Mixed markets as traders assess international trade

Dow went up 27, decliners over advancers about 3-2 & NAZ gave back 13.  The MLP index fell 1+ to the 279s & the REIT index dropped 3+ to the 348s.  Junk bond funds edged higher & Treasuries rose in price.  Oil fluctuated in the 75s (more below) & gold surged 18 to 1209.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

75.37

+0.07

+0.1%

GC=F

Gold

1,207.60

+15.90

+1.3%

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Stocks were flat, as traders contrasted political concerns in Europe & the new trade agreement involving the US, Canada & Mexico.  European assets sold off after an Italian party official made anti-€ comments & this uncertainty was hitting sentiment, stateside.  In European trading, London's FTSE traded lower by 0.5%, Germany's DAX fell 0.8% & France's CAC declined 1%.  Stocks surged yesterday to start the new qtr after Canada & the US reached a trade deal that also brings Mexico in on a trilateral agreement.  The Dow rallied 192 (0.7%) to 26,651 & the S&P 500 rose 10 (0.3%) to 2924.  The tech-heavy NAZ dipped 9 to 8037.

Stocks flat following trade-fueled rally

Kevin Hassett, chairman of the Council of Economic Advisers, said that the new trade deal with Mexico & Canada is a benchmark for future negotiations, especially with China.  The US & Canada announced a trade agreement that includes Mexico to replace the North American Free Trade Agreement.  The new pact will be named the US-Mexico-Canada Agreement.  According to Hassett, the pact will force China to come to the negotiating table.  “Right now there’s a lot of pressure on China,” Hassett said.  “And they see that we can actually make very smart, clever deals and get partners together and come up with a path forward that opens up our markets to each other and closes the back door into the U.S.”  Although some retailers have expressed concerns over potential price increases resulting from the tariffs, Hassett said consumers shouldn't worry about feeling the pinch.  “Don’t forget you can buy stuff from other countries besides China, not just the U.S.,” he said.  “And so as we were looking at the stuff to put the tariffs on for China we were studying things that had close substitutes and trying to do it in a way to put maximum pressure on them and minimum pressure on us.”  The new deal also unifies the US & its allies against China's unfair trade practices, like stealing intellectual property, in addition to speeding up negotiations.  “We also now have this really great deal that we can show to our trading partners like the European Union and say, ‘Hey you know if you copy this deal then we can be done tomorrow,” he added.  “And I think that’s going to help these things move very quickly.”  “I expect to see a lot of deals close over the next few months.”

New trade deal unites US allies against China: Kevin Hassett

PepsiCo (PEP), a Dividend Aristocrat, delivered better-than-expected Q3 earnings that showed signs of growing consumer demand for its teas, Gatorade, namesake cola & other beverages in North American.  The 16% surge in profits was a victory for Indra Nooyi on her last day as CEO, after years of facing pressure to sell or spin the company's beverage business as its growth has lagged behind the competition in packaged snacks.  While its snacks continue to command presence & sales in a crowded market, its beverages have grappled with slowing carbonated sales & competition from new upstart rivals.  To revive the business, PEP has picked 3 of its largest beverage brands, Gatorade, Pepsi & Mountain Dew, to throw its marketing $s behind.  Those efforts seem to have taken hold, with its North American beverage business posting organic growth of 2.5%, stripping out the impact of acquisitions & other variables.  Last qtr, it was down 1.5%.  "Splitting the entire company is something we took off the table a long time ago and are not revisiting that at all, based off the performance of the last six years we've proven the case that the business being together creates value," CFO Hugh Johnston said.  Still, the growth in beverage sales came at a cost.  Operating profit for its North American beverage business fell 11%, due to increased marketing expenses as well as rising transportation and commodity costs.  To cover higher expenses, PEP started raising beverage prices in Sep.  The results of those bumps will therefore be reflected in the next qtr.  Johnston added he expects the company's advertising & marketing spending for the beverage unit will stay consistent & it believes the units growth is "sustainable."  EPS rose to $1.75, up from $1.48 a year earlier.  EPS was $1.59 on an adjusted basis, which strips out fluctuations in commodities prices, restructuring costs & some tax issues, beating the $1.57 expected.  Net sales rose 1.5% to $16.49B, beating expectations of $16.36B.  The company expects revenue growth for the year of 3%.  It also said that a strong $ will negatively impact its fiscal year earnings by one percentage point.  As result, it anticipates EPS of $5.65 in fiscal 2018, up 8% from 2017.  The stock fell 1.12.
If you would like to learn more about PEP, click on this link:
club.ino.com/trend/analysis/stock/PEP?a_aid=CD3289&a_bid=6ae5b6f7

