Tuesday, December 31, 2019

Markets finish the day higher to conclude a record setting year

Dow was up 76 (at the days' high), advancers over decliners almost 2-1 & NAZ rose 26,  The MLP index was little changed in the 216s. & the REIT index rose 2 to 405.  Junk bond funds inched higher & Treasuries remained weak (more below).  Oil slid lower in the 61s & gold added 2 to 1521 (more below).

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Negotiators from the US & China are set to resume trade discussions next week in DC, & they could be forced to broach a touchy subject when the talks resume – the pro-democracy protests in Hong Kong.  The protests, which have stretched into their 17th week, reached a new level of chaos today, when an officer shot a demonstrator in the chest at close range, leaving him in critical condition.  It was the first shooting to occur during the protests.  “It probably will have some impact on the Chinese side, even despite whatever it has on ours, because this is a sign of domestic dissent within their community and Hong Kong is quite important for the international trading activities of China,” said Commerce Secretary Wilbur Ross.  Trade discussions are set to resume shortly after China’s Golden Week holiday, when Chinese Vice Premier Liu He is scheduled to travel to DC.  There has been a recent de-escalation of the trade war, but a deal has remained elusive.  Last month, the US said it was postponing raising the tariffs on Chinese goods to Oct 15 out of respect for China's holiday.  Beijing responded by exempting US pork & soybeans from additional tariffs.  Still, the trade war looks likely to intensify in the near term.  On Sun, NAZ could crack down on Chinese companies listing on its exchange by tightening restrictions & slowing down on their approvals.  It is unclear if such action would be a trade-war weapon or more to protect investors from the low liquidity of those shares.  “The president has indicated he wants a complete deal,” Ross said.  “If all we wanted was to sell just a few more products to them, we could’ve had that deal two and a half years ago. The president wants that, but he most importantly wants to resolve the structural issues. The issues of forced intellectual property transfers, the issue of subsidy of SOEs, the disrespect for intellectual property, the whole panoply of equal market access complaints that we’ve had over the years. Without those, it isn’t really a very satisfactory arrangement.”

Hong Kong protests could impact trade talks

The 10-year Treasury yield posted its biggest decline in 8 years despite a year-end rebound that's softened the retreat.  The yield on the benchmark Treasury note has risen about 14 basis points in Dec to1.92%, but it's still down 76 basis points on the year, its biggest annual drop since 2011.  Bond yields move inversely to prices.  Today the yield on the 10-year Treasury note climbed about 2 basis points, while the yield on the 30-year Treasury note rose 4 basis points to about 2.38%.  US rates started 2019 in a downward spiral as investors fled risk assets & flocked to safety amid an escalated US-China trade war & deteriorating economic data.  Adding to rates' downward pressure was the anticipation that the Federal Reserve will lower borrowing costs to combat a slowing economy.  The central bank embarked on what it characterized as a “mid-cycle adjustment,” cutting borrowing costs 3 straight times, which further pushed rates down.  Over the summer, the yield on 10-year Treasuries dipped below those on 2-year securities for the first time since before the financial crisis in 2007, an unusual phenomenon called yield-curve inversion that preceded previous recessions.   US gov debt yields started to rise across the board in Sep after the US & China agreed on a truce in their tariff war & started to negotiate a deal.  Investors began taking on more risk on the back of the optimism over U.S.-China trade relations. At the same time, economic data in the US & overseas showed signs of improvement, which sparked a rally in yields.  In Dec, the 10-year Treasury yield posted its biggest monthly climb since Sep after the world's 2 largest economies agreed earlier this month to a “phase one” trade deal.  Pres Trump saidtoday he will sign the deal with high-level Chinese representatives at the White House on Jan 15.  For 2020, many expect rates continue to rebound amid an improving economic outlook.

