Markets skyrocket on US-China trade optimism

Dow shot up 372, advancers over decliners a relatively mild 2-1 & NAZ advanced 139.  The MLP index rose fractionally to a depressed 231s & the REIT index gave back 3+ to the 407s.  Junk bond funds fluctuated & Treasuries were heavily sold today.  Oil was off pennies in the 56s & gold sank 33 to 1527 for its worst daily loss in years (more below).

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The more than yearlong trade war between the US & China is shaking up supply chains all over the world.  An analysis looked at a sample of more than 50 manufacturers that have already left China in order to avoid Pres Trump's tariffs & found the departures will have huge implications for the Chinese economy.  Companies leaving China, including manufacturers of electronics, apparel & electrical equipment, are heading to neighboring Vietnam, Taiwan & Thailand in droves.  They're also reloacting in places like Mexico & the US.  It's not just foreign companies that are leaving China.  Local ones are leaving, too.  The Huizhou-based electronics maker TCL & the Zhejiang-based yarn producer Zhejiang Hailide New Material are among the Chinese companies that are relocating factories to Vietnam.  Some companies, like Lite-On Technology, have cited the trade war morphing into a technology war as reason for leaving China.  A continued exodus of companies will put further pressure on Beijing to reach a trade deal when talks start up again in Oct.  Beijing was already grappling with economic headwinds before the trade war began when Pres Trump on Mar 1, 2018, announced tariffs on imports of steel & aluminum.  China's economy grew in a tight range between 6.6-6.7% for the 2 years from mid-2016 to mid-2018, before slowing to a 6.2% growth rate in Q2.  The Chinese economy is expected to slow even further, especially if the trade war drags on.

Trade war causing companies to flee China

Private employers added 195K jobs in Aug, according to the latest ADP National Employment Report, surging past expectations for 149K even as recession fears continue to mount.  Most hiring took place in the service-providing sector, with 184K new jobs created.  Manufacturing hiring remained fairly steady, with 8K jobs added.  It was the best month for private-sector hiring since Apr, which saw 255K new jobs added.  The better-than-expected number could help to temper fears that the record-long economic expansion is coming to an end.  “Businesses are holding firm on their payrolls despite the slowing economy," Moody's Analytics chief economist Mark Zandi said.  "Hiring has moderated, but layoffs remain low. As long as this continues recession will remain at bay.”  Zandi estimated the economy created 100K jobs per month on average.  If the trade war does not continue to weigh on the health of certain sectors, like agriculture & transportation, the economy could avoid a recession.  "If nothing else goes off the rail, we should be in pretty good shape," he said.  "The expansion should continue on for the foreseeable future. We should be fine."  Pres Trump touted the number in a tweet, following the release of the data: "Really Good Jobs Numbers!"

Private sector hiring rebounds in August with 195,000 added

Gold prices dropped, posting their largest one-day $ loss in almost 3 years to settle at a 2-week low.  News that the US & China agreed to work toward a fresh round of trade talks next month provided a boost to US & global stock markets & a stronger-than-expected private-sector employment data also helped to ease worries about a slowdown in the economy, damaging the metal's haven appeal.  Gold for Dec fell $34.90 (2.2%) to settle at a 2-week nadir of $1525 an ounce, giving up the roughly 2% gain it scored over the past 2 trading sessions.  Prices marked their biggest single-session percentage decline since Jun 2018 & largest daily $ loss since Nov 2016.  US & Chinese negotiators will meet in early Oct, the Chinese Commerce Ministry said.  The talks are aimed at ending a long-running trade war that has heightened worries about the global economic outlook & stoked recession fears.  Those concerns & a number of other geopolitical worries, including the prospect of a messy UK exit from the EU, have been credited with lifting gold, a traditional haven that tends to appreciate during periods of rising uncertainty.  Gold is up around 20% YTD & earlier this week hit the latest in a string of more-than-6-year highs.  Rising trade optimism fed a rally in US stocks, drawing investor interest away from gold as the Dow moved sharply higher today.  European & Asian benchmark stock indices finished mostly higher.

Gold logs biggest daily dollar loss in 3 years on China trade optimism, upbeat private-jobs data

US service-sector activity in Aug grew more quickly than in Jul, according to the Institute for Supply Management's nonmanufacturing index.  The report, based on a survey of purchasing managers, provides a sense of business conditions for the country's service providers, which include businesses like restaurants, banks & consulting firms.