PepsiCo tops estimates and returns beverage business to growth on Nooyi's last day as CEO

Oil prices steadied but remained near their highest since Nov 2014 as markets braced for tighter supply once US sanctions against Iran kick in next month.  Intl benchmark Brent crude oil gained a penny to $84.99 per barrel after reaching a new 4-year high of $85.45 in the previous session.  West Texas Intermediate (WTI) crude futures rose a dime to $75.40 a barrel, having hit a nearly 4-year high of $75.91 earlier in the session.  Brent & WTI have roughly tripled compared with lows seen in Jan 2016, which prompted OPEC & allies led by Russia to curb oil supplies to rebalance an oversupplied market starting in Jan 2017.  Sentiment was lifted by a last-gasp deal to salvage NAFTA as a trilateral pact between the US, Mexico & Canada, rescuing a $1.2T a year open-trade zone that had been about to collapse.  More fundamentally, oil markets have been pushed up by looming US sanctions against Iran's oil industry, which at its most recent peak this year supplied nearly 3% of the world's almost 100M barrels of daily consumption.  A survey of OPEC production found Iranian output in Sep fell 100K barrels per day, while production from the group as a whole rose by 90K bpd compared with Aug.  The Trump administration set a deadline of Nov 4 for oil buyers to stop purchasing Iranian crude.  Many analysts expect OPEC will struggle to cover a decline in exports from Iran.

Oil trades near 4-year peak ahead of Trump's sanctions on Iran

The stock market is still waiting for Sep economic to be reported.  While the trade deal with Mexico & Canada looks goods, many other countries are being dealt with.  And China is the biggie with no solution in sight.  However the popular stock averages remain close to record highs.

Dow Jones Industrials

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Markets rise on new trade deal to replace NAFTA

Dow finished ahead 192 (but off session highs), decliners over advancers 2-1 & NAZ dropped 9 (almost than 100 below session's highs at the opening).  The MLP index gained a big 6+ to 281 (along with a strong oil market) & the REIT index rose to the 351s.  Junk bond funds went up & Treasuries remained weak.  Oil soared 2+ to the 75s (more below) & gold was off 2 to 1193.

AMJ (Alerian MLP Index tracking fund)

 

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Despite reaching a new trade agreement with Mexico & Canada over the weekend to replace the North American Free Trade Agreement, President Trump said at the White House the key US trading partners would still not be exempted from US steel & aluminum tariffs.  Trump said the tariffs would remain in place “until such time as we can do something that would be different, like quotas perhaps, so that our industry is protected. We are not going to allow our steel industry to disappear, it was almost gone.”  US Trade Representative Robert Lighthizer added that the tariffs are a completely separate issue from the trade deal as far as the administration is concerned.  He reiterated that the US is currently engaging in talks with the aim of preserving the current program & protecting industry needs.  Trump also said he is employing tariffs as a negotiating tactic, which were effective in helping solidify the USMCA.  “Without tariffs we wouldn't be talking about a deal,” he added.  Canadian Prime Minister Justin Trudeau said in Jun that the steel & aluminum tariffs were “insulting and unacceptable.”  Meanwhile, the pres said he would continue to employ tariffs on other countries only in instances where the governments are “absolutely not willing to do what’s fair and reciprocal.”  With regards to the EU, for example, he said the White House would “respectfully” put tariffs on cars if a satisfactory deal can’t be reached.  Trump also called out India for charging high tariffs on US exports, specifically Harley-Davidson (HOG) products.  In regards to China, Trump said the US could “go $267 billion more” when it comes to tariffs on products.  The 25% steel & 10% aluminum tariffs were implemented in Mar.  Some countries were granted exemptions, however Mexico & Canada did not make that list.