Treasury yields end the year off the lows, but still down big for 2019

White House trade advisor Peter Navarro today predicted the Dow will hit “at least” 32K in 2020.  That would be 12.4% higher than yesterday'’s close.  “I’m looking forward to a great 2020,” Navarro said.  “Forecast-wise, I’m seeing closer to 3% real GDP growth than 2%. I’m seeing at least 32,000 on the Dow.”  In Q3, US economic growth increased at a 2,1% annual rate.  The Dow, which yesterday at 28,462, was up more than 55% since Pres Trump won the 2016 election.  “It’s going to be the roaring 2020s next year,” Navarro said.  ”[Dow] 32,000 is a conservative estimate of where we’ll be at the end of the year.”  Trump is running his 2020 reelection campaign on his stock market & economic track record.  Navarro pointed to a handful of signs of a stronger economy ahead, despite concerns of a slowdown, including low unemployment, rising consumer optimism & rising wages.  Additionally, he cited ongoing trade progress.  The “phase one” trade deal between the US & China is a certainty at this point, Navarro said, adding the accord is “in the bank.”  He also alluded to potential trade priorities for the Trump administration in 2020, including a new deal with a post-Brexit UK & other countries.  “Next year, 2020, we’re going to try to get something going with Great Britain, Vietnam, Europe and anybody else who wants to fairly trade with the United States of America,” Navarro added.  He has long believed that the Dow would be on a tear with Trump in the White House  .On day after Trump was elected, Navarro said it was “a very bullish thing for the markets” & predicted Dow 25K during the Trump presidency, a 38% increase from then-current levels around 18K.  The Dow is up 22% for this year alone.  The S&P 500 broader market measure is tracking for its best year since 2013, with a 28.5% advance for 2019.

Peter Navarro sees ‘at least’ Dow 32,000 in 2020 and US economic growth closer to 3%

Gold futures ended 2019 at the highest level since late Sep, after a strong rally for the precious metal produced the largest return in nearly a decade, despite a rally in equity indices also.  Gold for Feb delivery rose $4.50 (0.3%) at $1523 an ounce.  The day’s move helped gold log an 18.9% return for 2019 since the end of last year.  Based on trade in most-active futures contracts, that would be the strongest performance for the yellow metal since 2010, when gold rose 29.7%.  For the month, gold has gained about 3.4% in Dec & during the qtr.  Investors also were keeping an eye on developments in Iraq, where dozens of Iraqi Shiite militiamen & their supporters broke into the US Embassy compound in Baghdad, part of a backlash over weekend US airstrikes that targeted the Iran-backed militia.  But back on the home front, confidence in the US economy was higher at the end of 2019 than at the beginning, according to a new reading of the Conference Board's index, even though future expectations are for economic growth to be flat in H1-2020.  Optimism about the ability of American consumers to help extend a record economic expansion has played a role in propelling US stocks to fresh highs in Dec.  Optimism about a partial US-China trade pact also has helped.  Pres Trump today said the first phase of a trade deal will be signed on Jan. 15 & & that he will travel to China “at a later date” to begin the 2nd round of talks.

Gold prices end 2019 at 14-week high and notch strongest year since 2010

Buyers returned in the PM & the late day rally brought the Dow into the black, a fitting way to end an outstanding year, 

Best Wishes to all for an outstanding year!!

Dow Jones Industrials

Markets waver as trading for 2019 winds down

Dow fell 39, advancers over decliners 2-1 & NAZ was off 1.  The MLP index added 1 to the 217s &  the REIT index fluctuated in the 403s.  Junk bond funds did little & Treasuries continued to be sold.  Oil slid back in the 61s & gold went up 6 to 1523 in what should be its strongest year since 2010.

AMJ (Alerian MLP Index tracking fund)

stock chart

CL=FCrude Oil60.80
 -0.88 -1.4%

GC=FGold   1,522.30
+3.70 +0.2%

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The phase one trade deal between the US & China will be official next month.  “I will be signing our very large and comprehensive Phase One Trade Deal with China on January 15,” Pres Trump tweeted, adding that the ceremony will "take place at the White House" with high-level representatives from China.  US equity markets won back their early losses in response to the Trump's tweet.  The partial trade deal, which was agreed to on Dec 12, calls for Beijing to purchase $200B worth of US products over the next 2 years, in addition to protecting against intellectual property theft & technology transfer.  In return, the US has agreed to reduce its tariffs on Chinese goods, but will still levy duties against $380B  of those products.  The pres's tweet comes a day after Peter Navarro, White House assistant for trade & manufacturing policy, said that a signing could happen within the week as the 2 sides were just waiting on the translation of the agreement.  Earlier yesterday, the South China Morning Post reported Liu He, China's top trade negotiator, would head to DC on Sat to sign off on the deal.  Trump has said a comprehensive trade pact could occur over 2 or 3 phases.