U.S. Service-Sector Activity Picked Up in August

The Dow jumped higher out of the gate today & never gave up that advance.  Optimism about trade talks is running extremely high.  If the talks won't be held until next month, that means there will be several weeks of waiting for developments.  And that will include the big Fed meeting in a couple of weeks. The Dow is closing in on its mid Jul record but will need more help from additional good news to reach a new record..

Dow Jones Industrials

Markets jump on economic data and improving trade talks

Dow surged 477, advancers over decliners about 3-1 & NAZ soared 155.  The MLP index added 2+ to the 233s & the REIT index were off 2 to 409 following its recent rally.  Junk bond funds were mixed & Treasuries dropped in price, bringing higher yields.  Oil rose to 57 & gold pulled back 37 to 1523 while stocks were being purchased.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

56.70

+0.44

+0.8%

GC=F

Gold

1,536.00

-24.40

-1.6%

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Stocks  jumped following better-than-expected jobs data & news that US & Chinese trade negotiations have set another round of talks for next month.  Private employers added 195K jobs in Aug, according to the latest ADP National Employment Report, surging past expectations of 149K even as recession fears continue to mount.  Most hiring took place in the service-providing sector, with 184K new jobs created.  Manufacturing hiring remained fairly steady, with 8K jobs added.  Pres Trump celebrated the "really good jobs numbers"  in a tweet:  The data bodes well for the employment report due tomorrow.  Employers are expected to have created 158K jobs in Aug, slightly less than the prior month & the unemployment rate is expected to hold steady at 3.7%.  Easing of tensions in Hong Kong also boosted markets as Hong Kong leader Carrie Lam withdrew an extradition bill that had led to months of violent protests.  In Europe, London's FTSE traded lower by 0.6%, the German Dax added 0.9% & France's CAC traded up 0.9%.

Stock rally rolls on fueled by jobs, trade progress

On the heels of the Commerce Dept's announcement it is imposing anti-dumping tariffs on certain steel from China & Mexico, officials from the Mexican gov downplayed the move.  Mexico said the tariffs are part of a normal investigation & added that the "investigation in question is ongoing and the final outcome from the Commerce Department is expected at the end of January 2020."  US Commerce officials said that a preliminary review found that China & Mexico had "dumped" certain fabricated structural steel on the US market.  Anti-dumping traditionally occurs when a foreign manufacturer sells goods in the US for less than the fair market value & causes harm to US-based companies.  The new tariffs will focus on fabricated steel often used in major building projects.  Steel fabrication is the process of combining different manufactured structural steel parts through welding, assembling or fabricating.  These tariffs latest salvo the Trump Administration's trade war with China, with each country imposing tariffs on each other in retaliation.  Some tariffs on everyday items, like clothing & footwear, could cost the average household several hundred $s a year.  Tariffs on products like steel are harder to estimate a cost for the average consumer -- but have the potential to affect car prices & loss of jobs in the auto industry.  "The strict enforcement of U.S. trade law is a primary focus of the Trump Administration," according to the statement.  "Since the beginning of the current administration, Commerce has initiated 182 new antidumping and countervailing duty investigations — a 231% increase from the comparable period in the previous administration."

Mexico responds to US 'anti-dumping' tariffs on steel

The previous 18 months of trade talks between the US & China have only led to more tit-for-tat tariffs, but this time it might be different, according to Chinese sources who seem to have inside knowledge on the trade war.  China's Ministry of Commerce confirmed the 2 countries held a phone call today & agreed to meet in early Oct in DC.  This would mark the 13th round of trade negotiations after both sides slapping tariffs on Bs of $s worth of each other’s goods.  “There’s more possibility of a breakthrough between the two sides,” said Hu Xijin.  Hu is editor-in-chief of the Global Times, a tabloid under the People's Daily, which is the official newspaper of the Communist Party of China.  His Twitter account has been followed by many traders & market participants for insight on the trade war.  Hu has been spot on with the recent developments in the escalated trade war.  Most recently, he had warned about the Chinese retaliation against Pres Trump's tariffs just hours before the Chinese made the official announcement.

Reliable China insiders hint that this round of trade talks could lead to a ‘breakthrough’

Factory orders rose 1.4% in Jul, for the 2nd straight monthly gain, the Commerce Dept said.  The increase was led by volatile civilian aircraft orders, primarily Boeing  (BA), a Dow stock).  The forecast called for a 1.2% increase.  Orders in the prior month were revised to a 0.5% gain from the prior estimate of 0.6%.  Durable goods orders rose 2% in Jul, revised down slightly from last week's initial estimate of a 2.1% gain.  Orders for nondurable goods rose 0.8%.  Core factory orders, excluding defense goods & civilian aircraft, rose a revised 0.2% in Jul, down from the initial estimate of a 0.4% gain.  Shipments of core goods fell 0.6% in Jul.

