Markets drift lower on coronavirus concerns

Dow dropped 174 from yesterday's record close, decliners over advances 2-1 & NAZ fell 25.  The MLP index was off 1+ to 201 & the REIT index fluctuated in the 417s.  Junk bond funds did little & Treasuries were bid higher.  Oil was fractionally lower but remained above 50 & gold went up 2 to 1572.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

50.32

-0.63

-1.2%

GC=F

Gold

1,576.60

+6.60

+0.4%

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US hiring topped expectations in Jan, as the economy added 225K jobs, kicking off the decade on a stronger-than-expected note.  It marks the 112th month of straight gains.  Unemployment ticked up slightly to 3.6%, as more people were looking for work, the Labor Dept said.  The labor force participation rate edged up slightly to 63.4% & average hourly earnings, meanwhile, rose by 7¢ over the past year to $28.44.  Powered by an unseasonably warm winter, the first payroll number 2020 surged past the estimate of 160K.  The unemployment rate was expected to holding steady from Dec's 3.5%, a ½-century low.  Weather-sensitive industries led the way in job creation: Construction accounted for 44K positions, well above its 2019 average of 12K.  Leisure & hospitality also padded the number, adding 36K jobs.  Professional & business services increased by 21K, while transportation & warehousing grew by 28K.  As the US continues the longest economic expansion on record, investors are looking at the Dept of Labor's monthly payroll & unemployment data for signs that the rapid job growth over the past 2 years is softening & leading way to an overall growth slowdown.  The report contained a bad omen for manufacturing, which has been in a year-long rut: In Jan, the sector lost 12K jobs, most of which stemmed from motor vehicles & parts.  There was another negative side, as well:  Annual long-term revisions published by the Labor Dept showed that employers added 514K fewer jobs than first estimated as of Mar 2019, up slightly from the initial 500K that economists projected in Aug, the biggest revision in almost a decade.

US economy adds 225,000 jobs in January, surging past expectations

Pres Trump's chief economic adviser Larry Kudlow, on the heels of the stronger-than-expected Jan jobs report, touted the strength of the US economy.  "I think we're in very strong territory right now," Kudlow said, pointing to solid job creation, a seeming rebound in manufacturing after a 6-month slump, strong housing numbers & a 1K point boost in the stock market.  US hiring topped expectations in Jan, as the economy added 225K jobs while unemployment ticked up slightly to 3.6%.  It marked the 112th month of straight gains.  Over the past 3 years, take-home pay (after taxes) has gone up by $5K, Kudlow said.  "It's a blowout number," Kudlow added. "We've had a whole spate of good news for the month of January."  Despite the healthy economic indicators & the "blue-collar boom," Kudlow said he "wouldn't mind" seeing officials at the Federal Reserve "be a little bolder" during their Mar policy-setting meeting.  At their most recent meeting, policymakers at the central bank voted unanimously to hold interest rates steady, reaffirming its wait-&-see approach despite growing concerns about China's widening coronavirus outbreak.  In their statement accompanying the decision, policymakers at the central bank cited low unemployment, solid job growth & inflation below their preferred 2% level as the reason for pressing pause on rates.  The benchmark federal funds rate has been at 1.5-1.75% for the past few months.  Traders are currently pricing in a 10% chance of a rate cut at the next meeting.

Larry Kudlow touts US economy, cheers on 'spate of good news'

The Japanese Health Ministry confnirmed today 41 new cases of the new coronavirus on a quarantined cruise ship off the coast of Japan.  The Diamond Princess cruise ship, which is operated by Carnival's Princess Cruises, is carrying about 3700 passengers & crew at the port of Yokohama.  The company announced on Tues that it was quarantining the ship for 2 weeks after a previous guest, who didn't have any symptoms while aboard the ship, tested positive for the coronavirus on Sat — 6 days after leaving the Diamond Princess.  The new cases bring the total to 61 cases out of 273 people who were suspected to be exposed to the virus and tested for it.  The Ministry said all those who tested positive for the new coronavirus will be removed & transported to local hospitals.  As of today, more than 31K cases of the new coronavirus have been reported in more than 2 dozen countries, resulting in at least 636 deaths, almost exclusively in China.  Carnival's Princess Cruises confirmed the new cases in a blog post yesterday, adding that among the newly infected people, there is one from Argentina, 5 from Australia, 5 from Canada, 21 from Japan, one from the UK & 8 from the US.  The company said this is the last batch of tests & the quarantine will end Feb 19.  “Our team on board Diamond Princess, supported by our shoreside colleagues, is actively working to care for our guests to ensure their comfort and well-being,” Princess Cruises said.  “These are such unusual circumstances so our team has activated new in-room entertainment offerings...”  One of the passengers quarantined on the ship said that passengers are confined to their cabins for the quarantine.