Trump says USMCA doesn’t lift steel, aluminum tariffs

Commerce Secretary Wilbur Ross said that the new trade deal with Canada & Mexico is a win for the American dairy industry.  The US & Canada announced that the 2 nations & Mexico had reached a deal to revamp the North American Free Trade Agreement, that would allow access to Canada's dairy market & protect Canada from potential US auto tariffs.  The new pact would be renamed the US-Mexico-Canada Agreement.  According to Ross the new deal eliminates the controversial Class 7 dairy policy that Canada created to boost domestic butter by raising the price for milk.  “It’s quite huge,” Ross said.  “We were already selling some $600 million a year of dairy product up there but the infamous Class 6 and Class 7, which [provoked] the big outcry last year, particularly when the president was out in Wisconsin, those classes are being gradually done away with.”  Ross added that there will be higher quotas on cheeses, poultry & eggs.  Along with other components, the new deal will also benefit the US, Canadian & Mexico's auto industries.  “I think it clearly vindicates President Trump’s trade policies because this is fundamental reform,” Ross said.  “Now, there’s no more NAFTA, there’s USMCA. So R.I.P NAFTA.”  Ross said he expects the deal to be signed within the next 60 days & he added that the ratification process may take longer.

Wilbur Ross: New NAFTA deal a 'win' for US dairy

White House economic advisor Larry Kudlow said that a trade deal with China is far from being reached.  “I would say frankly as the president has said he’s not been satisfied with the progress of those talks,” Kudlow said.  “[There] really hasn’t been much progress recently.”  However Kudlow hinted at a potential meeting between Trump & Pres Xi at the next G20 summit set for Nov.  “He has admiration for President Xi and they may, may perhaps, meet at the G20 in Buenos Aires later this year,” Kudlow said.  “But no, nothing is imminent on China but we are willing to talk if it’s substantial and significant and serious—always willing to talk.”  Although the discussions “have not been sufficiently detailed,” he said the talks, so far have been centered on corp ownership & IP theft.  “One of the key things... United States companies operating in China instead of joint ventures where the Chinese own the majority,” he said.  “We should own the majority, in fact, we should own all of it because that’s where the technology, the forced technology, transfers occur. Their board, they own the company, you have to put your blue print on the table -- that’s unacceptable.”

China trade deal far from being reached: Larry Kudlow

While the Trump administration takes a victory lap in the wake of the new trade agreement with Canada & Mexico, the relations between the US & China, the world's 2nd largest economy, continue to intensify.  In the latest sign of the increasingly fraught ties, the Pentagon has canceled Defense Secretary James Mattis' visit to China later this month.  For security purposes, the Pentagon does not discuss upcoming travel for the Defense secretary, which is why the visit to China, which was slated for mid-Oct, was unannounced.  The cancellation comes on the heels of a denied port visit for the USS Wasp to Hong Kong & a scrubbed engagement with China's top naval commander.  Much of the growing tension between the 2 nations is growing out of the South China Sea, which is home to key trade routes – & to an increasing Chinese military presence.  Navy Secretary Richard Spencer, the branch's top civilian, voiced concerns about China's continued militarization of the South China Sea saying the Navy will "protect the lanes of commerce at all costs."  "We will ply the internationally agreed upon open spaces of the ocean with our warships at all times to make sure that our commerce and our lanes of communication are open that is something we will always do," Spencer said.  "If China comes and joins the world and recognizes international rules and international law of order, we are going to have a great relationship," he added.  "If they take this position that they are going to use their laws and their understanding of how they're going to trade and protect their spaces, we are going to have to have some sort of discussion about this going forward."  Over the weekend a Chinese warship had what the Pentagon called an "unsafe" encounter with a US destroyer.  China links its economic security closely to the hotly contested waterways in the South China Sea, since more than 64% of its maritime trade transited thru the region in 2016.  The South China Sea is also a vital trade artery for Vietnam, Japan & South Korea.  Home to more than 200 specks of land, the South China Sea serves as a gateway to global sea routes where approximately $3.4T of trade passes annually.  The numerous overlapping sovereign claims to islands, reefs and rocks, many of which disappear under high tide, have turned the waters into an armed camp.  Beijing holds the lion's share of these features with approximately 27 outposts peppered throughout.