U.S. factory orders rise for second straight month in July

Stocks had a rough time on the first day of trading in Sep.  Since then, buyers have returned on hopes for a deal coming from trade talks.  Economic data for Jul/Aug has also been been favorable.  Dow is up an impressive 700 in the last 2 days.  The bulls have the challenge of extending this rally.  The Dow needs another 600 to reach yet another record.

Dow Jones Industrials

 

Markets climb after Beige Book report

Dow jumped 237, advancers over decliners about 4-1 & NAZ gained 102.  The MLP index went up 1+ to the 231s & the REIT index added 2+ to 411.  Junk bond funds rose in price & Treasuries crawled a little higher, bringing lower yields.  Oil surged 2+ to the 56s & gold added 6  to 1562, a new 6+ year high.

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The US economy expanded at a modest pace from Jun-Aug, despite looming concerns about the US-China trade war, according to the Federal Reserve's Beige Book.  Almost all of the Fed's 12 districts reported modest growth over the past few months, the Fed said in its region-by-region roundup of anecdotal information known as the Beige Book.  The report, prepared by the Federal Reserve Bank of St Louis, was based on information collected thru Aug 23.  "Although concerns regarding tariffs and trade policy uncertainty continued, the majority of businesses remained optimistic about the near-term outlook," the report said.  Overall, wages grew at a modest pace, on par with the previous reporting period.  Employment varied across industries, but manufacturing -- often used as a telltale sign of an impending recession -- remained relatively flat across the different districts.  Since the last reporting period, districts indicated modest price increases, with retailers & manufacturers reporting slight increases in input costs.  Some districts anticipated tariffs -- currently, the US imposes a tariff on more than $350B worth of Chinese goods, with more to come -- won't directly affect consumers for a few months.  The most recent round, however, — a 15%t tariff on $112B worth of goods, most of it concentrated on items like footwear, clothing & textiles — spurred fears about how the trade war will ultimately affect American consumers.  Until then, most US imports of clothing & shoes from China have been spared.  Meanwhile, agricultural conditions remained weak -- a direct result of bad weather, low commodity prices & trade uncertainties.  Consumer spending appeared mixed across the districts, although auto sales were fairly solid across the board.  Policymakers at the central bank will study the report ahead of their Sep 17-18 FOMC meeting, during which they're widely expected to lower interest rates by a modest qtr of a percentage point.  In Jul, the Fed voted to lower the interbank lending rate for the first time since the financial crisis.

FED BEIGE BOOK REPORTS MODEST SUMMER GROWTH, DESPITE RECESSION FEARS

China officially filed a complaint with the World Trade Organization in response to the US raising tariffs from 10% to 15% on $300B of Chinese goods.  In its complaint, China asks the WTO to facilitate “consultations” with the US to reduce or end the tariffs.  The filing comes after the US on Sun put tariffs on $112B worth of Chinese goods, including footwear, clothing & textiles.  The new tariffs mean 69% of consumer goods will face an import duty, up from 29%.  China responded to the tariffs by hitting $75B of US goods with additional tariffs, including for the first time putting a 5% tariff on crude oil.  The US & China have been engaged in a tit-for-tat trade war that has gone on for more than a year.  The US has slapped tariffs on more than $350B of Chinese goods & has plans to levy taxes on roughly another $200B of goods.  China has put tariffs on $185B of US goods.  "They want to make a deal," Pres Trump said at the White House, when asked about China & trade.  "We’ll see what happens.”

China slaps US with trade war complaint

Gold futures shook off earlier losses to finish at a fresh 6-year peak, buoyed by economic worries & weakness in the $.  Dec gold added $4.50 (0.3%) to settle at $1560 an ounce, after surging 1.7% yesterday, closing around the highest for a most-active contract since Apr 2013   Prices for the yellow metal had spent part of the session trading lower, pressured by a rebound in global equity markets on the back of signs that tensions in Hong Kong, a source of global anxieties, were momentarily easing.  Coloring financial trading earlier in the day was the announcement by Hong Kong leader Carrie Lam, that said she would formally withdraw the extradition bill that sparked a months long series of demonstrations that hurt the territory's economy & threatened to disrupt global financial markets.
 

Gold settles higher, extends climb to 6-year high; silver ends at loftiest level since 2016

Data from the Beige Book report was reasonably good.  More Aug monthly data is coming in the next few days along with the jobs data on Fri.  Chances are that the numbers will be mediocre, good but short of great as the US-China talks drag on.

Dow Jones Industrials