New coronavirus cases surge as 3,700 remain quarantined on ship in Japan

The chart below shows the Dow has had a good run in Feb.  Now it's resting & that's in order.  The jobs data looks good while the coronavirus story drags on.  That needs to be watched because it can become a major problem for global business, &, in turn, the stock market.

Dow Jones Industrials

Markets edge higher on lower tariffs by China for US goods

Dow rose 88, decliners just ahead of advancers & NAZ rose 63 (new records for both).  The MLP index dropped 3+ to the 203s & the REIT index added 1+ to the 417s.  Junk bond funds hardly budged & Treasuries crawled higher in price.  Oil edged higher to the 51s & gold added 7 to 1570 (more on both below).

AMJ (Alerian MLP Index tracking fund)

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Dallas Federal Reserve Bank Pres Robert Kaplan said that he expects “solid” economic growth this year, as easing trade tensions have lessened downward pressure on global growth, manufacturing & business investment.  Kaplan worried last year that trade uncertainty would weigh on consumer spending more than it turned out to have done, he told a University of Texas at Austin's McCombs School of Business group.  But with the US inking an initial trade deal with China, “we think we are going to have a solid year of growth in 2020” of about 2.25%, he said, though he added his outlook would be firmer were it not for the “wildcard” of the new coronavirus in China & the situation at Boeing (BA), a Dow stock.

Fed's Kaplan says he expects solid U.S. growth this year

One by one, air carriers have cut service after demand fell sharply & govs took more drastic measures that they say aim to curb the spread of the disease, which has sickened more than 28K, most of them in China, & killed at least 565, according to health officials.  These steps have left China, the world's 2nd-largest air travel market after the US, more isolated.  Airlines in dozens of countries — from New Zealand to Finland to the United Arab Emirates — have scaled back service or in the case of US airlines canceled flights altogether to the Chinese mainland & Hong Kong as the coronavirus spreads, a factor that will drive down airlines' 2020 revenue & deprive other segments of the travel industry, including hotels & retailers, of high-spending tourists.  The outbreak has some travelers exercising more caution with their travel, even for destinations other than China.  The US instituted Travel restrictions that include requiring returning US citizens who have been in Hubei province — where Wuhan, the epicenter of the virus, is located — to face mandatory, 14-day quarantines.  The Trump administration has ordered self-quarantines for US citizens who have been in other parts of mainland China.  Additionally, foreigners who have been in China in the last 2 weeks, except for immediate family of US citizens & permanent residents & a few others, won't be allowed in at all.  US Customs & Border Protection says it processed an average of 372K at US airports each day in the last fiscal year, although Feb travel demand is much lower than in the summer.  Some 14K flew into the US from China each day that year — almost 5M that year.

China grows isolated as airlines cancel more than 46,000 flights amid coronavirus epidemic

