Mixed markets after stocks had an outsanding run in Aug

Dow fell 223, decliners over advancers better than 2-1 & NAZ gained 79 to another record.  The MLP index gave back 2+, down to the 125s, & the REIT index continued down 2+ to the 359s.  Junk bond funds were steady & Treasuries rose in price bringing higher yields.  Oil was flattish just under 43 & gold was little changed at 1975 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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Supply chain disruptions as a result of the coronavirus pandemic are putting a damper on Labor Day weekend sales.  Americans in the markets for new appliances & waiting until the unofficial end of summer to get a deal on dishwashers, refrigerators, washer-dryers & other big-budget household items may have to hold out longer for a bargain, industry experts say.  Warehouses & factories that manufacturer appliances across the country were operating at 50% capacity as a result of nationwide COVID-19 restrictions in Mar & Apr.  General Electric ( GE) said it paused plant operations for a week at the beginning of the coronavirus pandemic to enhance safety measures inside the facilities including social distancing, sanitization & temperature checks for workers.  LG's factory in Clarksville, Tenn. also had to stop production at its plant for a few weeks in Apr, but has since resumed, the company said.  Local retailers are also seeing fewer deals ahead of the holiday weekend compared to last year.  Designer Appliances based in NJ said GE offered promotion pricing on around 330 appliance models last year & now they've only received 25.  With more Americans working from home during the pandemic, there's been an uptick in home improvement projects with more shoppers frequenting stores like Lowes (LSS) & Home Depot (HD), a Dow stock.  LSS saw in-store visits spike in Apr 14% year-over-year & 30% & 25.8% in Jun & Jul months.  HD, meanwhile, saw visit growth of 19.1% & 19% year-over-year in Jun & Jul.  While Labor Day weekend is a big end of the season sales driver, retailers are likely to take a hit this year too.  The apparel sector as a whole was down 25.7% for visits year-over-year the week beginning Aug 17, while foot traffic to shopping centers was down 25% overall.  Some industry experts suggest shoppers hold off buying a new appliance to wait until closer to the holidays.

Labor Day weekend sales impacted by appliance shortage, supply disruptions

The number of confirmed US cases of the coronavirus that causes COVID-19 edged above 6M today, & the head of the Food & Drug Administration (FDA) said he would not be pressured to rush out a vaccine by Pres Trump before the Nov presidential election.  Dr Stephen Hahn, FDA Commissioner, said that his agency may make a vaccine available before Phase 3 trials have been completed, but only if it is convinced that the benefits outweigh the risks.  Hahn suggested it could do so using its emergency use authorization (EUA), which is not a full approval, but could be put into effect for certain groups, such as health care workers.  “We have a convergence of the Covid-19 pandemic with the political season, and we’re just going to have to get through that and stick to our core principles,” Hahn said.  “This is going to be a science, medicine, data decision. This is not going to be a political decision.”

Coronavirus update: U.S. case tally edges above 6 million and FDA head says he won’t be pressured to rush out a vaccine

4 of China's 5 largest state-owned banks said they have increased their provisions against bad debt to brace for future losses due to the impact of the global coronavirus pandemic.  All 5 reported their biggest profit falls in at least a decade & an increase in soured loans when announcing their ½-year results last week.  The results highlight the impact of the pandemic & the economic slowdown on Chinese banks as borrowers struggle to repay debt after months of lockdown & some sectors, such as those in the travel industry, labour to survive on lingering COVID-19 fears.  Amid the grind, China's banks have been asked to step up & lend to flagging sectors while sacrificing profits in a bid to revive the country's fortunes.  Agricultural Bank of China (AgBank) said “the lagging impact of the epidemic and the risk of uncertainty are expected to be further transmitted to the banking industry,” in its ½-year results.  China Construction Bank (CCB), the country's 2nd-largest lender by assets, said it plans to assess credit risks and up provisions, just as Bank of China (BoC) said the same.  Even more directly, Bank of Communications (BoCom) said it had boosted “provisions to counter the future impact of the pandemic.”  Q2 loan-loss provisions were up 61% to 436% compared to the same period last year at ICBC, CCB, AgBank & BoC, showed data from China Intl Capital Corp (CICC).  The crater in H1 profit was mostly down to provisioning ordered by regulators, said CICC, noting that Q2 profit would otherwise have been 1.5% to 5.1% for those 4 lenders.

