Friday, September 27, 2019

Markets decline on reports the US may curb investments into China

Dow tumbled 70 (above earlier lows), decliners over advancers about 3-2 & NAZ sank 91.  The MLP index slid 1+ to the 231s & the REIT index fell 5+ to 406.  Junk bond funds were mixed & Treasuries crawled higher in price.  Oil fell to the 55s & gold dropped to 1505 (more below).

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The US economy is chugging along nicely even as worries over the nation's trade policy are hurting business investment, a top Federal Reserve official said.  “Fundamentally, the U.S. economy is quite solid,” said Randal Quarles, Fed vice chairman for supervision.  “There are issues about uncertainty around the global situation. The trade policy issue in particular seems to be weighing on business investment.”  Consumer spending hit its highest level in more than 4 years in Q2, the Bureau of Economic Analysis (BEA) said.  This offset a massive drop in business investment during the period.  Business investment contracted by 1% in the previous qtr.  Initially, the BEA estimated a fall of 0.6%.  The sharp drop in business investment comes as China & the US wage a trade war against each other.  Since last year, the world's largest economies have slapped tariffs on a bevy of each other’s products.  These moves have sent shockwaves through financial markets & have dampened the outlook for the U.S economy.  “That concerns me because, ultimately, business investment is where we get the future productive capacity of the economy,” Quarles added.  He noted, however: “Every time I talk to bankers across the country, our reserve bank presidents and the input they receive … it’s really quite positive with respect to actual activity and generally with respect to sentiment.”  The Fed cut interest rates by a qtr point earlier this month, citing concerns about the global economy & “muted inflation pressures.”

Fed’s Quarles says economy is ‘solid’ despite uncertainty around US trade policy

The White House is weighing some curbs on US investments in China, according to a leaker.  This discussion could include blocking all US financial investments in Chinese companies.  It's in the preliminary stages & nothing has been decided, the leaker added., but there's no time frame for implementation.  Restricting financial investments in Chinese entities would be meant to protect US investors from excessive risk due to lack of regulatory supervision.  The deliberations come as the US looks for additional levers of influence in trade talks, which resume on Oct 10 in DC.  Both countries slapped tariffs on Bs of $s worth of each other's goods.  The discussions also come as the Chinese gov is taking steps to increase foreign access to its markets.  Trump administration officials are also considering ways to limit US investors' portfolio flows into China, including delisting Chinese companies from American stock exchanges & preventing US gov pension funds from investing in the Chinese market.  Shares Chinese companies plunged following the news & the yuan weakened to 7.15 against the $.

White House deliberates block on all US investments in China

Gold prices ended the week with a loss on the back of overall strength in the $, but held ground above the key $1500-an-ounce mark as stocks traded lower following a report that the US is looking to limit US portfolio investments into China.  The Trump administration is considering delisting Chinese companies from US stock exchanges as one of the options to limit investment.  Gold for Dec declined $8.80 (0.6%) to settle at $1,506 an ounce, the lowest finish for a most-active contract since Sep 19.  It lost 0.6% for the week.  The metal, a traditional haven, has lost ground despite a new round of US political drama.  A whistleblower report released yesterday alleged that Pres Trump attempted to coerce Ukraine to investigate Dem rival Joe Biden & White House officials acted to cover up his actions.  The controversy around the report prompted House Dems this week to launch a formal impeachment inquiry. Indeed, markets overall have seen only a fleeting impact overall.  Gold remains up more than 17% YTD, with gains tied by many analysts to escalations in the US-China trade war & other geopolitical tensions.

Gold ends lower for the week, but holds above key $1,500 mark

Philadelphia Fed leader Patrick Harker said he still opposes lowering the central bank's short-term rate target.  “We should hold firm, letting things settle and watching how events play out,”  Harker said.

Fed's Harker: Fed Should Hold Firm on Rates Right Now

Nothing new, Trump has the ability to shake up the market on a moment's notice.  After initially selling earlier, markets bounced back in the last hour.  In Sep, the Dow is up a little 400 in what has statistically been the worst month of the year.  Next comes Oct with the big China trade meet.  Let's hope for the best.