Global oil demand will peak around 2040 – or “much sooner” – the IMF said in a new report on the future of oil.  The IMF said that this could have a “significant” impact on oil-exporting countries, predominantly those in the Middle East whose existing financial wealth could be depleted in the next 15 years if major reforms aren't undertaken.  “Growth of global oil demand will significantly decelerate, and its level could peak in the next two decades,” the IMF said in its report entitled, “The Future of oil and fiscal sustainability in the GCC Region.”  The IMF said analysis of past oil market developments revealed “a strong and sustained declining trend in the global oil demand, after accounting for income and population growth.”  This reflected a range of factors, the IMF added, such as long-term improvement in energy efficiency & substitution away from oil, trends that had so far been “veiled by the effects of economic and population expansion.”  “But it is poised to become more visible in the coming years, resulting in a path of gradually slowing—and eventually declining—global demand for oil.  The latter would peak by around 2040 in our benchmark projection or much sooner in scenarios of stronger regulatory push for environmental protection and faster improvements in energy efficiency.”  Growth of global demand for natural gas is also expected to slow, the Fund said, “although it is expected to remain positive in the coming decades.”  The IMF is not the first to make predictions about a decline in global oil demand.  In late 2019, Neil Atkinson, head of the oil industry & markets division at the International Energy Agency, said that population growth remained the key driving force for oil demand, which he said could peak in the 2030s.  “If we have a much more business-as-usual (approach) with much more limited (environmental) policy implementation then the profile of oil demand will be of continued growth. But if the world does implement policies more rigorously, as it’s showing signs of doing today, then the peak could come in the late 2020s, 2030s,” he said.  “We don’t know that but we do know though is that even when oil demand does peak at some point in the future, it isn’t going to drop off a cliff because substitute-ability for oil in so many sectors is still elusive – shipping, aviation, trucking, petrochemicals – there are still huge driving forces (for oil demand),” Atkinson added.  He said Saudi Arabia, the 2nd largest oil producer in the world after the US & ahead of Russia, was a cornerstone of that future oil supply.  “There’s going to be rising demand for at least the next decade for oil products, possible longer, and this is cementing their role as the cornerstone player in global markets, the most reliable and biggest supplier in markets,” he said.

Global oil demand to peak around 2040, IMF says

The number of Americans who applied for unemployment benefits at the end of Jan fell close to a postrecession low, signaling the US labor market is still rock solid despite stiffer economic headwinds.  Initial jobless claims declined 15K to 202K last week, the gov said.  The figures are seasonally adjusted.  The forecast called for a 215K reading.  The more stable monthly average of jobless claims, which filters out the weekly ups & downs, dropped 3K to 212K.  New unemployment applications are seen as a rough measure of how many people are losing their jobs.  They touched a 50-year low of 193K last Apr & have hovered in the low 200Ks since then.  The number of people already collecting unemployment benefits, meanwhile, increased by 48K to 1.75M.  The creation of more than 20M new jobs in the past decade has slashed unemployment to a 50-year low of 3.5%, giving the economy a strong foundation to prolong a record expansion that will turn 11 years old in Jun.  Although hiring has slowed, the US is still adding more than enough jobs to nudge the unemployment rate even lower.  The economy likely created 164K new jobs in the first month of 2020.  The Jan jobs report comes out tomorrow before the market opens.

New U.S. jobless claims fall 15,000 to 202,000 and return close to a 50-year low

Gold futures tallied, for a 2nd session, as some experts foresee a lower-for-longer, interest-rate regime buttressing the yellow metal, even as anxieties around a novel strain of coronavirus in China appeared to ebb.  Gold for Apr delivery added $7.20 (0.5%) to settle at $1570 an ounce, after rising 0.5% in the previous session.  The modest gains come as stocks in the US were on track for a 4th straight gain, after China announced it would halve tariffs on $75B of US imports, starting next week, following the signing of the phase one US-China trade deal in Jan.  The tariff reductions come as coronavirus has claimed 565 lives & infected more than 28K, according to China's National Health Commission.  Values for gold had edged back slightly today but then resumed an advance after a report on US initial jobless claims declined by 15K to 202K last week, better than.the forecast for 215K.  Separately, a report on American workers productivity showed the fastest annual pace of gains in 9 years & productivity snapped back with a 1.4% increase in Q4 after a small decline in the autumn.

Gold prices tally a 2nd day of gains

Oil futures ended on a mixed note, with US prices up but global prices down, as a committee of OPEC members & their allies advocated for cuts to global production to stabilize slumping crude values.  The proposal, however, encountered resistance from Russia, & it requires official approval from ministers of OPEC, according to several news reports.  The recommendation was made as oil prices have taken a hit from expectations of a slowdown in energy demand, fed by the spread of coronavirus in China.  The OPEC+ Joint Technical Committee (JTC) recommended a cut to production of its members & other allies of 600K barrels a day, according to several news agencies.  The JTC meeting in Vienna had been scheduled to end yesterday, but was extended to an unplanned 3rd day.  However, the committee isn't a decision-making body & the recommendation must be weighed by OPEC's oil ministers.  Moreover, one key ally & member of OPEC+, Russia, has expressed its reluctance for deeper reductions to global output.  Alexander Novak, Russia's energy minister, said “I’m not even ready to tell you what we are ready or not ready to do, not fully understanding the situation and clear forecasts for the development of events in connection with coronavirus,” according to the TASS news agency.