Four of China's five largest state-owned banks prepare for bad debt from COVID-19

Gold futures ended higher, buoyed by weakness in the $, but prices still finished a bit lower for the month in the wake of 5 consecutive monthly gains.  Overall, bullion continues to be viewed as a haven in the face of the COVID-19 pandemic, & the precious metal drew increased attention last week after the Federal Reserve said it is shifting to a policy of average inflation targeting, which would effectively see policy makers end the practice of pre-emptively hiking interest rates to stave off inflation.  That setup is viewed as a bullish one for gold, which is viewed as a hedge against rising inflation.  Expectations for a low-rate regime in the US & in much of the developed world,& softness in the $ also has boosted appetite for gold.  Dec rose $3 (0.2%) to settle at $1978 an ounce.  Hope for some pickup in economic activity, amid optimism over potential coronavirus treatments, also has boosted appetite for silver, which is viewed as both an industrial and precious metal.  China’s official gauge of business activity expanded faster in Aug, with the nonmanufacturing purchasing managers index rising to 55.2, compared with 54.2 in Jul.  For the month of Aug, gold lost 0.4%.

Gold prices end higher, but most-active prices suffer first monthly loss in 6 months

Oil futures rose, ending Aug with an upbeat note after data showed a stronger-than-expected pickup in China's service sector.  West Texas Intermediate (WTI) crude for Oct rose 17¢ (0.4%) to $43.14 a barrel.  The new front-month Nov Brent crude contract was 21¢ higher, a gain of 0.5%, at $46.02 a barrel.  Based on the most actively traded contracts, US benchmark WTI crude had a monthly gain of 7%, which would represent a 4th straight monthly climb.  Brent, the global benchmark, had a 5% rise, its a 5th monthly climb in a row.  Oil's gains have accompanied a global rally in equities that has the US market on track for its strongest monthly gain in more than 3 decades, as well as a sliding $.  OPEC & their allies (OPEC+ alliance of producers) has largely complied with its self-imposed production curbs.  Meanwhile, the $ has continued to weaken versus major rivals.  A weaker $ is seen as supportive to commodities priced in the currency, making them less expensive to users of other currencies.  Meanwhile, oil bulls were cheered by data out of China.  The country's official nonmanufacturing purchasing managers index rose 55.2% in Aug, up from 54.2 in Jul.  The Aug reading was the 6th consecutive expansion after the gauge in Feb was fell well below the 50 mark, which separates expansion from contraction.

Oil futures end lower for the session; U.S. prices up a fourth month

Dow was little moved today in the red while NAZ rose to another record.  The stock indices had very big gains in Aug while the US economy is still stumbling along trying to defeat the virus & reopen the economies.  In the last 12 months, the Dow had a limited gain while NAZ went up over 30% powered by the big name tech stocks.  Apple (AAPL) had a stellar rise in the last 12 months, contributing to the advances by the Dow & NAZ.

Dow Jones Industrials

Markets drift lower after Laura cuts oil and gas production from the Gulf

Dow dropped 280, decliners over advancers 2-1 & NAZ was up 24.  The MLP index fell 2 to the 125s & the REIT index was off 3+ to 359.  Junk bond funds fluctuated & Treasuries inched higher.  Oil crawled higher to the 43s & gold slid back 2 to 1972.

