Markets climb higher as trade talks restart

Dow rose 95, advancers over decliners 5-2 & NAZ gained 50.  The MLP index was steady at 241 & the REIT index added 1+ to the 407s.  Junk bond funds fluctuated & Treasuries crawled higher.  Oil gained ground in the 58s & gold fell 8 to 1507.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

58.53

+0.42

+0.7%

GC=F

Gold

1,509.50

-6.30

-0.4%

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Stocks opened higher, after the Federal Reserve cut interest rates for the 2nd time this year.  Traders will be on the lookout for headlines throughout the day as the US & China are holding deputy-level talks on trade, with the goal of paving the way for high-level talks in early Oct.  Record highs are within reach for all 3 of the major averages.  Yesterday, the Fed cut its benchmark interest rate by 25 basis points to 1.75-2%, citing weakening exports & low inflation.  Fed Chair Jerome Powell said that the central bank will "act as appropriate to ensure that the expansion remains on track."  Oil prices were higher after Iran Foreign Minister Javad Zarif said there would be "all out war" in the event of a military strike on his country.  Secretary of State Mike Pompeo called the drone attacks on a Saudi oilfield an "act of war."  West Texas Intermediate & Brent crude oils were higher by more than1%.  Buying of Treasuries had the 10-year yield down 4 basis points at 1.757%.  In Europe, Britain's FTSE, Germany's DAX & France's CAC were all higher.  Overnight, Japan's Nikkei gained 0.4% after the country's central bank kept monetary policy unchanged & held its key interest rate at minus 0.1%, as expected.  Meanwhile, China's Shanghai Composite gained 0.5% & Hong Kong's Hang Seng fell 1.1%.  In European trading, London's FTSE rose 0.5%, Germany's DAX added 0.2% & France's CAC gained 0.5%.

Stocks jump as US-China trade talks restart

Commerce Secretary Wilbur Ross said China has some “real” structural problems as a result of trade uncertainty.  “Supply chains are starting to hollow out,” he said.  “What happened was China is no longer really the cheapest place in the world to manufacture. So a lot of boards of directors were thinking about relocating.”  His comments come as the Organization for Economic Cooperation & Development (OECD) cut its economic forecast for the global economy, which it now sees growing at 2.9% this year (the worst pace since the 2008-2009 financial crisis), down from 3.6% last year.  The OECD predicts 3% in 2020.  Despite some companies sitting on cash, & a lower rate of growth, the US economy is healthy, he added.  “Our economy is excellent – 6.3 million new jobs have been created since President Trump came in – wages are up 3.2 [percent] year-over-year,” he said, adding that “these are huge things. African-American female unemployment down. Hispanic-American unemployment down.”

China has 'real' structural problems due to trade uncertainty: Wilbur Ross

House Speaker Nancy Pelosi unveiled a sweeping plan to lower prescription drug prices in the US.  Pelosi & House Dem leaders have been working for months on a plan to reduce drug prices.  The main thrust of the plan will allow Medicare to negotiate lower prices on as many as 250 of the most expensive drugs, including insulin & apply those discounts to private health plans across the US.  The plan will also establish an intl pricing index, which would bring drug prices in line with what other nations pay & penalize pharmaceuticals companies which refuse to negotiate with the gov or fail to reach any drug pricing agreement.  The penalty will start at 65% of the gross sales of the drug in question & increase by 10% each qtr the manufacturer doesn't reach an agreement.  Thw proposal also will:

• penalize pharmaceutical companies that raise the price of their drugs faster than inflation,
• create an out-of-pocket maximum of $2K for Medicare beneficiaries,
• & reinvest savings from negotiated prices on finding new treatments at NIH.

“The status quo on prescription drug prices is broken,” House leaders say in the summary.  “Prescription drug companies are charging Americans prices that are three, four, or even ten times higher than what they charge for the same drugs in other countries.”  The Pharmaceutical Research & Manufacturers of America (PhRMA), the main trade group, was not available for comment.  Current rules prohibit the Dept of Health & Human Services from negotiating drug prices on behalf of Medicare — the federal gov's health insurance plan for the elderly.  Private insurers use pharmacy benefit managers to negotiate drug rebates from pharmaceutical manufacturers in exchange for better coverage.  The rebates often get paid to the PBMs, insurance companies, although insurers say consumers benefit from lower co-pays & premiums.  Pelosi's plan is likely to get pushback among Reps who say they want prices negotiated in a free market.  Another plan, from the Senate Finance Committee & backed by Pres Trump, would also make changes to Medicare & include a penalty for pharmaceutical companies that raise drug prices faster than inflation.  The plan, which lawmakers see as a “middle ground” approach to drug prices, received pushback from Reps who argued the penalty rule was an excessive gov intervention.

House Speaker Pelosi unveils Democrats’ sweeping plan to lower prices on the most expensive drugs

Iran's foreign minister threatened "all-out war" if the US strikes his country in response to an attack on a key Saudi oil facility.  The attack Sat knocked out 5% of the world's oil supply & sent oil prices higher this week.  The US says Iran was directly responsible for the attack, while Saudi Arabia said the attack was "unquestionably sponsored" by Iran.  What would the consequences be of an attack on Iranian soil?  Iranian Foreign Minister Javad Zarif said: "all-out war."  "We won't blink to defend our territory," Zarif added.  Oil prices jumped to $62.90 at the close Mon before falling into the upper $50s.  Secretary of State Mike Pompeo yesterday described the attack as an "act of war," & said after meetings in Saudi Arabia that the US supports the kingdom's right to defend itself.  Pres Trump ramped up the pressure on Iran yesterday, telling the Treasury Dept to "substantially increase" sanctions on Iran.

Iran threatens 'all-out war' if US strikes

Investors are digesting the rate cut & guidance given by the Fed while the Mideast remains a very touchy situation.  China talks are not expected to bring any results until next month, at the earliest.  However China is feeling the pinch on its economy more than the US.  The Dow is about 100 below the record reached in Jul.

Dow Jones Industrials