U.S., global oil benchmarks split ways as Russia resists deeper OPEC+ output cuts

Little was decided, but stocks managed to record their 4th straight day of advances.  Short term, the stock market is overbought.  That means profit taking could be around the corner.  The Jan jobs report tomorrow will drive stock market trading from today's record closings.  Of little notice, NAZ needs another 400+ to top 10K.  That will get a lot of attention when it happens & may come soon if the market rally continues.

Dow Jones Industrials

Mixed markets after China cuts tariffs on US goods

Dow went up 11, decliners barely ahead of advancers & NAZ gained 32. The MLP index fell back 1+ to the 205s & the REIT index went up 1+ to the 417s.  Junk bond funds fluctuated & Treasuries eased lower.  Oil was pennies, nearing 51, & gold added 5 to 1568.

AMJ (Alerian MLP Index tracking fund)

CL=F

Crude Oil

50.47

-0.28

- 0.6%

GC=F

Gold

1,568.70

+5.90

+0.4%

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Stocks opened in record territory following the Senate's acquittal of Pres Trump & China announcing plans to lower tariffs on US-made goods.  The S&P 500 & Dow were trading in record territory while the NAZ was just below its own peak.  Trump was acquitted on both articles of impeachment yestertday, in a vote that was mostly along party lines.  Early today, Beijing announced it will be reducing tariffs on $75B of US imports in response to the US taking similar action.  The tariffs reductions were part of the phase one trade deal that was announced last month.  Also, China's National Health Commission said more than 28K have been sickened & 563 killed by the coronavirus outbreak.  Gold was up 0.5% at $1570 an ounce & West Texas Intermediate crude oil little changed at $50.75 a barrel after Russia rejected OPEC members' attempts to cut supply in response to the coronavirus outbreak.  Treasuries edged up, pushing the yield on the 10-year note down 1 basis point to 1.639%.  In Europe, Britain's FTSE, Germany's DAX & France's CAC were all up 0.7%.  Markets surged across Asia with Hong Kong's Hang Seng up 2.6%, Japan's Nikkei higher by 2.4% & China's Shanghai Composite gaining 1.7% .

Stocks spike to record highs at open after Trump acquittal, China tariff cut

The US expects China to be able to meet its commitments under the "phase one" trade deal, despite a coronavirus that has killed hundreds & closed stores and factories in East Asia, Treasury Secretary Steve Mnuchin said.  "Based on our current projections of the virus, we're not worried about that," Mnuchin said.  "But let me again say we're monitoring the virus carefully. We'll have a much better idea over the next two weeks. ... But based on current information, I don't expect there will be any issues in them fulfilling their commitments."  Hours earlier, China announced it would cut in ½ tariffs that the country levied in 2019 against 1717 US goods as part of the "phase one" agreement.  Mnuchin said the move is a "big step in the right direction."  "This is part of China implementing 'phase one,' which is our big focus at this point," he added.  Pres Trump's chief economic adviser Larry Kudlow said exports in the "phase one" trade deal with China will be slowed downbecause of the coronavirus yesterday.  "It is true the 'phase one' trade deal, the export boom from that trade deal, will take longer because of the Chinese virus," Kudlow added.  "On the other hand, the North American trade deal, USMCA, is going to unlock tremendous investment ... Manufacturers will benefit."  Chinese Ambassador Huang Ping responded to the comments yesterday, saying he hopes the virus will not affect the trade deal.  Huang said he did not know if China would use a clause about unforeseeable events in the trade deal to help the country meet its commitments.