Dow Jones Industrials

Markets edge higher as investors weigh economic data and trade talks

Dow rose 116, advancers over decliners 3-2 & NAZ added 3.  The MLP index was steady in the 232s & the REIT index gave back 1+ to 410.  Junk bond funds fluctuated & Treasuries were sold today.  Oil fell to 56 & gold sank 17 to 1497 as the $ trades at a roughly 2 year high.

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stock chart

CL=FCrude Oil55.71   -0.70-1.2%

GC=FGold   1,500.10

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Stocks opened higher, rebounding from losses spurred by concerns an impeachment inquiry against Pres Trump will ring more uncertainty to markets.  All 3 major equity averages were trading higher.  On the commodities front, West Texas Intermediate crude oil & gold were lower.  Treasuries were little changed, with the 10-year yield holding near 1.70%.  In Asian, China's Shanghai Composite Index inched higher, but lost 2.5% for the week.  It was the final day of trading before Chinese markets close for a week long holiday.  In Europe, all of the major averages were trading higher.

Stocks bouncing back after whistleblower concerns shake markets

The US labor market is the tightest it’s been in nearly 2 decades, at 3.7%, the national unemployment rate is close to a 50-year low, likely incentivizing companies to loosen job requirements in a boon to those seeking a new position.  For employers, low employment means fewer people are looking for a job; according to the Bureau of Labor Statistics.  The ratio of unemployed people to job openings is less than 1-to-1, compared to a decade ago, when it was 6-to-1.  A new report published by Adecco, the world's largest human resources provider, found that a slew of companies, 37.3%, have lowered their hiring requirements for temporary workers.  An additional 14.8% plan to loosen those requirements, while another 17.2% are considering it.  That's good news for jobseekers: About 62% of employers said they lowered the required years of experience they asked for job applicants & another 49.7% said they reduced the education requirements.  About 21% of respondents don't plan to drug test candidates anymore, & 16% have halted background checks.  “The takeaway is clear: U.S. companies realize they must adapt in order to source temporary talent in such a candidate-driven market,” the study found.  Although the concern is that lowering application standards could result in a decrease in the quality & potential of candidates, or potentially result in the hiring of someone who could pose a safety threat in the office, the study found the rewards often outweigh the risks.  Still, there are other means for employers to attract new talent, too — like increasing paychecks.  Aug data revealed that over the past year, however, average hourly earnings have risen a modest 3.2% to $28.11.  While that’s a slight uptick from previous months, it still represents sluggish pay growth.


New orders for key US-made capital goods unexpectedly fell in Aug & shipments rebounded moderately, pointing to continued weakness in business investment after it declined at its steepest pace in 3½ years in Q2.  The Commerce Dept said orders for non-defense capital goods excluding aircraft, a closely watched proxy for business spending plans, dropped 0.2% last month amid weak demand for electrical equipment, appliances & components, & computers & electronic products.  Data for Jul was revised down to show capital goods orders unchanged instead of gaining 0.2% as previously reported.  The forecast for core capital goods orders was unchanged in Aug.  Core capital goods orders increased 1.1% on a year-on-year basis.  Shipments of core capital goods rose 0.4% last month.  Core capital goods shipments are used to calculate equipment spending in GDP.  Core capital goods shipments fell by an unrevised 0.6% in Jul.  The Trump administration's nearly 15-month trade war with China has been blamed for the downturn in business investment.  Federal Reserve Chair Jerome Powell last week said trade policy tensions, which "have waxed and waned, and elevated uncertainty is weighing on U.S. investment and exports," posing an ongoing risk to the longest economic expansion on record, now in its 11th year.  Powell said central bank contacts had told policymakers that trade policy uncertainty "has discouraged them from investing in their businesses."  The Fed cut interest rates again last Wed after lowering borrowing costs in Jul for the first time since 2008.  Business investment declined at a 1.0% annualized rate last qtr, the biggest drop since Q4-2015.  Weak business investment is underscored by manufacturing, where output has contracted for 2 straight qtrs.  Manufacturing, which accounts for about 11% of the economy, is also being undercut by weak global demand and design problems at planemaker Boeing (BA), a Dow stock.  Last month, orders for electrical equipment, appliances & components dropped 1.3%, the most since Nov 2018.  There were also decreases in orders for computers & electronic products.  But orders for machinery rebounded 0.6%.  There were also gains in orders for primary metals & fabricated metal products.  Overall orders for durable goods, items ranging from toasters to aircraft that are meant to last 3 years or more, rose 0.2% in Aug after surging 2.0% in the prior month.  Orders for transportation equipment fell 0.4% after jumping 7.2% in Jul.   Motor vehicles & parts orders decreased 0.8% last month.  Orders for non-defense aircraft & parts tumbled 17.1%.  BA reported that it had received only 6 aircraft orders in Aug after getting 31 orders in Jul.

