Markets climb higher on US-China trade optimism

Dow gained 84. advancers over decliners about 3-2 & NAZ rose 5.  The MLP index added 3+ to the 232s & the REIT index retreated 3 to the 405s.  Junk bond funds inched higher & Treasuries drifted lower after the recent rally.  Oil went up 1+ to the 57s after Saudi Arabia committed to production cuts & gold was 1 off to 1513.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

57.24

+0.72

+1.3%

GC=F

Gold

1,518.10

+2.60

+0.2%

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Chinese imports of American-made goods were down 22% last month when compared to a year earlier, as the US-China trade war shows few signs of slowing down.  Exports to the US of Chinese-made goods, meanwhile, sank 16% to $44.4B, according to customs data.  Both countries have raised tariffs on Bs of $s worth of each other's imports, with the US levying complaints over its trade deficit with Beijing & technology development plans, which violate Chinese market-opening commitments, according to the US & its trading partners.  The US & China are scheduled to restart negotiations in Oct in a move to quell the growing trade war as it continues to hamper global economic growth.  Meanwhile, Chinese exporters are beginning to feel the pressure as consumer demand abroad weakens, with markets to replace the US becoming increasingly harder to find.  China's global exports took a 3% hit to $214.8B, with imports climbing a modest 1.7% at $180B.  For the first 8 months of 2019, exports were off 1% compared to a year earlier & imports down 5.6%.  Negotiations between the US & China fell apart in May due to disagreements over how to enforce agreements between them, with Beijing demanding Trump lift the ever-growing retaliatory tariffs once an agreement between the 2 countries is reached & goes in to effect.  That demand will prove to be a difficult compromise for the US, as DC claims some tariffs must remain in place to hold Beijing accountable for any agreements it makes.  In Jun, both Trump & Jinping agreed to renew negotiations, but those discussions ended a few weeks later in Jul with little progress.   While both govs agreed on resuming talks in Sep, that time frame was further pushed back to Oct, where an exact date has still yet to be announced.

Trade war: China importing fewer American goods

Treasury Secretary Steve Mnuchin said that he expects a deal on mortgage finance giants Fannie Mae & Freddie Mac, which have been under conservatorship for the past 11 years, very soon.  “I think we're going to work with Congress on the first part of this. I'd hope that if we're going to get congressional support it'll be in the next three to six months. And if we can't do that we'll move on the administrative front,” he said.  “We think now is the time to recapitalize them, make them stronger and make sure that taxpayers aren't at risk and eventually raise third-party capital so that we restructure them and that in another housing downturn taxpayers are not at risk,” he added.   Mnuchin said the first steps are negotiating with the Federal Housing Financing Agency (FHFA).  “We expect in the near term we'll have an agreement where we will allow both Fannie Mae and Freddie Mac to retain their earnings which will be a significant increase in capital and a step in the right direction to us ultimately raising third-party capital,” he explained.  Mnuchin said the other issue he “looks forward" to testifying about at the Senate tomorrow will be bipartisan legislation to get approval to put a full faith in credit on the securities.  “We think that the government should be paid for that wrap and we think there should be significant private capital in front of it – so something similar to the FDIC model or the Ginnie Mae [Government National Mortgage Association] wrap,” he explained.  “We expect in the near term we'll have an agreement where we will allow both Fannie Mae and Freddie Mac to retain their earnings which will be a significant increase in capital and a step in the right direction to us ultimately raising third-party capital,” he added.  Mnuchin said the other issue he “looks forward" to testifying about at the Senate tomorrow will be bipartisan legislation to get approval to put a full faith in credit on the securities.  “We think that the government should be paid for that wrap and we think there should be significant private capital in front of it – so something similar to the FDIC model or the Ginnie Mae [Government National Mortgage Association] wrap,” he said.  Taking the 2 gov-sponsored enterprises out from under gov control could be a win for some investors, as companies could begin to turn a profit.

Mnuchin: Fannie, Freddie overhaul key for future of housing

AT&T (T) soared after Paul Singer's Elliott Management announced it owns $3.2B in the underperforming telecom giant's stock & said in a letter that it hopes to help the company trim unneeded assets.  The hedge fund said it sent a letter to the company's board & argued for ways AT&T can “improve its business and realize a historic increase in value.”  The activist investor said its AT&T stock purchase is one of the firm's largest investments ever.  Elliott said the company could eventually be worth at least $60 per share, catapulting the stock in premarket trading today.  The stock trimmed its gains after the opening bell, rising 4.4% & on track for its best day in 2 years.  The stock closed at $36.25 on Friday.  “The purpose of today’s letter is to share our thoughts on how AT&T can improve its business and realize a historic increase in value for its shareholders,” the memo says.  “Elliott believes that through readily achievable initiatives — increased strategic focus, improved operational efficiency, a formal capital allocation framework, and enhanced leadership and oversight — AT&T can achieve $60+ per share of value by the end of 2021.”  “AT&T has been an outlier in terms of its M&A strategy: Most companies today no longer seek to assemble conglomerates,” the fund added.  “We firmly believe that AT&T’s M&A strategy has not only contributed directly to its profound share price underperformance, but has also caused distractions that have contributed to the Company’s recent operational underperformance.”  The Elliott team raised concerns about AT&T's recent acquisition of Time Warner in particular, warning that “AT&T has yet to articulate a clear strategic rationale for why AT&T needs to own Time Warner.  In response to the hedge fund’s letter, AT&T said its management team & Board of Directors “maintain a regular and open dialogue with shareholders and will review Elliott Management’s perspectives in the context of the company’s business strategy.”  The stocks rose 1+ to 37.48.
club.ino.com/trend/analysis/stock/T?a_aid=CD3289&a_bid=6ae5b6f7

AT&T shares jump after activist Elliott Management takes $3.2 billion stake, sees stock worth $60

Trade hopes are still high & that brings out stock buyers, even after more than a year of stumbling which has produced little progress.  The Dow is within 500 of making a new record, but the bulls will need more excitement to extend the rally. 

Dow Jones Industrials