Tuesday, August 27, 2019

Markets reverse early gains as hopes for trade talks fade

Dow dropped 120 (near session lows), decliners over advancers 2-1 & NAZ fell 26.  The MLP index lost 1+, falling to 223 (10 year low) & the REIT index gave back 1 to the 399s.  Junk bond funds slid lower & Treasuries rose with heavy buying, taking the yield on the 10 year down to 1.49%.  The yield on the 30 Treasury dropped under 3%.  Oil jumped up 1+ to 55 & gold surged 13 to 1550 (more on both below).

AMJ (Alerian MLP Index tracking fund)

Manufacturing activity in 5 states & DC remains stagnant, despite a small improvement in Aug, the latest data point to illustrate the sector remains under pressure, according to the Richmond Fed monthly Survey of Manufacturing Activity.  The results were modestly positive, compared to Jul's weak manufacturing activity yet not enough to illustrate a recovery in the sector which is likely being impacted by the ongoing trade war with China.  "The composite index rose from -12 in July to 1 in August, buoyed by increases in the indexes for shipments and new orders," the survey found.  "However, the third component, employment, fell. Firms reported increasing capital expenditures and inventories, but the measure of local business conditions was slightly negative. Manufacturers were, however, optimistic that conditions would improve in the next six months.”  The survey indicated that while wage growth continues, firms were having difficulty finding employees with the necessary skills for open positions --- & it anticipates that both of these trends will continue.  Also, “many firms saw employment decline while the average workweek increased in Aug,” according to the survey.

Manufacturing activity remains stale

Iran’s Pres Hassan Rouhani rejected the possibility of meeting with Pres Trump as long as the US sanctioned his country, a day after both leaders appeared to be opening up to possible talks following months of heightened tensions.  The Iranian leader's return to his default position illustrates the pressure he faces at home from hard-line factions opposed to talking to the Trump administration & the challenges of resolving the crisis between the US & Iran.

Iran’s President Won’t Meet Trump Unless the U.S. Lifts Sanctions

Gold futures climbed to their highest finish since 2013 & silver rallied to a more than 2-year high, with losses in stocks & a drop in Treasury yields providing a boost to the precious metals as investors hopes for progress on US-China trade talks faded.  Gold for Dec rose $14.60 (1%) to settle at $1551 an ounce.  That was the highest finish for a most-active contract since Apr 2013.  Additionally, the 10-year Treasury note yield was down by 6.8 basis points at 1.481%, contributing to haven appeal in gold & silver.  Last week, gold also closed at more than 6-year highs, boosted by safe haven bids as the US-China intl trade battle escalated.  Gold pulled back modestly yesterday as both the US & Beijing struck a more conciliatory tone, though analysts remained wary of the potential for further deterioration & expressed concern that elevated tariffs announced so far will add to global economic weakness.

Gold ends at highest since 2013, silver climbs to 2-year high

Oil futures rose, with US prices up by more than 2%, buoyed by a report showing strong compliance with OPEC production cuts & expectations for a sizable weekly decline in US crude supplies.  OPEC's Joint Ministerial Monitoring Committee pegged Jul compliance with pledged output cuts at 159%, the highest monthly compliance rate so far this year.  Meanwhile, a survey of analysts shows expectations for a 4.7M-barrel decline in last week's US crude stocks, ahead of gov supply data due tomorrow.  Prospects for a deal to lift US sanctions on Iran, which would add more barrels of oil to the market, also faded, contributing to oil's rise.  Oct West Texas Intermediate oil rose $1.29 (2.4%) to settle at $54.93 a barrel.

U.S. oil futures settle more than 2% higher

There has been an abundance of confusion about the status of China trade talks.  That brought out stock sellers in the PM.  The Dow has fallen 1500 from its record set in mid Jul & the outlook is gloomy.  Consumer data remains good, but the trade talks are clearly stuck in the mid, as they have been for many months.  As a result, stock buyers will just wait for developments in trade talks..

Dow Jones Industrials

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