AMJ (Alerian MLP index tracking fund)
 

CL=F

Crude Oil

43.13

+0.16

+0.4%

GC=F

Gold

1,978.60

+3.70

+0.2%

 

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The Federal Reserve will not raise interest rates just because the unemployment rate is falling, the central bank’s vice chair, Richard Clarida, said.  In a wide-ranging speech that addressed a major policy shift in Fed thinking, Clarida also said he & his fellow officials do not see negative interest rates as a viable option now & doubt the effectiveness of yield curve controls, though that could change.  He also acknowledged that policy may have gone astray in the past by following models that were not effective in a world where lower interest rates will be the norm.  “My colleagues and I believe that this new framework represents a critical and robust evolution of our monetary policy strategy that will best equip the Federal Reserve to achieve our dual-mandate objectives on a sustained basis in the world in which we conduct policy today and for the foreseeable future,” Clarida said.  Chair Jerome Powell last week outlined a series of new initiatives from the Fed that mark a change in the way the central bank has approached inflation & unemployment, the 2 pillars of its policy mandate.  Most critically, the Fed intends to allow inflation to run higher than the traditional 2% target before it will increase short-term interest rates, which currently are anchored near zero.  The purpose will be to help achieve the full employment aspect of the dual mandate.  In the past, when the Fed saw unemployment falling it assumed inflation was on the horizon & thus hiked rates preemptively.  The new policy will seek an average inflation rate of 2% over time, meaning that the Fed will allow it to run hot if it has been below the target for a period. Inflation has been running below 2% for most of the time since the last recession, & the Fed has run into credibility issues over whether it can lift the level to a point that it thinks is characteristic of an economy growing at a healthy pace.  “This change conveys our judgment that a low unemployment rate by itself, in the absence of evidence that price inflation is running or is likely to run persistently above mandate-consistent levels or pressing financial stability concerns, will not, under our new framework, be a sufficient trigger for policy action,” Clarida said.  He acknowledged that the models the Fed had followed in the past that indicated wages & inflation would rise because more people were working “can be and have been wrong” & that hiking rates just because a model indicates inflation is coming “is difficult to justify.”  However, Clarida stopped short of advocating negative rates to spur inflation, saying that Fed officials do not seem them “as an attractive policy option.”  He said yield curve controls could be implemented if “circumstances changed markedly” but are not on the table for now.

Fed’s Clarida says rates won’t rise just because unemployment falls

US oill industry operators in the Gulf of Mexico are still reeling from the recent passage of Hurricane Laura as output remains down 70%.  The Bureau of Safety & Environmental Enforcement said as of yesterday, personnel remain evacuated from 137 of the region’s 643 manned platforms.  Their absence has caused an estimated 70% dip in crude oil production, amounting to around 1.29M barrels per day, it added.  “Once all standard checks have been completed, production from undamaged facilities will be brought back online immediately,” the Bureau said.  “Facilities sustaining damage may take longer to bring back online.”  The Bureau is also estimating that natural gas output in the Gulf of Mexico remains down 50%.  “As part of the evacuation process, personnel activate the applicable shut-in procedure, which can frequently be accomplished from a remote location,” it added.  “This involves closing the sub-surface safety valves located below the surface of the ocean floor to prevent the release of oil or gas, effectively shutting in production from wells in the Gulf and protecting the marine and coastal environments."  Overall, facilities in the Gulf of Mexico account for 17% of America's crude oil production & 5% of its natural gas production.  Gas prices nationally have risen as well, with a gallon now costing an average of $2.23, up from $2.19 a week ago, according to AAA.

Gulf of Mexico oil output down 70% following Laura, data shows

The Trump administration has cracked down on popular Chinese apps TikTok & WeChat but has more apps in its sights, White House trade adviser Peter Navarro said.  "It is critical that this country not use apps that are made in China, or that can take our data and go to servers in China. That data will be used to survey, monitor and track you," Navarro added.  "That's the policy position underlying why we have gone after TikTok and WeChat, and there will be others because China ... is basically going out around the world trying to acquire technology and influence."  The Trump administration is worried about TikTok parent company ByteDance & its ties to China.  Pres Trump issued an exec order on Aug 6 banning TikTok in 45 days, prompting the app to frantically search for an American bidder.  The pres signed an additional exec order on Aug 6 partially banning WeChat, a Chinese-owned social media platform that facilitates messaging, social media & payment transactions.

After TikTok takedown, Trump admin will target other companies, top adviser says

Laura did substantial damage to energy production in the Gulf.  However the energy companies are used to dealing with nature & can able to rebound quickly.  Aug has been an outstanding month for the Dow & the stock market in general.  The Dow is still up about 2K in Aug & up about 10K since the depression lows in late Mar.  Investors continue to be optimistic about the economist.