Defense Secretary James Mattis cancels trip to China as trade tensions get worse

US crude prices surged, hitting a nearly 4-year high on signs that sanctions are shrinking Iranian crude exports & as North American trade tensions ease.  West Texas Intermediate crude ended the session up $2.05 (2.8%) at $75.30, its best closing prices since Nov 24, 2014.  WTI hit a session high of $75.48, breaking thru this year's intraday peak in Jul.  Intl benchmark Brent crude was last up $2.31 (2.8%) at $85.04, having hit its highest since Nov 2014.  Oil prices rose after the US, Canada & Mexico announced they had agreed on a path forward for the North American Free Trade Agreement (NAFTA).  A trade dispute among the 3 trading partners has raised fears of a slowdown in growth that could impact oil demand.  The market was also bouncing on news that China's Sinopec has cut crude imports from Iran in ½ ahead of the Trump administration's Nov 4 deadline for oil buyers to stop importing Iranian supplies.  Questions have lingered about whether China, the world's 2nd biggest crude consumer, would comply with the US sanctions.  US sanctions on Iran, OPEC's 3rd biggest oil producer, are expected to wipe roughly 1M barrels a day off the market by the end of the year.

Oil surges above $75 to the highest level since November 2014

Today's headline is not quite accurate.  The Dow had a good day even though it closed well below session highs.  But after a strong opening, NAZ stocks were sold all day & it finished 70 below the highs.  And market breadth was very dreary.  Tesla (TSLA), sexy stock on NAZ, recovered 45 after founder Musk was fined by the SEC, i.e. a very confusing situation.  Tomorrow additional Sep data should be reported & traders will have a chance to better understand how the new trade deal may affect business in the US.  Today's trading suggests Oct could be very volatile month for stocks.

Dow Jones Industrials

Markets soar on new trade agreement with Mexico and Canada

Dow shot up 253, advancers over decliners a relatively modest 4-3 & NAZ gained 44.  The MLP index added 2+ to the 277s & the REIT index recovered 4+ to the 351s.  Junk bond funds rose along with stocks & Treasuries slid lower.  Oil went up pennies in the 73s & gold lost 6 to 1189.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

73.48

+0.23

+0.3%

GC=F

Gold

1,191.50

-4.70

-0.4%

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Stocks opened higher as Canada & the US reached a trade deal that also includes Mexico & key changes at the top of major corps boosted investor sentiment.  The US & Canada confirmed yesterday they had reached a deal on a "new, modernized trade agreement," which is designed to replace the 1994 NAFTA.  In a joint statement the 2 nations said the new deal would be called the US-Mexico-Canada Agreement (USMCA).  The agreements reportedly boost US access to Canada's dairy market & protect Canada from possible US autos tariffs.  In the Fri trading, stocks ended the final day of Q3 & month little changed despite declines in shares of Facebook (FB) & Tesla (TSLA).  The S&P 500 gained 7.2% in Q3, its best performance since the end of 2013, while the Dow climbed 9% & the NAZ rose 7.1%, extending its streak of gains to 9 consecutive qtrs.  All 3 major indices are within about 1% of their all-time highs.  In Asia, Japan's Nikkei rose to a 27-year high, ending the day rising 0.5%.  China's Shanghai composite & Hong Kong's Hang Seng are closed for holidays.  In Europe, London's FTSE traded higher by 0.1%, Germany's DAX was up 0.6% & France's CAC was up 0.3%.