Trump announces when and where he'll sign 'phase one' China trade deal

Factory activity held steady in Dec in the latest sign that China/s economy may be recovering from a protracted slowdown.  An official survey of manufacturers showed factory activity held steady in Dec, with the official purchasing managers index at 50.2 on a scale where 50 marks the break between expansion & contraction.  Dec's reading matched Nov's, which ended 6 previous months of contraction.  The National Statistics Bureau said that new orders were at 51.2, down slightly from the month before.  Out of 21 industries surveyed, 15 showed activity picking up, including food & beverages, textiles & apparel making, auto manufacturing, medical-related production & appliances.  China's economy has been slowing due to both domestic & global factors, including a trade war with the US.  The partial trade deal between the US & China could be signed within the week, according to Peter Navarro.  "We'll probably have a signing on that within the next week or so," he said.  "We're just waiting for the translation."  Navarro's comments come after the South China Morning Post reported yesterday, citing a source briefed on the matter, that Liu He, China's chief trade negotiator, is leading a delegation to the US on Sat with the directive to sign the phase 1 trade agreement.

China manufacturing holds steady in December

US consumer confidence dipped slightly in Dec, according to data from the Conference Board.  The metric came in at 126.5 for the month, down from 126.8 in Nov.  The forecast called for a reading of 128.2 for Dec.  The dip in Dec comes after the metric fell for the 4th straight in Nov.  “Confidence declined marginally in December, following a slight improvement in November,” said Lynn Franco, Director of Economic Indicators at The Conference Board.  “While consumers’ assessment of current conditions improved, their expectations declined, driven primarily by a softening in their short-term outlook regarding jobs and financial prospects. While the economy hasn’t shown signs of further weakening, there is little to suggest that growth, and in particular consumer spending, will gain momentum in early 2020.”

US consumer confidence dips in December

Not much for the markets to do while traders wait for the first phase on the US-China trade deal to be signed.  The Dow is presently up more than 5K YTD (but starting from a depressed base).  That will be difficult to replicate for years (& decades).  Meanwhile, safe have gold is having its best year in a decade.  It's rare to see both of those investments advancing at the same time.  But stock investors are not complaining.

Dow Jones Industrials

Monday, December 30, 2019

Lower markets as trading for 2019 closes

Dow sank 183, decliners over advancers 5-4 & NAZ fell 60.  The MLP index fell 3+ to the 216s & the REIT index was fractionally lower to the 402s.  Junk bond funds were mixed & Treasuries continued weak today.  Oil fluctuated in the 61s & gold hardly budged at 1518 (more on both below).

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Live 24 hours gold chart [Kitco Inc.]

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Gold prices clinched a 5-day win streak, its longest in about 6 months, while settling near a 3-month high as investors got ready for the end of 2019 with one day remaining in trade.  Bullion's value has been partially supported by apparent progress toward a scaledown of the Sino-American trade war but fears that Pres Trump's administration may scuttle any partial agreement at the last minute have helped to draw bids & limit losses for haven metals.  Chinese Vice-Premier Liu He is set to travel to DC on Sat, where he is expected to sign the limited trade deal agreed to earlier this month with the Trump administration, the South China Morning Post reported. Gold for Feb delivery  added 50¢ to settle at $1518 an ounce, after the metal on Fri touched its highest level for the most-active contract since Sep 24 when it closed at $1540.  That marked its 5th-straight gain, the longest win streak for gold in about 6 months, dating back to an 8-session win streak ended Jun 7.  For the year, gold has gained 18.5%.  Gold also was finding some support after the Trump administration warned of potential “additional actions” following US military airstrikes in Iraq & Syria yesterday against an Iran-backed militia group, which was blamed for killing an American civilian contractor on an Iraqi military base.

Gold closes near 3-month high, clinches longest win streak in about 6 months

The economy in the Midwest improved in Dec for the 2nd month in a row, but the region is still suffering from a trade war with China that's hurt farmers & manufacturers, according to a regional survey.  The Chicago Purchasing Management Index rose to 48.9 this month from a revised 46.2 in Nov & 43.2 in Oct.  The Oct reading was the weakest since the end of 2015.  Although the latest reading was a bit better than expected, the index still shows the economy in the greater Chicago area is contracting.  Any reading below 50 indicates deteriorating conditions.  New orders & employment fell at an even faster pace compared to the prior month, but those negatives were largely offset by improved but still soft production numbers.  Farmers & manufacturers have borne the brunt of the trade war with China, suffering from declining or irregular demand or higher prices for raw materials.  The Midwestern economy is especially dependent on agricultural & heavy industry.  The much larger service side of the economy, however, has kept the US growing at a steady if unspectacular pace, leavened by strong consumer spending.  Consumers are still confident in the economy with unemployment & layoffs at ½-century lows.