Dow Jones Industrials

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Markets extend gains after Fed's policy change announced yesterday

Dow jumped 161 (not far from session highs), advancers over decliners 2-1 & NAZ went up 70 to a new record.  The MLP index rose 2+ to the 127s & the REIT index added 1+ to the 361s.  Junk bond funds continued higher & Treasuries were also higher.  Oil was off pennies taking it under 43 & gold rocketed ahead 39 to 1972 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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An effort to resume coronavirus relief talks between White House officials & top Dems stalled this week, with House Speaker Nancy Pelosi saying it's fruitless to revive the negotiations until the GOP agrees to a $2.2T price tag.  She spoke with White House chief of staff Mark Meadows for 25 minutes yesterday for the first time in close to a month, since the stimulus package efforts collapsed.  But she said the 2 sides remain at a "tragic impasse" over another round of emergency aid.  "We have said again and again that we are willing to come down, meet them in the middle — that would be $2.2 trillion," Pelosi said.  "When they're ready to do that, we'll be ready to discuss and negotiate. I did not get that impression on that call."  One of the biggest points of contention between the parties is the cost of the proposal.  Dems have offered to come down $1T from the roughly $3T HEROES Act, which the House passed in May.  But the White House & Rep leaders want to keep the price tag closer to $1T amid growing concerns over the nation's ballooning deficit.  “That could be a very short conversation if they’re not willing to meet in the middle,” Pelosi said.  “We’re not budging. They have to move."  Treasury Secretary Steve Mnuchin has called the $2T figure a "non-starter," & has urged Dems to return to the bargaining table & compromise on a $1T package.  Senate Reps are trying to finalize a smaller aid package, which is expected to include $300 in extra weekly federal unemployment benefits until Dec 27, another round of money for the Paycheck Protection Program & an additional $10B for the Postal Service & liability protections.  The proposal would also allocate additional funding for schools & education.  The revised measure, which is expected to cost somewhere around $500B, would represent a scaled-back version of the $1T HEALS Act introduced by Reps at the end of Jul.  Senate Majority Leader Mitch McConnell has suggested that at least 20 Rep senators will not support the HEALS Act.  “I think we’re going to take another shot at it," Sen. Marco Rubio said.   "We're very close to having a bill that Republicans are prepared to move on, hopefully as early as next week."

Pelosi declares stimulus talks at 'tragic impasse,' says GOP must agree to this

Global sales at Japanese automakers slipped 12.2% in Jul from last year, the 5th straight month of losses, as demand for cars remains sluggish after factories & dealerships reopened following coronavirus-related lockdowns earlier this year.  The country's 7 major automakers sold a combined 2.01M vehicles last month based on sales data released by the companies.  The decline in monthly sales has slowed significantly since a 50% drop posted in Apr, & compared with a 21.3% fall in Jun.  Sales in China increased on the year for most automakers, while Toyota (TM), the country's biggest automaker, also saw growth in Europe.  Total global production at Japan's 7 major automakers fell 14.4% year-on-year to 1.99M units last month, improving from a 26.1% tumble in Jun.  Global demand for cars has been weak since Mar due to virus-related stay-at-home orders in many countries, which led to a drop in visits to car dealerships & potential customers also reconsidered big purchases.  Many countries have been easing the lockdown restrictions, but industry experts anticipate that it could take up to 5 years for demand to recover to 2019 levels.

