.  Daly supported last month's interest rate cut.

Fed's Mary Daly talks interest rate specifics

China brought excitement to the stock market when it said it wants "calm" in the trade war.  However negotiations have dragged on for more than a year & it's hard to believe that calm will be the main emotion going forward.  As a results, stocks are already selling off from the bullish gut reaction in the stock market.  The Dow is down 600 in Aug.  Safe haven investments have seen only limited selling.  Gold is flattish, reflecting nervous investors are still nervous.

Dow Jones Industrials