Chicago-region businesses improve in December, but they’re still struggling to grow

As 2019 comes to a close, all eyes are on the White House as Pres Trump's administration attempts to fulfill its promises while the 2020 election & a Senate impeachment trial closes in.  Here are the administration's top 2020 goals.
Finalizing USMCA
The US-Mexico-Canada Agreement passed the House earlier in Dec & will be taken up by the Senate in the New Year.  Both Trump & House Speaker Nancy Pelosi have taken credit for the $1.2T trade deal designed to replace the North American Free Trade Agreement.  Senate Majority Leader Mitch McConnell has said he will turn to USMCA after an impeachment trial for Trump.  Pelosi has not yet sent the articles of impeachment to the Senate.  The Chamber of Commerce & AFL-CIO endorsed USMCA, which the administration expects to create around 176K new jobs & inject $34B into the auto industry.
Taking action on prescription drug pricing and surprise medical billing
Regulating prescription drug pricing could set up yet another Pelosi-Trump showdown, while taking action against surprise medical billing could also pose a challenge even though politicians on both sides of the aisle have spoken out against it.  Congress finished 2019 without making real headway on either issue, although the House passed Pelosi's drug pricing bill that includes provisions supported by Reps but also empowers Medicare to negotiate prescription drug prices.  The legislation has no chance of passing the Rep-controlled Senate & the White House has issued a veto threat.  Still, Dem saw a victory in the message their bill sends to voters.  Trump has been a vocal critic of surprise medical billing for insured patients & his administration passed a rule forcing hospital groups to disclose the discounted prices they offer to individual insurers.  The administration contends that requiring hospitals to release the negotiated price is intrinsic to lowering health care costs amid a surge of surprise medical bills for patients who are often unaware of total costs until they receive the bill.  Reps & Dems seemed poised to address the issue in an end-of-year spending bill, but they never took the leap. 
Regular order spending bills
It was a much less nerve-racking path to funding the gov in 2019 compared to the prior year.  The gov shut down for 35 days into early 2019, costing the economy & federal workers.  Still, the 2 major spending packages the Senate approved the day before a Dec 20 deadline represent a break from regular order — a break that has been the norm since long before Trump took office.
Confirming more judges
Over the course of his administration, Trump has seen 187 federal judge confirmations, including 50 to circuit courts of appeal & 2 Supreme Court justices.  Trump's administration has worked in tandem with McConnell, who plans to keep things moving in 2020.
Prioritizing paid family leave
In addition, Trump's's daughter & adviser Ivanka Trump has been an advocate for a nationwide paid family leave policy & said yesterday the administration would even support Dem-led legislation.  Ivanka Trump has focused on issues like job training & paid family leave for American workers during her time in DC.  Regarding paid leave, Ivanka gathered governors, business leaders & administration officials in for a White House summit earlier this month to push for action on the issue.

TRUMP'S TO-DO LIST: 5 of the White House's top goals for 2020

Oil futures ended with small losses, snapping a 4-day winning streak in quiet trading in the next-to-last trading session of the year.  West Texas Intermediate (WTI) crude for Feb delivery fell 4¢ to end at $61.68 a barrel.  Mar Brent crude, the most-active contract, fell 20¢ (0.3%) to close at $66.87 a barrel.  Mon marked the expiration day of the Feb Brent contract, which was up 31¢ (0.5%) at $68.47 a barrel.  Both grades traded at their highest levels for most-active futures contracts since mid-Sep, when a drone attack on Saudi oil facilities caused crude prices to spike.  WTI crude, the US benchmark, & Brent, the global benchmark, are up around 11.8% & 10.4% this month, respectively.  That puts WTI on track for a 36% gain so far this year, while Brent is up around 24%.  Gains in Dec came after the US & China announced an agreement on a “phase one” trade deal that helped soothe worries over the global economic outlook & was credited with sparking a rally in equities & other assets perceived as risky.  OPEC & its allies earlier this month agreed to cut output by 500K barrels a day on top of its current reduction agreement, beginning in Jan.  Analysts said investors are also keeping an eye on developments in Iraq after news reports said protesters on Sat forced the temporary closure of the country's Nasiriyah oil field.  Also, US military forces conducted “precision defensive strikes” against 5 sites controlled by Kataeb Hezbollah, or Hezbollah Brigades, an Iran-backed Iraqi militia, a Defense Dept spokesman said.  The US has blamed the militia for a rocket barrage on Fri that killed a US defense contractor at a military compound near Kirkuk, in northern Iraq.

Oil ends slightly lower, snapping 4-day winning streak

The Dow began the day with heavy selling & remained deeply in the red for the rest of the session.  Volume was low.  Markets remain close to record highs & with an expected signing of phase one on the China trade deal later this week, the bulls are still in charge of the 2019 rally.

Dow Jones Industrials