Japan automakers post 12% slide in July global vehicle sales

Coca-Cola (KO), a Dow stock & Dividend Aristocratic, announced a major global reorganization of its workforce that will lead to thousands of job cuts & buyouts for employees in the US & Canada.  The beverage giant said that in order to "minimize the impact" from the structural changes, it will offer voluntary separation packages to 4K employees working in the continental US, Canada & Puerto Rico that were hired on or before Sep, 2017.  The company is forecasting its overall global severance program will cost $350-550M.  KO has more than 86K employees worldwide of which more than 10K were in the US.  "We have been on a multi-year journey to transform our organization,"  CEO James Quincey said.  "The changes in our operating model will shift our marketing and drive more growth and put execution closer to customers and consumers while prioritizing a portfolio of strong brand and a disciplined innovation framework. As we implement these changes, we're continuing to evolve our organization, which will include significant changes in the structure of our workforce."  The company also announced that 9 new divisions will replace 17 business units & will focus on scaling new products while getting rid of the duplication of resources.  KO had one of its worst qtrs in its 134-year history this spring as the COVID-19 crisis closed down theaters, restaurants & sporting events.  The company gets about ½ of its sales from public events.  Q2 revenue fell 28% to $7.2N & net income dropped 32% to $1.8B from a year earlier.  KO has more than 500 brands of beverages in more than 200 countries & territories.  Its portfolio includes Dasani, Minute Maid, SmartWater & Sprite.  The stock advanced 1.59.
If you would like to learn more about KO, click on this link:
club.ino.com/trend/analysis/stock/KO?a_aid=CD3289&a_bid=6ae5b6f7

Coca-Cola plans layoffs, offers 4,000 buyouts amid global reorganization

Gold futures rose, leaving prices higher to end the week, after the Federal Reserve announced a policy shift yesterday that would allow employment & inflation to run hotter than in the past, implying that the central bank may keep benchmark interest rates lower for longer.  The Fed is shifting to a policy of average inflation targeting which would effectively see policy makers end the practice of preemptively hiking interest rates to stave off inflation.  Instead, the Fed would allow inflation to run above its 2% target to make up for periods when inflation runs below it — signaling that a long period of ultralow interest rates lies ahead.  After volatile trading yesterday, which briefly sent bullion surging higher immediately after the announcement by the Fed, gold ended sharply lower, with investors attributing that decline to investors profit-taking & attempting to interpret the implications of the historic move by the Fed.  Against that backdrop, Dec gold rose $42 (2.2%) to settle at $1974 an ounce.  For the week, gold saw a weekly rise of 1.4%.  Gold prices have been mostly marching higher as investors purchase precious metals as a perceived safe play against the uncertainty created by the COVID-19 pandemic.  Responses to the deadly disease by govs & central banks have also bolstered appetite for gold, which is seen as a hedge against money printing & an asset the prospers in a low-rate environment.  In US economic reports, data on personal-consumption expenditure rose 0.3% in Jul, while core inflation for the month rose 0.3%, & a reading of consumer spending rose 1.9% last month, while personal incomes climbed 0.4% in Jul.  The final consumer sentiment survey in Aug, meanwhile, rose to 74.1 from a preliminary reading of 72.8, according to the Univ of Mich.

Gold turns higher for the week as investors parse Fed’s historic policy shift

Oil futures ended modestly lower, but tallied a weekly gain a day after Hurricane Laura made landfall on the Gulf Coast as a Category 4 storm but refineries were spared from extensive damage.  West Texas Intermediate crude for Oct fell 7¢ to settle at $42.97 a barrel.  Based on the front-month contracts, prices saw a weekly climb of 1.5%, which represents their 4th weekly rise in a row.  Oct Brent crude, the global benchmark, lost 4¢ at $45.05 a barrel, ahead of the contract's expiration at Mon's settlement.  For the week, front-month contract prices climbed by 1.6%.  Hurricane Laura was responsible for at least 6 deaths & caused extensive damage as it came ashore & moved inland yesterday.  However, production from oil rigs in the Gulf of Mexico & activity at refiners in the Gulf Coast, the heart of the US oil-processing industry, was expected to rebound quickly.  Baker Hughes reported a decline of 3 in this week's number of active US oil rigs.  Last week, it was up by 11 rigs, following 3 weeks of declines.

Oil prices edge lower, but tally a weekly gain after Hurricane Laura spares refineries

Stocks keep climbing higher led by tech shares on the NAZ which is up an astounding 30% YTD.  Meanwhile, the Dow eked out a gain of 115 (pretty much even).  Investors are not disturbed very much by the incomplete work on fighting off the virus or difficulties on opening up the economy.

Dow Jones Industrials