Oil slid after Iranian Pre Hassan Rouhani claimed that the US offered to remove all sanctions on Iran in exchange for negotiations.  Pres Trump & the State Dept later denied those claims, causing oil to rebound from the lows.  WTI crude futures were last down by 0.9% to $55.92 following the report after falling as low as $54.79 & Brent crude futures dropped 1.3% to $61.95.  “The German chancellor, the prime minister of England (Britain) and the president of France were in New York and all insisted that this meeting take place. And America says that it will lift the sanctions,” Rouhani said on his official website.  “It was up for debate what sanctions will be lifted and they (the United States) had said clearly that we will lift all sanctions.”  Trump later said he responded “of course, NO!” to Iran who he said wanted him to lift the sanctions in order to meet.  The State Dept called the report “baseless,” adding that the US is committed to zero oil exports from the Iranian regime.  Rouhani’s comment came after a series of drones attacked oil facilities in Saudi Arabia on Sep 14, which had forced the kingdom to cut production in ½. The US & some European countries, as well as Saudi Arabia, have blamed the attack on Iran. The Trump administration also announced plans to deploy US forces to the region.

Oil slides after Iran claims US offered to remove sanctions, but Trump denies

Stocks are back to meandering.  The excitement over impeachment is not bringing on a lot of selling.  But the Mideast situation remains very touchy.  US economic continues to be fairly favorable with encouraging data for job seekers, key for a strong economy.  The Dow is over 27K & nearing the record highs made in Jul.

Dow Jones Industrials

Thursday, September 26, 2019

Markets pares losses after China purchases US soybeans and pork

Dow fell 79 (a rebound in the PM was pared by selling into the close), decliners modestly ahead of advancers & NAZ pulled back 46  The MLP index lost 1+ to the 232s & the REIT index jumped up 3+ to the 411s (record territory).  Junk bond funds slid lower & Treasuries were in demand again.  Oil hardly budged in the low 56s & gold was flat at 1513 (more on both below).

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White House economic adviser Larry Kudlow said China's recent spending spree on soybeans could mean that trade talks are progressing.  “China's coming into the commodity markets, I'm told soybean prices have been bid up a bit,” he said.  “This is a very, very good beginning we haven't seen this kind of thing.”  In recent days, China has been in the commodity markets buying a huge volume of soybeans. As a result, soybean imports in the US have been increased by over 80% from last year, he added.  Additionally, China is also looking to buy large amounts of p'ork to “cover their domestic problems,” he said.  Yesterday, Pres Trump said that China’s ready to make a deal because their economy was weakening.  "They want to make a deal,” Trump said during a press conference at the UN.  “And you know why they want to make a deal? Because they're losing their jobs and because their supply chain is going to hell, and companies are moving out of China, and they're moving to lots of other places including the United States. And that's not good. That's far worse than they thought. And by the way, in the meantime, we're taking in billions and billions of dollars in tariffs. We’re taking in tremendous numbers in tariffs, and we're helping our farmers who got targeted now."  The next round of trade talks between US Trade Representative Robert Lighthizer & China Vice Premier Liu He is scheduled to take place in Oct.