US stocks surge as US, Canada, Mexico reach trade deal

The US & Canada agreed to a deal to replace the North American Free Trade Agreement shortly before a midnight deadline.  The 24-year-old NAFTA, which Pres Trump railed against as a disaster, will be replaced by the USMCA, the US-Mexico-Canada Agreement.  Trump tweeted his approval for what he called a "wonderful" trilateral agreement.  In a joint statement, US Trade Representative Robert Lighthizer & Canadian Foreign Affairs Minister Chrystia Freeland said the agreement "will strengthen the middle class, & create good, well-paying jobs & new opportunities for the nearly half billion people who call North America home."  The plan is for the leaders of the 3 North American countries to sign before the end of Nov, after which it would be submitted to Congress.  The negotiations between American & Canadian officials involved offering more market access to US dairy farmers, as well as Canada agreeing to an arrangement effectively capping automobile exports to the US.  A senior Trump administration official said the deal will "re-balance our trade relationship with Mexico & Canada," highlighting new rules on the origin of autos & market access to Canada's dairy sector.  The deal will also modernize what was covered by NAFTA by adding provisions on digital trade & intellectual property.  A US official also pointed to the prospect of enforcing the agreement, calling it "one of the most enforceable trade agreements we've ever had."  "This is going to be real, and it's going to change people's lives, and it's going to make the U.S. economy stronger and better," the official said.  The trade pact will come up for review every 6 years, which will give the US a "significant new form of leverage" to make sure the arrangement is to its liking, according to the senior American official.  "It's a good day for Canada," Prime Minister Justin Trudeau said.  "We celebrate a trilateral deal. The door closes on trade fragmentation in the region," Jesus Seade, trade negotiator for Mexico's incoming president, said via Twitter.

Canada and US reach trade deal to replace NAFTA

The Institute for Supply Management said that its manufacturing index fell to a reading of 59.8% in Sep from 61.3%.  The forecast was for a reading of 60.7%.  Any reading above 50% indicates improving conditions.  Separately, IHS Markit reported that its manufacturing purchasing managers index reached a 4-month high of 55.6 in Sep.  A reading of new orders fell 3.3 points to 61.8%, while production rose 0.6 points to 63.9%. The prices index fell 5.2 points to 66.9%.  As much as the industry is concerned about tariffs & rising prices, it appears output has been strong, as businesses spend on machinery.  Strong domestic demand, buoyed by rising wages, improving employment & lower taxes, seems to have buoyed the sector.  ISM said the past relationship between the headline index& the overall economy corresponds to a 5.1% annualized increase in GDP.

ISM manufacturing index in September falls slightly on concerns over tariffs, supply issues

Peter Navarro, one of Pres Trump's top trade advisors, said the last-minute deal to bring Canada on board to replace NAFTA shows that the US won't be the world's "piggy bank" anymore.  "It's a bullish day for America. It's a bullish day for North America," he said.  "When countries come to the table and bargain fairly, we sign deals," said Navarro.  "Trump has basically declared that we will no longer be the piggy bank of the world. We are free traders. All we seek is free and reciprocal trade."  Trump advisor Jared Kushner & Robert Lighthizer, the administration's top trade negotiator, took point on the talks.  "President Donald J. Trump was the visionary on this. He was very involved," said Navarro.  He said Lighthizer & Kushner worked well as a team & "should be congratulated for bringing this to the finish line."  Leaders of the three countries are expected to sign the NAFTA replacement before the end of Nov.  "But [it] won't be ratified for many months after," Navarro said.  Canada had been as left out when the US & Mexico reached a preliminary deal in late Aug.  Navarro declined to say what the new pact, called the US-Mexico-Canada Agreement, might signal to China as the DC & Beijing still grapple with a trade dispute that's resulted escalating tariffs.  But he did accuse China of intellectual property theft & appropriating US technology by forcing American companies that want to do business there into joint ventures with Chinese companies.  China's trade practices harm the global economy, Navarro added.

Trump aide Peter Navarro: NAFTA replacement signals the US is no longer the world's piggy bank

The new trade deal (which must be approved by Congress) brought out buyers.  However, market breadth was not impressive.  The popular averages are within spitting distance of setting new records & Sep data coming this week should be encouraging.

Dow Jones Industrials