Mnuchin 'not worried' about coronavirus derailing China's trade commitments

China finished building a 2nd new hospital to isolate & treat patients of a virus that has killed more than 560 & continues to spread, disrupting travel & people's lives & fueling economic fears.  A first group of patients was expected to start testing a new antiviral drug, as China also moved people with milder symptoms into makeshift hospitals at sports centers, exhibition halls & other public spaces.  The health care system in the central city of Wuhan, where the outbreak was first detected in Dec, has been overwhelmed with the thousands of ill patients.  A new, 1500-bed hospital specially built for virus patients opened days after a 1K-bed hospital with prefabricated wards & isolation rooms began taking patients.  Other treatment centers had tight rows of simple cots lining cavernous rooms.  And Wuhan had another 132 quarantine sites with more than 12,500 beds, according to the official Xinhua News Agency.  Chinese health authorities reported 563 deaths & another sharp jump in the number of confirmed cases to 28,018.  Outside mainland China, at least 260 cases have been confirmed, including two deaths in Hong Kong & the Philippines.  Hospital workers in Hong Kong demanding a shutdown of the border with the mainland were on strike for a 4th day. Hong Kong's leader Carrie Lam announced a 14-day quarantine of all travelers entering Hong Kong from the mainland starting Sat, but the gov has refused to seal the border entirely.  A Hong Kong medical union warned that its 20K members could resign en masse if the city's Hospital Authority refuses to hold a dialogue with them over their demands.  It estimated 7K were on strike & said those who were working were worried about their safety.  The outbreak of the new type of coronavirus has also ensnared 2 cruise ships, with the passengers & crew now quarantined on the docked vessels in Hong Kong & Japan.  10 passengers confirmed to have the virus were escorted off the Diamond Princess at a port near Tokyo, after 10 others were taken off the previous day.  The group taken to hospitals today are mostly passengers in their 60s & 70s, 4 of them Japanese, 2 Americans, 2 Canadians, one New Zealander & one Taiwanese. Tests are still pending on others on board who had symptoms or had contact with infected people.  More than 3K passengers & crew on the Hong Kong ship, the World Dream, were being screened after 3 passengers on a previous voyage were diagnosed with the virus.  Hong Kong authorities also said they were trying to track down people who had been on the ship's recent trips.  Xinhua said clinical trials for the antiviral drug Remdesivir have been approved & the first group of patients are expected to start taking the drug on today.

China opens new hospitals in bid to contain devastating coronavirus, death toll climbs

Global stocks will likely continue to rally as people realize the coronavirus outbreak is not likely to cause long-term effects on the markets, China Beige Book chief economist Derek Scissors said.  “This isn’t a natural disaster that destroys capital stock,” he added.  “As long as people recover fully, it’s not going to affect productivity.”  China is facing a short-term GDP drag & companies with intl stakes will face some earnings hits, but long-term growth should stay stable, added Scissors, whose China Beige Book firm is an independent provider of Chinese economic data.  “The trajectory of China’s growth of demand for U.S. products in China, of Chinese supply in the global supply chain, that’s all the same it was,” said Scissors, also a resident scholar at the conservative-leaning American Enterprise Institute think-tank.  “So, if you want to trade really short term, then fine, you’ll have a short-term earnings hit. Looking a year out, those companies should be in the same kind of financial position as they were six months ago.”  The Shenzhen surged nearly 3% while the Shanghai index gained 1.7%.  On Mon, Chinese stocks plunged on the first trading day there since the extended Lunar New Year holiday.  Investors in China got their first chance to react to the widening the coronavirus outbreak.  Over the past few weeks, American companies with operations in China have issued warnings to investors as the fast-spreading virus hits demand.  Health officials around the world are also scrambling to stop the spread of the new virus, which was first discovered Dec 31 in the Chinese city of Wuhan.  China's National Health Commission yesterday raised its confirmed coronavirus cases in the country to 28K.  The death toll rose to 563, with one additional fatality in the Philippines & one in Hong Kong.  The World Health Organization said there's been more than 150 coronavirus cases in about 2 dozen countries outside of China & declared the virus a global health emergency.

China Beige Book: Global stock rally to continue, coronavirus short-term concern

Stocks are digesting recent gains.  The Dow is up 1K this week following a dreary Jan.  China's cutting tariffs is a good start on improving trade relations with the US.  However the spreading coronavirus is a major headache for investors going forward.  Meanwhile the popular averages are around record values, heartwarming for the bulls.

Dow Jones Industrials