Kudlow: China's spending spree sets the 'mood' for a deal

The Senate voted to pass a temporary funding bill to avoid a gov shutdown at the end of the month.  The chamber approved the legislation by an 82-15 margin.  As the House already passed the measure, the Senate vote sends it to Pres Trump for his signature.  He is expected to sign it into law before the Sep 30 funding deadline.  The continuing resolution funds the gov thru Nov 21, setting up another potential showdown over spending just a week before Thanksgiving.  Lawmakers will need to come to an agreement over department spending levels amid yet another dispute over border security & military funding.  Congress already passed legislation to suspend the federal debt ceiling & set gov spending levels for 2 years.  Lawmakers have to separately pass bills allocating money to specific agencies, a process that has tripped them up.

Senate passes short-term funding bill to dodge government shutdown

China said it has purchased a “considerable” amount of US soybeans & pork ahead of the next round of trade talks in DC.  Ministry of Commerce spokesperson Gao Feng said that the US & China are maintaining “close communication” in preparation for the negotiations next month.  He confirmed China has resumed its purchase of American farm goods & added that the tariffs on those orders will be exempted.  “China’s stance has always been consistent and clear, hoping the U.S. side will meet China half way,” Gao said.  China made up $5.9B in US farm product exports in 2018, according to the US Census.  It's the world's top buyer of soybeans & had purchased roughly 60% of US soybean exports last year.  Tensions between the US & China seem to have eased ahead of the planned trade talks in Oct as Pres Trump granted tariff exemptions to many Chinese products & China has said it will exempt US agricultural products & other 16 types of US goods from additional tariffs.  Trump said yesterday that a US-China trade deal could arrive sooner than expected.  He made the comment hours after the release of a once-secret summary of his telephone conversation with Ukraine's presi amid a Dem impeachment inquiry.

China says it has bought a ‘considerable’ amount of US agriculture products

Gold futures settled higher, a day after a surge by the $ prompted the precious metal to suffer its worst daily decline in nearly 3 weeks.  Gold for Dec edged up $2.90 (0.2%) to settle at $1515 an ounce.  Gold fell $27 (1.8%) yesterday, its biggest one-day decline since Sep 5 after the ICE $ Index posted its biggest one-day rise in around 3 months yesterday, while US stocks & bond yields rose, dulling demand for gold.  A stronger $ can be a negative for currencies priced in the commodity as it makes them more expensive to users of other currencies, though the $ index traded little changed today.  Rising bond yields can also be a negative, increasing the opportunity cost of holding non-yielding assets like commodities.  Treasury yields moved lower today.  Analysts said bulls might find encouragement from signs of bargain hunting interest as gold, which has rallied in 2019, but pulled back.

Gold settles higher, a day after biggest one-day loss in almost 3 weeks

US oil prices trimmed their losses & global benchmark prices finished higher, as the Pentagon announced that it would deploy equipment & personnel in support of Saudi Arabia following attacks on its oil facilities earlier this month.  Oil futures had suffered from steeper declines for much of today's session, before the news broke in the minutes before the settlement.  News reports show progress in restoring Saudi output following attacks on its oil facilities earlier this month & US inventories logged back-to-back weekly increases.  The US will deploy one “patriot battery, four sentinel RADARs [and] approximately 200 support personnel” to Saudi Arabia, according to the Dept of Defense.  West Texas Intermediate crude for Nov delivery edged down 8¢ to settle at $56.41 a barrel after trading as low as $55.41.  Nov Brent crude, the global benchmark, finished 35¢ (0.6%) higher at $62.74 a barrel.  News reports yesterday said Saudi Arabia had restored output capacity to 11.3M barrels a day, more quickly than initially planned, after attacks on facilities earlier this month knocked production of more than 5M barrels a day offline, sparking a sharp rally in crude prices.

U.S. oil trims losses, Brent ends higher as Pentagon announces move to support Saudi Arabia following recent attacks

While impeachment concerns weighed on the markets all day, news about Chinese purchase of agricultural products brought back stock buyers in the PM.  Selling in the last ½ hour was based in on nervousness about the whistleblower.  There is reason for optimism on the trade talks front although a final deal could still be far down the road.  Tomorrow should be an interesting day for traders!

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